Dubai’s financial regulator has provisionally fined KPMG and one of its former partners $2mn over the firm’s auditing of Abraaj, the emerging markets private equity group that collapsed in 2018.
The Dubai Financial Services Authority announced the $1.5mn penalty for KPMG and $500,000 for former audit principal, Milind Navalkar, for failing to follow international standards in its audits of Abraaj’s Dubai-based holding company for a number of years up to October 2017.
The regulator said an audit of the “expected standard” would have identified that Abraaj had not conformed with accounting rules, had failed to maintain adequate capital resources and was concealing the true state of its finances from KPMG.
The DFSA said Navalkar, who signed off on Abraaj’s audit report, was “knowingly concerned” about KPMG’s work and “failed to act with professional competence”.
KPMG and Navalkar have disputed the findings, which will now be reviewed by a tribunal that oversees regulatory enforcement at the Dubai International Financial Centre, the region’s main financial hub.
The DFSA made its ruling in June last year, but KPMG and Navalkar sought to prevent its publication. The tribunal rejected the attempt.
KPMG also faces a separate $600mn claim from the liquidators of two Abraaj entities, who are seeking to raise funds for creditors, including former staff members who remain unpaid. A judicial committee in the emirate is currently deciding whether this claim should be heard at the DIFC courts or by an onshore Dubai court, lawyers said.
The latest DFSA decision is another blow for KPMG’s UAE business, which has been rocked by an internal revolt over governance under chief executive Nader Haffar.
KPMG’s audit work at Abraaj relates to the period under Haffar’s predecessor, Vijay Malhotra, who retired in 2019 after three decades at the firm. He declined to comment.
The collapse in 2018 of Abraaj, once one of the largest emerging markets investors with $14bn under management, was triggered by investor concerns over the misuse of funds at its $1bn healthcare fund.
The DFSA last year fined Abraaj’s former chief financial officer, Ashish Dave, for deceiving investors in Abraaj’s funds.
Dave, who worked for KPMG between two periods at the private equity firm, is one of the executives facing criminal complaints for fraud and conspiracy in the US, alongside 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 deceiving investors and misusing their money, the largest penalty since the DIFC was established in 2004. The DFSA has also imposed a $135.6mn fine on Naqvi and other former senior executives. Naqvi is challenging the fine at the tribunal.
