Thursday, April 22, 2021

Jho Low masterminded the change of auditor from KPMG to Deloitte as 1MDB auditor


Low Taek Jho provided Datuk Seri Najib Razak a written script to follow when trying to convince audit firm KPMG to unconditionally conclude its audit of 1Malaysia Development Berhad’s (1MDB) 2013 financial statements despite its reservations over a purported US$2.3 billion (RM9.5 billion) overseas investment, the court heard today.

Former 1MDB chief executive Mohd Hazem Abd Rahman revealed this while testifying as the 10th prosecution witness in Najib’s power abuse and money laundering trial over more than RM2 billion of 1MDB funds.

Mohd Hazem also revealed that Najib had met with KPMG in December 2013 in his private residence in Kuala Lumpur, as the audit firm insisted on obtaining more proof that 1MDB actually had US$2.3 billion of “assets” in overseas investments before it could conclude its audit of 1MDB’s finances for the financial year ending March 2013.

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Mohd Hazem said the “pressure” that he faced as 1MDB CEO eventually led to 1MDB changing its auditors from KPMG to Deloitte, just around two weeks after Najib’s meeting with KPMG.

Jho Low’s script for Najib at KPMG meeting

Before the December 15, 2013 meeting with KPMG at Najib’s house at Jalan Langgak Duta, Kuala Lumpur, Jho Low had sent an email on the same day that was made available to Najib and 1MDB officials including Mohd Hazem to outline how they should act during the meeting.

In the strategy outlined by Low for the meeting with KPMG auditors, he appeared to coach or direct then prime minister Najib on what to speak to the audit firm.

Mohd Hazem today read out in court Low’s “strategy”, including the instruction for Najib to express his confidence in the credentials of Singapore-based BSI Bank which was acting as the “fund manager” of 1MDB’s purported US$2.3 billion investments.

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“As YAB PM has been briefed by chairman of 1MDB and management of 1MDB on several occasions, YAB PM is recommended not to engage in a lengthy discussion with KPMG over the issues, although YAB PM may offer them a brief opportunity to air their views.

“YAB PM to state clearly that he has been briefed and heard both sides, and is aware of the transactions and comfortable with them given all the facts. As a final position: YAB PM may suggest that KPMG may make disclosure notes (but not qualifying accounts) as to basis of valuation is based on confirmation from the regulated financial institutions,” the strategy by Low read.

According to Mohd Hazem who was present at the meeting with KPMG, Najib had discussed the matters outlined by Low with KPMG’s representative and now managing partner Datuk Johan Idris.

Najib — who was also the shareholder of the Finance Ministry-owned 1MDB due to his position as finance minister then — had assured KPMG representatives in the meeting that he knew of the US$2.3 billion investment by 1MDB’s special purpose vehicle Brazen Sky Limited, Mohd Hazem said.

Mohd Hazem said Najib had in the meeting questioned why KPMG was still raising its doubts and suspicions over whether the investment asset was still secure when BSI Bank had shown the bank statement for the investment, and when 1MDB was allegedly dealing with reputable parties.

“Datuk Seri Najib also said to Datuk Johan that he wished to see KPMG close 1MDB financial statements before December 31, 2013, where Datuk Johan did not give any reply to what was said by Datuk Seri Najib,” he added.

Pressure after the KPMG meeting

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Mohd Hazem said KPMG subsequently did not conclude its audit on 1MDB’s 2013 financial statements even after knowing that Najib was personally aware of the US$2.3 billion investment, as it was still dissatisfied with the documents and answers provided by 1MDB.

“Due to pressure by Datuk Seri Najib to close 1MDB’s financial statements and for the company’s reputation, the management proposed to the board of directors and shareholder to replace KPMG with Deloitte.

“This decision was made because I received pressure from various parties including Datuk Seri Najib who contacted me several times through handphone to ensure 1MDB’s 2013 financial audit report is closed. I had no other proposals except to propose to the board of directors to replace KPMG with Deloitte,” Mohd Hazem said, adding that this was the first time that Najib had contacted him directly via phone and said he was pressed with the “urgency” of closing 1MDB’s financial statements for the financial year ending March 2013.

Just shortly after the December 15 meeting with KPMG, the 1MDB board of directors on December 31, 2013 approved in a written resolution the termination of KPMG as 1MDB’s auditors with its role to be replaced by Deloitte KassimChan, as KPMG had not closed its audit of 1MDB’s 2013 finances, Mohd Hazem said.

Mohd Hazem also verified having received as 1MDB CEO a December 31, 2013 letter from Najib as finance minister, where Najib approved on behalf of 1MDB shareholder MOF Inc the termination of KPMG as 1MDB auditors and with Deloitte KassimChan to replace its role.

While Deloitte had closed 1MDB’s financial statements in 2013 and 2014 after carrying out its audits, Mohd Hazem noted however that Deloitte had in 2014 pressured 1MDB management to prove or provide detailed explanations about the purported US$2.3 billion investment by 1MDB’s Brazen Sky Limited.

“I was very pressured as the detailed investment in Brazen Sky could not be explained. Deloitte gave an ultimatum that it would not close 1MDB financial statements if 1MDB is unable to provide the detailed information,” he said, adding that this meant that Deloitte had decided 1MDB had to redeem the investment and bring it back in cash to Malaysia.

With the purported US$2.3 billion “investment” by Brazen Sky entered into before he became 1MDB CEO in March 2013 and with only Low and his alleged proxies Jasmine Loo and Terence Geh dealing directly on such matters, Mohd Hazem said he had then raised the issue with Low and that the latter personally arranged for the investment to be redeemed.

But with 1MDB only managing at the end of 2014 to redeem US$1.3 billion to be brought back to Malaysia instead of the full sum of US$2.3 billion, Mohd Hazem said he had together with 1MDB chief financial officer Azmi Tahir went to Singapore to meet with Deloitte Asia Pacific to plead for the closing of the financial statements despite the partial redemption.

Mohd Hazem said the Deloitte Asia Pacific representative had then decided to send for the audit firm’s management to meet with and secure a commitment from the 1MDB board of directors that it would ensure that the full investment sum would be redeemed into cash immediately after the audit is closed.

How events leading to KPMG’s removal started

In a convoluted chain of transactions on paper, 1MDB had in 2009 invested a US$1 billion sum abroad in a joint venture company, before converting it into a loan and giving out more loans, and further converting it back into a 49 per cent stake in PetroSaudi Oil Services Ltd (PSOSL), before selling the share to Bridge Partners International Investments Limited for US$2.318 billion.

But instead of getting cash, 1MDB’s Brazen Sky Limited received US$2.318 billion in the form of six promissory notes, with the promissory notes allegedly “invested” in purported Cayman Island-based hedge fund Bridge Global Absolute Return Fund SPC with the Singapore branch of Swiss bank BSI Bank acting as the “fund manager” of the purported investment.

Having studied the related documents available after becoming CEO, Mohd Hazem personally expressed doubt that the purported US$2.318 billion investment could be redeemed as the hedge fund Bridge Global Absolute Return Fund SPC was not a big company with strong finances, also observing that the investment was intended to portray that the initial cash of more than US$1 billion that 1MDB had invested abroad had not went missing as suspected by the public and still existed in an alleged cash investment form under Brazen Sky Limited.

Previously, Datuk Shahrol Azral Ibrahim Halmi — who was the first 1MDB CEO and had held the post until March 2013 — had as the ninth prosecution witness in Najib’s trial testified that he now knows in hindsight that the US$2.318 billion promissory notes were actually worthless pieces of paper.

Mohd Hazem, who was CEO from March 2013 to early 2015, explained today that KPMG had requested for 1MDB to provide supporting documents to explain in detail the US$2.3 billion investments allegedly held by 1MDB’s Brazen Sky Limited.

Mohd Hazem noted that KPMG was not satisfied with BSI Bank’s declaration via bank statements on Brazen Sky Limited’s purported investment, as the auditors wanted to see detailed proof that the company had actually made such investments due to the large sum of US$2.3 billion before it could sign off on the 2013 audit report and as this was a hot topic in the public.

Mohd Hazem said that even the 1MDB management were not given access by Low — whom he had previously described as Najib’s trusted right hand man, adviser and proxy for 1MDB affairs — to details on the alleged 1MDB investment, also sharing his own suspicions.

“I don’t know why Jho Low kept the SPC investment documents secret, but at that time I suspected that it was because this investment is not in the form of cash, but in the form of dubious promissory notes. I don’t know if the SPC funds had been liquidated to get cash, or if Jho Low had insiders in BSI to manage the investment.

“This is because Jho Low had previously said that funds overseas are to pay for Umno funds according to Datuk Seri Najib’s wishes,” Mohd Hazem said today, adding however he did not know how 1MDB’s funds abroad were given to Umno as Low had not told him of such details.

Najib was seen shaking his head in court today in seeming disagreement when Mohd Hazem spoke of 1MDB funds allegedly being intended for Umno’s benefit. Najib was Umno president from 2009 until May 2018.

We want to see Najib

Mohd Hazem said KPMG had in 2013 repeatedly pressed 1MDB to give detailed documents on the purported US$2.3 billion investment, but noted that Low had disallowed 1MDB management from helping the auditors and had not given any documents to 1MDB to assist in the audit except the BSI Bank-issued investment statements.

“This disappointed KPMG to the extent they requested for a meeting with the shareholder which is the Malaysian government which is represented by Datuk Seri Najib to be held,” he said when noting of the auditors’ intention to ensure that Najib as the representative of the government-owned 1MDB’s shareholder was fully aware of all 1MDB affairs.

The BSI meeting and Low’s email

Mohd Hazem then spoke of a series of other events before Najib’s December 2013 meeting with KPMG, including a November 11, 2013 1MDB board meeting where the company’s directors touched on KPMG’s request for the documents.

Mohd Hazem also spoke of a November 28, 2013 meeting with Low and 1MDB officials including himself at Najib’s private house at Jalan Langgak Duta, Kuala Lumpur.

Mohd Hazem said Najib had at the meeting agreed with the contents of Low’s email to explain the US$2.3 billion investment to KPMG, such as BSI Bank’s credentials, as well as BSI Bank’s official letter to KPMG where the bank had assured that the investment is legitimate and had purportedly resulted in a US$134 million dividend but with the bank declining to disclose the types of investments as 1MDB’s Brazen Sky was not the investments’ sole shareholder.

Low’s email had also claimed that it was untrue that 1MDB was taking on new debts to pay off the interests on its old debts, and had also asserted that 1MDB’s assets would exceed its debts by up to RM6 billion if sold.

Mohd Hazem said BSI Bank Singapore’s managing director Yak Yew Chee later joined the same meeting at Najib’s house where he explained that the bank’s documents to KPMG was sufficient to prove the funds held for Brazen Sky Limited.

Asked by Najib when the US$2.3 billion investments could be redeemed and converted into cash to be brought back to Malaysia, Yak had said that the funds were in an investment of six to nine months and may only be redeemable after that, Mohd Hazem said. He added that both Najib and 1MDB director Tan Sri Lodin Wok Kamaruddin had urged Yak to have the funds quickly redeemed and brought back to Malaysia.

With Najib agreeing with Low’s explanation to be presented to KPMG, Low had also notified the then prime minister during this November meeting that there would be an informal meeting soon with KPMG to resolve the audit issue, Mohd Hazem said.

“All the reasons provided by Jho Low appear reasonable. But Jho Low actually indirectly instructed us to lie to KPMG as I believe that much of the funds abroad may have been used for Umno’s interests as told to me since the first time I met with Jho Low before joining 1MDB officially. If not, there would certainly be no problem for those overseas investments to be presented in detail to KPMG,” Mohd Hazem said today, further stating that 1MDB’s liabilities may outstrip its assets if its overseas funds had actually been used for Umno’s interests.

In a November 29, 2013 meeting which Mohd Hazem also attended, he said KPMG had told the 1MDB board that it could not just rely on a report from a third party namely BSI Bank, but required proof directly from 1MDB about the US$2.3 billion investment.

Also in the November 29, 2013 meeting, Mohd Hazem said he and 1MDB CFO Azmi had then informed KPMG that BSI Bank Singapore’s Yak had briefed and assured Najib that the US$2.3 billion investment is secure.

Mohd Hazem said he had also said in the November meeting that KPMG would meet with Najib soon at his house on the audit firm’s own request as it wished to hear Najib’s explanation regarding 1MDB’s overseas investment especially the US$2.3 billion investment.

The trial before High Court judge Collin Lawrence Sequerah resumes this Thursday, with Mohd Hazem expected to continue testifying.


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