Bank of Portugal appeals against KPMG acquittal
The Bank of Portugal is to appeal a decision by a court which exonerated the accountancy firm KPMG of cooking the books in the case of Banco Espírito Santo which collapsed in 2014 leaving mountains of debts and small investors robbed of their savings.
KPMG was absolved of having to pay a fine of €5 million by the Competition Court (Tribunal da Concorrência) over failing to report accounting discrepancies, and now the Bank of Portugal will appeal against the decision.
The financial markets were caught by surprise some weeks back at the court’s decision over the professional conduct of KPMG and regarding another five people involved in an audit which seemed to gloss over with creative accounting what later appeared to be instances of glaring financial misconduct and mismanagement.
The BoP also claimed that the KPMG auditors provided it with incomplete and false information about the situation of BES Angola (BESA) and also stated that it could prove that the auditors knew that they did “not have access to essential information” about BESA’s credit portfolio, and that KPMG had been aware of a clutch of bad debts since January 2014 but failed to communicate that fact to the supervisor.
With the court’s decision, a fine of €5 million applied by the Bank of Portugal in April was overturned and annulled.
Now the Bank of Portugal will appeal the decision according to Eco Insider and Jornal Económico. The deadline to present the appeal is 18 January, and the Governor of the Bank of Portugal, Mário Centeno said that the institution’s decision to appeal still stands.
The Bank of Portugal is contesting the idea that this legal decision will put at risk the other court cases that are currently underway to do with the collapse of the BES empire.
Some of these cases have already entered the trial phase and involve the former Chairman of the GES, Ricardo Salgado.
But it is understood that the decision to overturn the fine made by Court of Competition judge Vanda Miguel creates a precedent that could call into question the capacity of the banking and financial entities supervisor — the Bank of Portugal – to apply sanctions on audit firms.
In April 2019, KPMG, which was BES’ auditor, was condemned by the Bank of Portugal to pay a fine of €3 million while the auditor’s president Sikander Sattar was ordered to pay €450,000 and four other associates, Inês Neves Viegas (€435,000), Fernando Antunes (€400,000), Inês Filipe (€375,000) and Sílvia Gomes (€225,000) were also fined.
KPMG won their case over the interpretation of Paragraph C) of Part Nº1 of Article 121º of the General Regime of Credit and Financial Institutions (RGICSF) regarding the moment at which facts, susceptible to arouse suspicions in the accounts of a bank, should be communicated (to the supervisor).
The judge ruled that the BoP’s understanding “is not in accordance with ‘legis artis’ (a number of scientific and technical rules used to define negligence) and that which is considered normal in the process of an audit.”
It was an assertive criticism against the supervisor with the judge admitting that she was “shocked” at the “vague” reply from the BoP over the legal letter that the court had “addressed to the BoP in order to ascertain how many communications of potential non-compliance had been made to the supervisor during the interim phase of the audit”, emphasising that asking it (BoP) to indicate a specific number in no way “collided with banking secrecy” as claimed by the regulator.