January 19, 2019

KPMG Used Confidential Inspection Info to Snatch BBVA Away From Rivals, Report Says

If you missed this late last week, Francine McKenna of MarketWatch detailed how KPMG used access to confidential Public Company Accounting Oversight Board inspection information to poach a client from its Big 4 rivals.

The client, Spanish bank BBVA, was one of nearly a dozen KPMG clients caught up in the audit inspection scandal. Others include Citigroup, Credit Suisse, and Deutsche Bank, according to court documents obtained by MarketWatch.

The Justice Department in January brought criminal charges against five former KPMG executives and one former PCAOB employee for their roles in the scandal, in which confidential PCAOB audit inspection details were leaked ahead of time to the firm.

McKenna wrote on June 21 that because of the European Union’s mandatory audit rotation rules, BBVA in 2016 was forced to switch from an audit relationship with Deloitte’s Spanish affiliate and solicit bids from other audit firms.

Confidential information around those bids gave KPMG a secret advantage over PwC and EY, which also were eligible to bid on the BBVA audit, she noted:

Brian Sweet, a former partner at KPMG, used his contacts at the audit regulator PCAOB, which was his former employer, to obtain highly confidential data about the audits of BBVA and Banco Santander, according to a new document filed in the case.

Sweet and his PCAOB contacts had access to information about all the largest audit firms, not just KPMG. Sweet pleaded guilty on January 5 to conspiracy and wire fraud and is cooperating with the authorities.

Emails obtained during KPMG’s internal investigation of the scandal were turned over to the prosecutors in the case against the former KPMG officials. The correspondence spells out how KPMG gained an advantage over its rivals.

The email correspondence was between Sweet and KPMG Spain audit partner Dabie Tsai. In one of the emails, Sweet attached “an internal and confidential PCAOB comment form for a KPMG competitor, Deloitte Spain, and its audit of Banco Santander that discussed specific ways in which Deloitte had failed to adequately test the valuation of its allowance for loan loss at that bank,” McKenna wrote.

PwC won the Banco Santander audit from Deloitte in 2016, and BBVA chose KPMG as its new auditor beginning in 2017. And according to PCAOB records, Tsai was the partner who signed the audit for BBVA in 2017, McKenna wrote.

[MW]

Image: iStock/MorelSO

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