KPMG partners accused of court contempt in Hong Kong over China audit

Several current and former KPMG partners face contempt proceedings in a Hong Kong court, as the Big Four refuses to produce Chinese working papers related to a US-listed China Medical Technologies whose founders are prosecuted in the US for allegedly defrauding investors out of more than US$400 million, according to a Reuter report.

The contempt summons—issued on Nov 22—names 91 individuals, Reuter reports. Contempt of court, could result in criminal penalties or weekly fines.

KPMG was ordered by Hong Kong’s High Court in 2016 to give audit papers, correspondence and records on China Medical, which was collapsed in 2012,  to Borrelli Walsh, liquidators for the one-time NASDAQ-listed firm, according to the report.

KPMG argued that its mainland-based affiliate KPMG Huazhen, which carried out the China Medical audit field work, would be in violation of national security laws if the materials held state secrets or sensitive information, court documents and the writ show, Reuter reports.

Both KPMG and Borrelli Walsh declined to respond to Reuter’s inquiry.

China Medical is the most high-profile international contest over Chinese audit papers since 2014, when EY, KPMG’s fellow Big Four accounting firm, handed over certain documents to Hong Kong’s Securities and Futures Commission after a court battle, according to the report.

China Medical chairman and CFO charged with fraud

Earlier in the year, the US Department of Justice charged China Medical Chairman Wu Xiaodong and CFO Samson Tsang Tak Yung with securities fraud and wire fraud conspiracy, alleging they stole much of the $426 million they raised in two convertible bond offerings in 2008 and 2010, Reuter reports.

KPMG issued written audit reports for China Medical from 2003 to 2008, and was replaced by PwC Zhong Tian in August 2009, the report adds.

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