Dubai’s financial regulator has provisionally fined KPMG and one of its former partners $2mn over the firm’s audit of Abraaj, the emerging markets private equity group that collapsed in 2018.
The Dubai Financial Services Authority announced a $1.5mn penalty for KPMG and $500,000 for former auditor Milind Navalkar for failing to comply with international standards in its audit of Dubai-based Abraaj for several years up to October 2017.
The regulator said a “reasonable level” audit would have found that Abraaj had not followed accounting rules, had failed to maintain adequate capital resources and was hiding the true state of its finances from KPMG.
The DFSA said Navalkar, who signed the Abraaj audit report, was “knowingly concerned” about KPMG’s work and “failed to act with professional competence”.
KPMG and Navalkar have challenged the findings, which will now be reviewed by the court that oversees regulatory enforcement at the Dubai International Financial Center, the region’s main financial hub.
The DFSA made its decision in June last year, but KPMG and Navalkar tried to block its publication. The court rejected the attempt.
KPMG is also facing separate claims for $600mn from the liquidators of two Abraaj entities, who are seeking money from creditors, including unpaid former workers. A judicial committee in the emirate is currently deciding whether the claim should be heard in the DIFC courts or Dubai’s offshore court, the lawyers said.
The DFSA’s latest decision is another blow to KPMG’s business in the UAE, which has been rocked by internal rebellion over governance under chief executive Nader Haffar.
KPMG’s audit work at Abraaj is related to the tenure of Haffar’s predecessor, Vijay Malhotra, who retired in 2019 after three decades at the company. He declined to comment.
The collapse of Abraaj in 2018, once one of the biggest emerging market investors with $14bn under management, was fueled by investor concerns over the misuse of money at its $1bn health fund.
The DFSA last year fined Abraaj’s former chief financial officer, Ashish Dave, for defrauding investors in Abraaj funds.
Dave, who worked for KPMG between two stints at the private equity firm, is one of the executives facing criminal charges for fraud and conspiracy in the United States, along with founder Arif Naqvi. Naqvi denies any wrongdoing. Dave could not be reached for comment.
In 2019, the regulator fined two Abraaj entities about $315mn for defrauding investors and misusing their money, the biggest penalty since the DIFC was established in 2004. The DFSA has also fined Naqvi and other former senior officials $135.6mn. Naqvi is challenging the fine in the court.