Who is behind the audit of bankrupt banks?

KPMG, which is accused of bankruptcy of Bank Standard and Texnikabank, did not audit these financial organizations, and, therefore, does not bear any responsibility for the consequences. As it turned out, external audit of the largest banks of Azerbaijan was entrusted to the representation of a foreign company - a certain KPMG Azerbaijan Limited, established by the parent company KPMG abroad (rather, offshore). And this despite the fact that, according to local legislation, representative offices have no right to be engaged in auditing activities," financial analyst Akram Hasanov told Turan.

It is noteworthy that in the country, at once, two structures were registered under the KPMG brand - KPMG Audit Azerbaijan and KPMG Azerbaijan Limited (representative office), which in itself raises questions. Moreover, the audit was conducted by the representation, and not by the company, as required by law. Both structures were managed by one person - Vugar Aliev. After the bankruptcy of Bank Standard and Texnikabank, the representation has suspended its activities, and, consequently, there is no one to ask for bankruptcy.

In September last year, Hasanov appealed to the Ministry of Taxes and the Audit Chamber about unhealthy practices - yet no international top organization had two structures in one country. There was not such a is precedent:

- The main problem - audit services in Azerbaijan was provided not by KPMG Audit Azerbaijan LLC, which has all legal rights to such activity, but the representation of KPMG Azerbaijan Limited, to which the Azerbaijani Chamber of Auditors for some reason issued a license, violating the current legislation.

In my address to the Ministry of Taxes and the Chamber of Auditors, I drew attention to the fact that, according to the Article 5 of the Civil Code, individuals and legal entities act as subjects of civil legal relations. Representation is a part of a legal entity, and not a full-fledged subject. Including thenArticle 53 of the Civil Code, this format of the structure of KPMG Azerbaijan Limited assumes the functions of representing the interests of a legal entity and only.

Does this mean that respectable audit firm KPMG, designed to combat illegal activities and fraud, is engaged in dubious activities? Since, according to our legislation, the Ministry of Taxes deals with the issues of initiating sanctions and judicial consideration of illegal business, the appeal was sent to this address. As the former Minister of Taxes ignored the appeal, with appealed to the newly appointed Mikail Jabbarov, the new head of the department. Yesterday the Ministry of Taxes responded. The authors of the message make every effort to justify the illegal activities of the representative office of KPMG Azerbaijan Limited. There are exactly five absolutely absurd and untenable arguments:

First, the Ministry of Taxes refers to the law "On licenses and permits", that the Article 3.2 of the document states that licenses and permits can be issued, including to representations. Indeed, there are types of representative offices, for the opening of which you need to get permission,, the representation of a foreign bank. However, the law says that the representation deals exclusively with representation of interests, and not with banking activities on the territory of the country. In accordance with the law, some representations require a permit. However, there is a law "On Auditing", which says that such services can be provided by enterprises, organizations and institutions. There is not a word about representation in the document. Thus, the argument is absurd.

Secondly, the Ministry of Taxes refers to the Article 11 of the Law "On Entrepreneurship", noting that on the basis of interstate agreements, foreign companies and their representative offices may be engaged in activities in the territory of Azerbaijan provided for in a license obtained in the country of registration. I would say: assume that in some offshore company it was registered that the representative office of KPMG Azerbaijan Limited can deal with everything at the territory of Azerbaijan. Yes, on the basis of an interstate agreement this is allowed - I do not argue. Moreover, according to the Article 151 of the Constitution of the Republic of Azerbaijan, if the interstate agreement is contrary to local legislation, then the provision of the international treaty is applied. The international treaty takes precedence over domestic law. However, there is no such agreement! Where is the contract that stipulates that the said mission can be engaged in such activities contrary to the Civil Code and the law "On Auditing"? There is no document and it's unclear why the ministry refers to it!

Thirdly, they write that according to the law "On the registration of a legal entity", we allegedly have representative offices registered as legal entities. But it is not so. In the Article 2.0.4 of this law, a definition of representation is given with reference to the same Civil Code. This argument is also inappropriate.

In the fourth paragraph, the ministry refers to the Tax Code. Namely, the concept of "permanent representation", often used in the code, trying to draw a parallel with the same concept in the Civil Code. Like, it's the same thing. It is not true. The concept of "permanent representation" in the Tax Code is much broader, but it is limited to tax issues. Appeal to this in this case is inappropriate.

Finally, the authors of the reply message refer to the decision of the Constitutional Court of September 8, 1999, where the Constitutional Court comments on the previous law "On Enterprises" in the sense that there is no difference between the branch and the representative office. However, the law was repealed in 1999, and therefore referring to the decision of the Constitutional Court on the law, which is not, is absurd. Moreover, in my appeal I warned such an opportunity and asked them not to do so.

The results of the stormy activity of KPMG Azerbaijan Limited did not force themselves to wait. And most importantly, the head office of the audit network KPMG is not responsible for the actions of this office, explained Hasanov:

- KPMG founded the company, most likely, somewhere in the offshore zone. The offshore company, in turn, organized its representative office in Azerbaijan; so, external audit of Azerbaijani bankrupt banks conducted representation of an offshore company, and the head office of KPMG is not responsible, but you cannot bring it to responsibility.

The most interesting thing is that last year the representation of KPMG Azerbaijan Limited suspended activity immediately after the bankruptcy of Bank Standard and Texnikabank.