The Dubai Financial Services Authority (DFSA) has today published its decisions concerning action against DFSA Registered Auditor, KPMG LLP and a former Audit Principal, Mr Milind Navalkar, for failings in respect of the audit of the Abraaj Group entity, Abraaj Capital Limited (ACLD).

Both KPMG LLP and Mr Navalkar dispute the DFSA’s findings and have applied for review of the decisions to the Financial Markets Tribunal (FMT) where the parties will present their respective cases. The DFSA’s decisions are therefore provisional and reflect the DFSA’s belief as to what occurred and how it considers KPMG LLP’s and Mr Navalkar’s conduct should be characterised.

The DFSA’s decisions may be confirmed, varied or overturned as a result of the FMT’s review.

The DFSA’s decisions were issued in June 2021, however the DFSA is only now able to publish information about the decisions as both KPMG LLP and Mr Navalkar sought an order from the FMT preventing publication. The FMT refused both KPMG LLP’s and Mr Navalkar’s applications for privacy and both then appealed to the DIFC Court against that FMT decision. A judgment was issued by the DIFC Court on 16 September 2022 dismissing the appeals of KPMG LLP and Mr Navalkar, meaning that the FMT’s original decision to refuse the applications for privacy was upheld.  The FMT’s decision refusing the privacy applications will be published on the FMT section of the DFSA’s website.

The DFSA imposed a financial penalty of USD 1,500,000 on KPMG LLP and USD 500,000 on Mr Navalkar because, in the DFSA’s view, they failed to follow applicable international auditing standards when performing audits of ACLD for a number of years up to October 2017.

In the DFSA’s view, had KPMG LLP performed its audit of ACLD to the expected standard, it is likely it would have identified that, for more than five years:

• ACLD’s financial statements did not conform to accounting rules;
• ACLD had failed to maintain adequate capital resources; and
• ACLD was concealing the true state of its finances from KPMG LLP.

Mr Navalkar was KPMG LLP’s Audit Principal appointed to the audit of ACLD.  He was responsible for signing off the audit report for ACLD’s financial statements and ensuring the audits and reviews of ACLD’s financial statements and DFSA Returns were carried out to the required standard.  The DFSA found that Mr Navalkar was knowingly concerned in KPMG LLP’s breaches and he also failed to act with professional competence and care.

The DFSA imposed a financial penalty of USD 15,275,925 on ACLD in July 2019 for failing to maintain adequate capital resources in breach of DFSA rules and for providing the DFSA and its auditor, KPMG LLP, with false and misleading information relating to its capital resources.  ACLD also omitted to provide its auditor with information relating to material transactions with other Abraaj Group entities and prepared financial statements which did not accurately represent ACLD’s financial position.  ACLD was also knowingly concerned in unauthorised activities of its parent, Abraaj Investment Management Limited (AIML), which the DFSA also previously took action against in July 2019 by imposing a fine of USD 299,300,000.

ACLD was the only Abraaj entity authorised by the DFSA and the only entity in the Abraaj Group audited by KPMG LLP.  The other entities in the Abraaj Group were audited by other audit firms in the KPMG global network that operate outside of the DIFC.

KPMG LLP denies all of the DFSA’s allegations with regard to its failure to perform its audit of ACLD in accordance with the applicable standards. Mr Navalkar also denies the DFSA’s allegations against him.

The detailed reasons for the DFSA’s action against KPMG LLP and Mr Navalkar are set out in the DFSA’s Decision Notices dated 16 June 2021 and 29 June 2021 which can be found in the Decision Notices section of the DFSA website.

The DFSA does not intend to make any further comment until the FMT’s review is complete, except as necessary to correct any inaccuracies.  Information about pending FMT matters, including details of any public hearings, can be found on the FMT section of the DFSA website:

https://www.dfsa.ae/en/About-Us/Our-Structure#Financial-Market-Tribunal