In order for things to work we have to rely on audit firms to verify and certify claims made by companies. It is not a uniquely Maltese problem that audit firms end up facing dilemmas between their duty to act as independent officials in the public interest and service providers obliged to act on behalf of their clients.
The matter of whether Juanita Bencini should have attended her client Ali Sadr’s wedding or not, I think, is a bit of a distraction. Unlike Joseph Muscat and Keith Schembri, her personal relationship with Ali Sadr, if she had any, is not an issue. No suggestion exists that Pilatus Bank handled banking for their auditors. But there’s plenty to suggest they did handle personal business for Mrs Joseph Muscat and for Keith Schembri.
We must not therefore lose sight of where the story is here. That is exactly what Joseph Muscat would want us to do.
Having said all that, the Pilatus Bank scandal needs to be a lesson for multiple aspects and, in a normal world we would now be having independent inquiries into the behaviour of the MFSA, the behaviour of the FIAU, the behaviour of the Police … and the behaviour of the auditors.
Since Pilatus Bank is fully owned by Ali Sadr or whoever it is that he is fronting for, the auditors did not let down shareholders. Since Pilatus Bank appears to be a boutique exclusively focused on crooks, I’m not entirely disturbed if it turns out the auditors let the bank’s depositors down.
But Pilatus Bank is licensed by Malta and any damage – and there is plenty – to the country’s reputation is a devaluation of the stock we all hold in that name. If Malta’s name goes down, we all go down with it. If KPMG could have done more to prevent the harm for the country’s reputation, then they have let the country down.
If the auditors could have done anything to provide earlier warning, if they overlooked anything they had the duty not to miss, if they allowed the considerations and the interests of their client to trump the interests of the country, they have let us all down.
KPMG will no doubt have its own explanations showing that within the limits of their remit they have stuck to doing their job.
But there’s a lot that can happen within the limits of an auditor’s remit and an auditor can apply some discretion within those limits. There are choices about the extent one chooses to act as an introducer and promoter of the client’s interest that compromise the auditor’s ability to act against those interests when it is necessary to do so. The flimsy Chinese walls between departments within firms are not terribly encouraging.
There is always more than meets the eye. And if we are to learn anything from this catastrophe we need to be investigating and documenting this experience. Perhaps we can get guidance from this episode on how to refine the rules.
But here is yet another disservice to the community that is a consequence of the corruption of the Panama Gang. The last thing they want is for the public to open this book and understand what went wrong.