Dubai Court Orders KPMG To Pay $231m To Investors Over Fund Audit Of Abraaj

The court of Dubai has issued an order to the KPMG Lower Gulf to refund the money of the investors. A group of investors who have invested in the firm claimed that they had lost their money because of the poor quality of the audit conducted by the firm. The court has ordered the company to repay an amount of more than $231 to the investors as a refund for the poor quality of service provided by the firm. 

KPMG broke international auditing standards

The popular business newspaper Financial Times reported that the Dubai court issued the order last month. It was issued on finding that the KPMG Lower Gulf has broken the international standards of auditing by giving approval to the financial statements of an infrastructure fund that was managed by a collapsed equity firm named Abraaj Group.

The order was issued on examining the report, papers, and documents submitted by the expert committee appointed by the court. The report submitted by the committee was highly confidential and it has found that the auditing firm has made many violations in the audit conducted on the financial reports of the investment fund. 

The Financial Services Authority of Dubai has fined KPMG last year an amount of $1.5 million. The fine was imposed for not following the international standards of auditing while conducting the audit of Abraaj Capital Limited (ACLD). It has also imposed a fine of $500,000 on another firm named Milind Navalkar on the same allegations. The firm has been conducting audits of the Abraaj Group’s ACLD for a long time since October 2017.

The KPMG Lower Gulf stated that the firm has gone for an appeal against the judgment in the Court of Cassation, the highest body in the judicial system of Dubai. The firm said that they believe that they have a solid justification for challenging this judgment. They will remain committed to their clients and will continue to serve the communities in the Lower Gulf. 

KMPG said that the findings of the Dubai Financial Services Authority show that the senior management of Abraaj has been trying to deceive or mislead the firm, the investors, and the regulator intentionally for a number of years. The senior management of Abraaj in its capacities and other Abraaj entities have received notice of fine from the Financial Services Authority of Dubai previously also. 

Abraaj Group is one the biggest private equity company in the Middle East. It was established in the year 2002 and has managed to achieve success with a record of $14 billion in assets. It has been regarded as one of the most active and emerging market investors in the world with networks over Asia, America, Africa, Latin, and the Middle East. 

In the year 2018, Abraaj Group was forced into liquidation upon the claim raised by the investors of the firm like the Bill and Melinda Gates Foundation. The investors requested an investigation to look into the claims of financial mismanagement done by the firm in its healthcare fund of $1 billion.    

As a result of the investigation, the focus on the company increased, and as a part of this, the Securities and Exchange Commission and other US authorities paid close attention to the claims of misuse of the funds obtained from the US investors.  

The Accountability Authority of Abu Dhabi blocked the KPMG company from getting new clients in the emirate last year. The Authority has taken off the name of KPMG Company from its list of accountancy firms that have the right to sign the financial statements companies. 

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Arif Naqvi, the founder of Abraaj was arrested in 2020 in the UK and was later out on bail. If he has been deported to the US and found guilty, he may have spent up to 30 years in prison. Arif Naqvi failed in a plea last month to encounter his deportation from London to the US to face fraud allegations. In the initial days when all these allegations were happening, he denied all those claims.  

In 2012, The Dubai Financial Services Authority issued its decision which pointed out that the Abraaj Group has been considered one of its valuable clients by the KPMG group. The firm has referred to Abraaj Group as “one of our crown jewel clients” while speaking with other member companies of KPMG and has classified it as a “global priority”.

The Financial Services Authority of Dubai claims that if the KPMG firm had conducted its audit of Abraaj Capital Limited (ACLD) to the expected standards, it would have found that the financial statements of the company had not been following the accounting standards for more than five years. Moreover, it would have found that the unit was not maintaining sufficient capital resources and that it had been hiding the exact condition of its funds from the audit firm.