PUTRAJAYA (March 3): The removal of KPMG as 1Malaysia Development Bhd’s (1MDB) auditor was done on the orders of then prime minister and finance minister Datuk Seri Najib Razak in 2013, the High Court heard on Monday.

The order to change auditors arrived from Najib to 1MDB's board, said the firm's former chairman Tan Sri Che Lodin Wok Kamaruddin when replying to deputy public prosecutor Kamal Baharin Omar in Najib's 1MDB-Tanore trial.

Lodin said KPMG's replacement, Delloite KassimChan, was happy to sign off 1MDB's accounts for the financial year ended March 31, 2013 (FY2013), adding that KPMG had “higher standards” which was not practised by other firms in Malaysia.

“Deloitte was happy to sign off. Maybe KPMG is unique in their requirements, but this is not the standard in auditor (firms in general),” he said.

The defence witness was shown three documents from the prosecution that indicated that it was Najib, acting as the sole shareholder of 1MDB in his capacity as finance minister, who had signed off on the proposal to change auditors from KPMG to Delloite.

The three documents were all dated Dec 31, 2013. One of them was a “special notice” letter with the finance ministry's letterhead which bore Najib’s signature for the proposal to change auditors.

“The signature (of the shareholder) is required as per the M&A (memorandum and articles of association),” Lodin said during cross-examination by the prosecution.

The M&A outlines Najib’s role in the company as its sole shareholder.

Following Najib’s demand to sign off on the audit, which Lodin claims was a “polite request”, the audit firm received a letter from 1MDB informing that its services as 1MDB's external auditor were to be terminated immediately.

No reason was forthcoming, with KPMG informed that Deloitte would be replacing it. KPMG was the second firm of auditors sacked by 1MDB upon pressure from Najib, after declining to sign off on 1MDB's accounts for FY2013.  KPMG had taken over the audit job from Ernst & Young, which was removed in 2010.

In its reply via a letter dated Jan 6, 2014, KPMG enumerated the reasons why the financial accounts could not be signed off. It stated that it could not ascertain the value of the investments as "reliable and appropriate", despite numerous requests for information regarding Brazen Sky's investments in the Cayman Islands. The information given by BSI Bank was also inadequate as it failed to provide information on the underlying assets of the US$2.3 billion investments.

Previously, KPMG’s former managing partner Datuk Johan Idris had testified in this trial as a prosecution witness that Najib had intimidated and pressured him to try to get him to sign off on the accounts.

Najib himself had denied intimidating Johan when he took the stand in this trial in January.

“I cannot instruct auditors that is wrong… even if I did instruct, they cannot follow my instruction,” Najib said. “They are independent auditors [and] KPMG is a reputable audit firm.”

Najib insisted that it was the 1MDB management that wanted KPMG to be changed. 

On Monday, Lodin said he had never known of any other case where the auditor sought more documents.

He said the 1MDB board was puzzled at KPMG’s request for more documents, adding that he felt it was unfair.

“This was puzzling, I was in many companies, maybe KPMG has a higher standard or requirement than other auditors,” he said.

Najib faces four abuse of power and 21 money-laundering charges inthe 1MDB-Tanore case.

Hearing before judge Datuk Collin Lawrence Sequerah continues.

Read also:
Lodin: Najib didn't intimidate KPMG, merely made 'polite request'
Najib intimidated KPMG into signing off 1MDB 2013 financial report, says witness
1MDB-Tanore: Najib says didn't intimidate KPMG auditor