Fraud squad circling Gupta Steel empire as spotlight falls on tiny auditorby
A micro-auditor may hold the key to understanding the opaque financing of Sanjeev Gupta’s steel business, having signed off accounts that are now at the centre of a major fraud probe stemming from the ongoing Greensill saga.
Fraud investigators are probing Sanjeev Gupta’s metals empire for evidence of suspected money laundering and fraudulent trading, putting thousands of jobs at risk.
The UK’s Serious Fraud Office (SFO) said its case concerns “the financing and conduct of the business of companies within the Gupta Family Group Alliance (GFG), including its financing arrangements with Greensill Capital UK Ltd”.
Following the investigation, White Oak Global Advisors, a US capital lender dropped proposals to inject £236m in emergency funding to GFG’s Australian steelworks and a £200m loan to its UK steel operations, which account for around 3,000 jobs.
Gupta has been trying to secure financing for his companies since March, following the collapse of his main backer, Greensill Capital. The supply chain finance provider run by the banker Lex Greensill, had lent Gupta’s companies as much as $5bn (£3.6bn).
Boutique audit firm at the centre of the storm
Questions are also being posed of the obscure two-partner boutique audit firm that signed off various Gupta-related entities, King and King, which has two London offices but is not incorporated or registered as an LLP and has no accounts of its own on Companies House.
King and King audited the most recent accounts of more than 60 GFG companies in the UK, with combined revenues of nearly £2.5bn, but little is known about the firm or its wider concentration of clients.
“Is this firm so big they have other clients that Gupta, despite its apparent prominence, is only 15% of their fee income?” said Richard Murphy, Professor of practice in international political economy at City University, London and director of Tax Research UK.
“We don’t have the data. Those concentration rules existed for a reason, to avoid conflicts of interest, so there are questions for the regulatory bodies to ask. David Cameron and Lex Greensill were both pushed on this ‘concentration’ matter when they appeared before Parliament but we’re still none the wiser.”
King and King, which has not been accused of any wrongdoing, did not offer comment.
GFG’s financing were 'clearly very disturbing if true'
Former Prime Minister Cameron and Lex Greensill, the man at the centre of the storm that has exposed inappropriate government lobbying practices and put Sanjeev Gupta in the crosshairs of the regulators, insisted they had followed procedure during an appearance before MPs.
Gupta’s empire was expanded rapidly by the supply chain financing offered by Greensill, but the practice of borrowing against invoices for future clients has led to allegations some invoices may have been fabricated, and other companies said to have signed off on finance have no record of doing so.
Cameron was paid millions by Greensill and lobbied on his behalf. He told MPs that reports about GFG’s financing were “clearly very disturbing if true”.
A GFG spokesperson said: “GFG Alliance notes the UK Serious Fraud Office’s announcement that it has opened an investigation into GFG Alliance. GFG Alliance will cooperate fully with the investigation. As these matters are the subject of an SFO investigation we cannot make any further comment.”
The administrators for Greensill’s UK arm, Grant Thornton, declined to comment.
Will audit reform address matters?
In March, Conservative MP Richard Fuller in parliament asked the business secretary, Kwasi Kwarteng, if the SFO should now get involved, and followed up with a request for Gupta to give details on his companies’ corporate structure and financing, as well as clarity over his contingency plans for the steel plants.
Kwarteng is on record stating matters such as Greensill would be addressed by wider reform of the audit market, however many experts disagree, and Murphy told AccountingWEB the issue exposed further weakness in the existing proposals.
“The government is treating audit reform as if it is unrelated to accounting rules,” he said. “There are lots of questions about this case and no answers. It should have triggered red flags amongst accounting and audit regulators, which it appears it may not have done.”
“Should the regulators be asking awkward questions about what they are seeing? I think they should be looking for risk wherever it might arise but I fear there is a box-ticking element to their compliance.”