PUTRAJAYA, March 3 — Then finance minister Datuk Seri Najib Razak was the one who had proposed that 1Malaysia Development Berhad (1MDB) terminate KPMG as the auditor of the Finance Ministry-owned company in 2013, the High Court heard today.
Tan Sri Che Lodin Wok Kamaruddin, who was the 1MDB chairman at that time, said this while testifying as the 12th defence witness for Najib in the latter’s 1MDB trial.
After the prosecution showed three documents and asked if the proposal to terminate KPMG’s services came from Najib himself for 1MDB’s shareholder, Lodin replied: “This is as required by the M&A — shareholder.”
Lodin was referring to 1MDB’s company constitution (otherwise known as the memorandum and articles of association), and to 1MDB whose sole shareholder is the Finance Ministry’s Minister of Finance (MoF) Incorporated.
Deputy public prosecutor Kamal Baharin Omar then asked: “But it came from Datuk Seri Najib Razak?”
Lodin replied: “Yes.”
The three December 31, 2013 documents that were shown to Lodin include a “special notice”, which had a letterhead stating “Minister of Finance Malaysia” and the official government insignia and was addressed to 1MDB’s board of directors.
In this letter signed by Najib on behalf of MoF Inc, the sole shareholder of 1MDB gave notice of its “intention to propose” to the 1MDB board to consider passing proposed resolutions to remove KPMG as 1MDB’s auditor with immediate effect and to appoint Deloitte KassimChan as the new auditor.
Another December 31, 2013 document was a letter from 1MDB’s then CEO Mohd Hazem Abd Rahman to KPMG, with 1MDB enclosing the “special notice” from MoF Inc of the proposed resolutions.
Finally, there was also a directors’ circular resolution (DCR) on the same day, where 1MDB directors stated that the company had received the special notice of the shareholder’s intention to propose removing KPMG and to replace it with Deloitte KassimChan.
That same DCR saw the 1MDB directors approving the resolutions to remove KPMG immediately and replace it with Deloitte KassimChan.
Later, Lodin confirmed that KPMG’s termination came from Najib based on 1MDB shareholder MoF Inc’s “special notice”.
Kamal Baharin then asked if 1MDB had to approve the DCR to terminate KPMG based on that recommendation by Najib.
Lodin then said : “I think the 1MDB management had the duty to get the account audited by certain deadline, so they couldn’t come to a compromise between the two regarding the issue raised by KPMG, then the risk committee and the board would have no choice, and the shareholder would have no choice but to look at appointing auditor.”
When Kamal Baharin asked if the proposal came from Najib, Lodin then said: “Maybe, but we were told the shareholder wants to change the auditor”.
Previously, KPMG managing director Datuk Johan Idris had testified as the 14th prosecution witness in the 1MDB trial, and had said that Najib had in a December 15, 2013 meeting at the prime minister’s private residence exerted pressure and intimidated KPMG to conclude and sign the audited financial statements by December 31, 2013.
At that time, KPMG had not signed the audit for 1MDB’s financial year ending March 31, 2013, as it had still yet to receive information on a purported US$2.3 billion overseas investment — which it had asked for since April 2013 — from 1MDB.
The US$2.3 billion purported investment is now known to be a sham investment, and the promissory notes or notes which promised US$2.3 billion payments to 1MDB are now known to be “worthless” pieces of paper.
Previously, Najib had as his own defence witness testified in the 1MDB trial that he did not give a “timeframe” of just 16 days for KPMG to sign the 2013 audit and denied his remark of hoping to see it signed by December 31 was an “instruction”, and also denied intimidating Johan.
Lodin had previously claimed Najib had made a “polite request” to KPMG, instead of intimidating the then 1MDB auditor.
Lodin today said KPMG was removed following delays on the 1MDB’s 2013 audit, as there was disagreement with the auditor on the valuation of the purported assets behind 1MDB’s purported US$2.3 billion investment.
Lodin said he was not an accountant or auditor and was not too familiar with what KPMG had wanted, and said 1MDB had received a detailed report from PetroSaudi International on the purported investments and said he had wondered what else KPMG required to be satisfied and sign the audit.
Lodin said he had dealt with most of the major accounting firms due to his involvement in multiple companies, and claimed to have been a little bit “puzzled” with the information KPMG had requested to complete its audit.
Lodin today claimed that KPMG’s replacement Deloitte KassimChan had been happy to sign off on the 2013 audit, and suggested that the information requested by KPMG was not a standard requirement required by other auditors.
Ultimately, KPMG did not sign off on 1MDB’s 2013 audit as the requested information was not provided, and 1MDB terminated its services.
Najib’s 1MDB trial before trial judge Datuk Collin Lawrence Sequerah resumes tomorrow morning, with the prosecution expected to further cross-examine Lodin.
