KPMG partners face court contempt proceedings in Hong Kong over China audit
The accounting firm has refused to hand over audit papers relating to China Medical Technologies despite a 2016 court order
Several current and former KPMG partners are facing contempt proceedings in Hong Kong High Court, as liquidators for a failed US-listed Chinese company step up their action against the auditor over its refusal to produce Chinese working papers.
The contempt summons, seen by Reuters, names 91 individuals and was issued on November 22. It is the latest move in a battle surrounding the 2012 collapse of China Medical Technologies, whose founders are being prosecuted in the United States for allegedly defrauding investors out of more than US$400 million.
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 the Hong Kong 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 the relevant Chinese authority, arguing 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.
KPMG and Borrelli Walsh both declined to comment.
Those named in the writ were partners in KPMG China – the partnership covering China, Hong Kong and Macau – in 2015, which is when the court dispute over the audit papers began.