RBM audit: FDH sues for K5bn

FDH Financial Holdings Limited and its subsidiary FDH Bank plc have sued audit firm Deloitte, seeking about K5 billion as compensation for alleged breach of contract in relation to the forensic audit at Reserve Bank of Malawi (RBM).

In a joint claim filed at the High Court of Malawi Commercial Division in Blantyre as case number 346 of 2021 on August 30 2021, FDH Financial Holdings and FDH Bank plc claim that Deloitte was not supposed to commit to the RBM audit because it was the existing external auditor

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“The defendant [Deloitte] knew or ought to have known that in the conduct of the claimant’s [FDH] banking business, including the trading in securities and in foreign currency dealings, the claimant would have dealings with RBM in the period contracted for the forensic audit report…,” submits FDH.

FDH Financial Holdings Limited and FDH Bank plc further submit that during the period under review covering 2019 and 2020, Deloitte had also audited the group. The claim also says Deloitte did not seek FDH Group’s consent to carry out the RBM audit.

The court documents read: “The defendant [Deloitte] accepted the said instructions without notifying the claimant and without seeking or obtaining the consent of the claimant as its existing client at the time.

“The defendant accepted the said instruction, not caring whether the confidential data of the claimant was at risk or not.”

Further, the financial services group is also pursuing the “breach of general duty of care” which arises from one party failing to do something which may result in another suffering a loss.

The claimants argue that Deloitte did not consult them to verify facts before publishing the audit report, saying: “The defendant recklessly described the claimants’ due income in foreign currency dealings of the sum of K6 529 500 000 as constituting compensation.”

FDH says the forensic audit report has made it suffer loss of business and damage to local and international business reputation, among others.

Contends the group: “The particular damages are cancellation of $17.5 million [about K14.3 billion] term facility between the second claimant [FDH Bank plc] and its foreign cooperating partners.

“Loss of the sum of K5 112 517 133 being the equivalent of additional expense to be suffered by the second claimant pursuant to foregoing foreign currency financing facility.”

FDH said it was demanding over K5 billion “as damages arising out of the breaches”, interest on that amount and “general damages to be assessed”.

Lawyer Patrick Mpaka, who is representing FDH Bank plc and its parent company FDH Financial Holdings Limited, yesterday confirmed filing the claim, saying they were waiting for a response from Deloitte. The respondents have 28 days to file defence.

In a separate interview its legal representatives Sacranie Gow and Company, said it will defend the claims.yesterday, Deloitte, through

Sacranie Gow and Company managing partner Shabir Latif said: “We have already indicated to FDH legal practitioners that we intend to defend the matter. We are in the process of filing our defence.”

This is the second lawsuit Deloitte is facing following the audit report. The first was filed by Mulli Brothers Limited which is suing for defamation.

The forensic audit report released in July this year detailed how RBM officials allegedly bended their own rules to facilitate local and foreign payments, some of which the auditors deemed as fictitious.

Covering the period between January 1 2019 and June 30 June 2020, the audit implicated some government ministries, departments and agencies as well as private companies. FDH Bank plc featured prominently.

In one case, the report queried RBM’s disbursement of $769 million (about K615 billion) for market interventions which the auditors said was disproportionately channelled through FDH Bank, inconsistent with its size.

The report also noted suspicious payment of K4.1 billion to the Pensions and Gratuity Account without an approved funding instruction from government.

Other findings surrounded RBM’s market interventions between December 2018 and December 2020, with auditors querying a treasury note programme with Afrexim Bank in 2018 and 2019.