Deloitte strikes $80m Malaysian settlement over 1MDB

Deloitte has struck an $80m settlement with Malaysia over its role as an auditor to 1Malaysia Development Berhad, the state investment fund at the centre of a multibillion-dollar embezzlement scandal.

The Malaysian government said on Wednesday that the settlement will resolve all claims linked to Deloitte’s fiduciary duty when auditing accounts for 1MDB and its former subsidiary SRC International between 2011 and 2014.

The agreement comes as the government tries to recover the losses suffered in the scandal linked to the fund, which was set up to accelerate the country’s economic development but which US and Malaysian authorities allege was plundered.

Malaysia’s finance ministry said the Deloitte settlement was the largest linked to 1MDB by an audit firm in south-east Asia, adding it would “expedite the payment of monies to fulfil 1MDB and SRC’s outstanding obligations, which would otherwise be delayed by potentially protracted and costly court battles”.

Deloitte was 1MDB’s third auditor before resigning in 2016. It followed EY, whose contract was terminated before the fund submitted its first financial statement, and KPMG which in turn was dumped on New Year’s eve 2013.

Malaysian regulators in 2019 fined Deloitte RM2.2m ($535,000 at the time) for allegedly failing to report irregularities as the auditor of companies linked to 1MDB.

Deloitte did not immediately respond to a request for comment.

The settlement comes after Malaysian lender AmBank last week reached a RM2.83bn settlement with the government. The bank was dragged into the scandal after Najib Razak, Malaysia’s former prime minister and founder of 1MDB, was accused of receiving illicit transfers from SRC International into his personal accounts at the bank.

Najib has been sentenced to 12 years in jail after a trial linked to these transfers and faces three more trials involving 1MDB and other government entities. Last July, Goldman Sachs struck a $3.9bn settlement with Malaysia over its role in arranging three bond sales for 1MDB in 2012 and 2013. 

The Deloitte settlement comes as the Big Four accountants — which also include PwC, KPMG and EY — have faced regulatory scrutiny after a string of corporate collapses and accounting scandals led to questions about the quality of their audits. Britain’s accounting watchdog in November fined Deloitte over failures in its audit work for Johnston Press, months after the firm was ordered to pay a record £15m for committing serious misconduct in its audits of FTSE 100 technology group Autonomy.