Contempt hit looms for KPMG

Business | 21 Dec 2017

Several current and former KPMG partners are facing contempt proceedings in Hong Kong as liquidators for a failed US-listed Chinese firm step up their action against an auditor for its refusal to produce Chinese working papers.

The November 21 contempt summons names 91 individuals. It is the latest move in a battle surrounding the 2012 collapse of China Medical Technologies, whose founders are being prosecuted in the US for allegedly defrauding investors out of more than US$400 million (HK$3.1 billion).

The writ highlights a long-running tussle between China, which is reluctant to hand over mainland documents, and overseas regulators that demand such papers - leaving auditors trapped between upsetting Beijing or facing offshore penalties when dealing with foreign-listed Chinese firms.

KPMG was ordered by Hong Kong's High Court in 2016 to give audit papers, correspondence and records on China Medical to Borrelli Walsh, liquidators for the one-time Nasdaq-listed firm.

But KPMG has refused to do so without written direction of Chinese authorities, arguing 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.


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