Gupta wedding money laundering saga: KPMG responds to audit watchdog probe

Media statement from KPMG:

KPMG in South Africa resigned as auditors and advisors in April 2016 to the Oakbay Group entities. Our last sign-off as auditors was in respect of the February 2015 year-end.

At no stage were we the auditors of any of the offshore entities mentioned in the media, including Accurate Investments or entities related to the Free State Dairy project, including Estina. We therefore cannot comment on the Free State Dairy project, these entities, or the flow of related funds.

We strongly refute allegations that KPMG was involved in, or condoned, any alleged money laundering activities.

Cartoon courtesy of Finweek.

Below are some of the other main issues covered in the media:

Wedding attendance

The wedding took place in 2013 and attendance by some of our Partners was approved at that time by our Risk Management team and Executive Committee. The accommodation and travel costs were borne by KPMG. We are satisfied that our independence was not impaired at any stage.

Linkway Trading

Linkway Trading was a project management company in the Oakbay Group that, inter alia, project-managed the wedding of the niece of the Oakbay Gupta directors. Costs incurred by Linkway Trading, in respect of the wedding, were reimbursed by Accurate Investments. In project management entities such as Linkway Trading, it is standard procedure to receive and disburse funds against a specific event. The profit or loss incurred on such a project would form part of a company’s taxable income. We conducted our audit of Linkway Trading in accordance with International Standards on Auditing. At no stage, based on the facts at our disposal, did we consider that any transaction required to be reported under South African or foreign legislation. We stand by our audit opinion issued.

Related party

At the time of the audit, based on facts known to us and representations made by management, Accurate Investments was an entity related to the father of the bride, an offshore resident, who was not related to the Oakbay Group of companies. Accurate Investments was not identified as a related party to Linkway Trading in terms of International Financial Reporting Standards.

IRBA investigation

We were notified on Friday evening, 30 June 2017, that the IRBA will investigate us under section 48 (1) (a) of the Auditing Profession Act. It is unusual for us to comment on such matters in the media – but since the IRBA chose to publish this fact – we deem it appropriate to publicise our initial views.

At this stage it is unclear to us what the basis of the investigation is as the notification referred in general terms to the media releases. The investigation appears to have been launched by the IRBA based only on the reports in the media. This is pertinent since we have no knowledge of the matters which allegedly, per these media reports, appear to have their roots in the Free State Dairy project.

We will cooperate fully with the IRBA in their investigation and give a detailed account of our actions, which we restate, were in accordance with professional and ethical standards.

Consistent with our values, we have acted with integrity in our dealings with the Oakbay Group.

Trevor Hoole
Chief Executive
KPMG Southern Africa

Audit watchdog probes KPMG’s role in Gupta wedding saga

By Fin24

Cape Town – The audit regulator announced on Saturday that it was launching an investigation into global consultancy KPMG’s audits of a company allegedly at the centre of the Gupta wedding scandal.

The latest explosive #GuptaLeaks expose shows how the Free State provincial government largely picked up the tab for the “event of the millennium”, as it was described by KPMG Africa then-chief executive Moses Kgosana. He was a guest at the lavish affair.

The amaBunghane and Scorpio investigation lays bare an intricate web of money transfers and laundering in 2013 through the Free State government, dairy firm Estina and a host of Gupta-linked companies, including Oakbay Investments, the Indian family’s South African holding company, and Linkway Trading, a Gupta-owned company in South Africa.

Gupta brothers

KPMG were the auditors of Linkway Trading, the company which played a crucial role in allowing the diversion of cash earmarked for the Free State’s Vrede dairy project to reimburse most of the wedding expenses – R30 million to be exact, the money trail showed.

Audit watchdog IRBA, the Independent Regulatory Board for Auditors, confirmed in a statement on Saturday that it would initiate a mero motu investigation into the 2014 audit of Linkway Trading.

IRBA CEO Bernard Agulhas said while the regulator had not received a formal complaint, it had nevertheless initiated its own probe into the audit of Linkway Trading by KPMG for its audit in 2014.

This is despite the fact that KPMG terminated its 15-year relationship with the affected companies in 2015.

IRBA has the power to initiate such investigations without having to receive a formal complaint.

“It is important that we take seriously allegations in the public domain, which are in the public interest,” said Agulhas.

Notices have been issued to the auditors and the audit firm has also been informed, he said.

Bloomberg reported KPMG’s clean audit of Gupta family companies is at odds with its description of itself on its website as a market leader in money laundering prevention.

Kgosana, KPMG South Africa’s then chief executive officer, told Bloomberg by phone on Friday that the auditor hadn’t known about the payments. It would have been obliged to raise them with IRBA had it known, he said.

Agulhas said IRBA has since December 2015 been rolling out measures to increase transparency, improve independence and enhance audit quality. Among these were the mandatory disclosure of audit tenure in the independent auditor’s report to enable shareholders to consider the length of relationship between auditor and company in light of the need for independence, as well as the new requirements to disclose key audit matters and how these were resolved.

“The most recent measure to strengthen independence is the requirement for mandatory audit firm rotation every ten years, which is effective in April 2023,” he said.

KPMG Watched as Guptas Moved S. Africa Funds for Wedding

By Franz Wild
(Bloomberg) — KPMG South Africa failed to raise alarms when businesses controlled by the Gupta family — friends of President Jacob Zuma — diverted the equivalent of $3.3 million of public money to pay for a family wedding and their auditing firm, documents show. The country’s regulator for auditors said it will open an investigation.

KPMG was also aware that the family’s companies were categorising the wedding costs as business expenses, meaning they wouldn’t have to pay tax on them, according to emailed communication. The papers are part of a trove of documents known as the Gupta Leaks, and the amaBhungane Centre for Investigative Journalism posted them on its website Friday with an account of the events. Bloomberg couldn’t independently verify the information.

The unfolding scandal of how the Gupta family used its closeness with Zuma to win billions of rand worth of contracts from state-owned companies and influence government appointments and decisions has led to challenges to the president’s leadership — including failed no-confidence votes — and has weakened the currency.

KPMG.

Global consultancy KPMG’s clean audit of Gupta family companies is at odds with its description of itself on its website as a market leader in money-laundering prevention.  Moses Kgosana, KPMG South Africa’s then chief executive officer, said by phone Friday that the auditor hadn’t known about the payments. It would have been obliged to raise them with the Independent Regulatory Board for Auditors, had it known, he said.

Relationship Ended

KPMG ended its 15-year relationship with the Gupta family two years ago, after the state’s graft ombudsman initiated an investigation into their dealings. KPMG told amaBhungane it was “satisfied that at no stage was independence impaired.” Because of confidentiality constraints, “we cannot respond to your questions and request that you direct the same to our former client,” KPMG said.

KPMG spokesman Nqubeko Sibiya said he may respond to emailed questions but had no immediate comment. Zuma’s spokesman, Bongani Ngqulunga, didn’t respond to calls to his mobile phone. Gupta family spokesman Gary Naidoo didn’t respond to a phone message.

The money for the country’s most high-profile wedding of recent years went from the rural Free State province’s government, via an agricultural project, to bank accounts in the United Arab Emirates and back to Gupta business accounts in South Africa, amaBhungane said.

Read more: Revealed! How Gupta brothers taught Independent group’s Iqbal Survé a state capture trick or two #GuptaLeaks

The wedding was held in the luxury Sun City resort about two hours west of Johannesburg over four days in April and May 2013. On July 31, the family-controlled Linkway Trading sent an invoice for R30 million, or $3.3 million to another Gupta-controlled company in the U.A.E. called Accurate Investments. It itemised everything from chocolate truffles to fireworks, according to a copy of the invoice.

Account Transfers

Over the next six weeks, a series of transfers from one Gupta-controlled company to another took place. The Guptas’ Estina farming project in the Free State, which had obtained the funds from the provincial government, transferred $5 million to U.A.E. bank accounts held by two separate Gupta-controlled companies. Both of them transferred about $3.4 million to Accurate, which in turn paid Linkway. The record of transactions is based on a spreadsheet of payments posted by amaBhungane.

Guptas doing business in South Africa. More Zapiro magic at www.zapiro.com.

Calls to the Free State agricultural department’s media office didn’t connect.

A KPMG audit of Linkway posted by amaBhungane and emails between KPMG and Linkway executives show that the auditors were aware of the payments and didn’t raise any concerns.

The leaked emails also show that Kgosana — who left in 2015 — was one of the wedding guests.

“All this money laundering that has surfaced did not go through the books that KPMG audited,” said Kgosana, who takes over as chairman of financial-services firm Alexander Forbes Group Holdings Ltd. on Aug. 31. “There was no way that KPMG could’ve seen the transactions. Hindsight is a wonderful thing.”

South Africa’s Independent Regulatory Board for Auditors said that news reports about the transactions prompted it to open a probe into KPMG’s audit of Linkway. It added that it had informed both the auditors and the firm of its plan.