DUE DILIGENCE KPMG Readies Defense on Airport Deal

Was that state of Rhineland-Palatinate too eager to sell its struggling airport to a Chinese investor? Auditors blame the botched sale on the state government, sources say.
The sale of the troubled Frankfurt Hahn airport, located 100 kilometers outside the financial capital, was halted after the Chinese investor failed to pay. Photo: REUTERS/Ralph Orlowski

For years KPMG auditors checked the books at Siemens, the German engineering and technology giant. But they claimed to know nothing of “black accounts” — secret funds that figured prominently when the Siemens bribery scandal broke last decade.

It was a big embarrassment for the German affiliate of Amsterdam-based KPMG, which was mocked in industry circles.

A similar disaster now threatens KPMG after the botched sale of Frankfurt-Hahn Airport in the German state of Rhineland-Palatinate.

If Ms. Dreyer wants to clear things up, she should put everything on the table and release KPMG from its obligation of confidentiality. Julia Klöckner,, CDU leader in Rhineland-Palatinate

The auditing company vetted the sale of the money-losing airport, a former military base west of Frankfurt, to a little-known Chinese investor. The sale collapsed earlier this month, however, after the company failed to make an initial payment on a deal worth €13 million, or about $14.4 million.

Now KPMG is mounting a defense: Industry sources say the audit firm is preparing a detailed statement that blames the Rhineland-Palatinate state government, its premier, Malu Dreyer, and her interior minister, Roger Lewentz. Both are members of the center-left Social Democratic Party.

KPMG declined to comment on the matter.

Ms. Dreyer hired KPMG to scrutinize the sale of the state’s 82.5 percent share in the airport to Shanghai Yiqian Trading. But when no payments were made, doubts were raised about the authenticity of bank records.

A state secretary of the interior, a KPMG consultant and a lawyer traveled to Shanghai on July 6. They spoke with the deputy director of the local branch of the Bank of China about one of the Chinese investor’s bank statements.

The deputy bank director is reported to have said that the statement was fake. The government then halted the deal, and KPMG has since been blamed for the debacle.

The former state premier of Rhineland-Palatinate, Rudolf Scharping, raised serious allegations against KPMG.

“Digging only a little deeper in available Chinese sources would have led to a bright red stop sign,” wrote Mr. Scharping, also an SPD member, in a guest commentary for Handelsblatt this week.

Now the auditors are fighting back. Sources say they hope to show that ultimately it was the state government’s decision and not theirs.

Ms. Dreyer had been made aware of all the risks, the auditors claim. If anybody had driven through a red light, then it was the state government, according to the line of defense.

The auditors are officially not allowed to state their frustration over the situation. KPMG points to “a personal obligation of non-disclosure for every single one of our employees” in a contract with the state government.

Therefore the statement addressing the accusations can only be sent to the government and not be made available in its entirety to the public. So far, the state government has only published documents that can be interpreted to their advantage.

Julia Klöckner, who leads Rhineland-Palatinate’s center-right Christian Democrats, said that is unacceptable.

“If Ms. Dreyer wants to clear things up, she should put everything on the table and release KPMG from its obligation of confidentiality,” said Ms. Klöckner. “The government owes that to taxpayers.”

Taxpayers have so far paid about €6.25 million for KPMG consulting. As the state interior ministry has disclosed, that amount includes expenditures for market research since 2012, the bidding process, coordinating with the European Commission and other legal advice. That advice included KPMG’s assessment of Shanghai Yiqian Trading in the deal for Hahn Airport.

According to Mr. Scharping, who has been an active consultant for years in Germany, Shanghai Yiqian Trading was rated a shell company “without credibility and creditworthiness” in the readily available Chinese Credit Report.

You don’t need any “sorcery” to find information about business partners in China, said Mr. Scharping.

Ms. Dreyer has stressed that she relied on the consultants’ expertise in Rhineland-Palatinate’s worldwide call for offers for Hahn Airport. After all, she said, KPMG is a large, global company and has experts expressly for just such deals.

“Naturally, we have to assume that (the deals) are also checked-out properly,” she said.

Last week, Ms. Dreyer withstood a motion of no confidence by the opposition. The ruling coalition of Social Democrats, the Green party and Free Democrats — which has been in office only two months — unanimously rejected the motion brought by the Christian Democrats.

But Ms. Dreyer might still have trouble with the pro-business Free Democrats in her coalition. Some FDP members are fed up with the state premier and her Social Democrats. What effect that will have on the government remains to be seen, said an FDP member.

The CDU opposition isn’t ready to call for a fact-finding committee in state parliament just yet, though. New information is being put on the table daily, say party members in Mainz, the state capital.

For the time being, it is a matter of collecting as many records and documents as possible, so an investigation mandate can be formulated as precisely as possible, CDU members say.

 

Daniel Delhaes reports on politics, transport and airlines from Handelsblatt's Berlin office. Thomas Sigmund is the bureau chief in Berlin, where he directs political coverage. To contact the authors: [email protected][email protected]