KPMG warns of threat from Brunei ruling

PRINCE JEFRI of Brunei, younger brother of the Sultan of Brunei, won a shock High Court victory yesterday over the accountants KPMG, which could have profound implications for the way business is done in the City.

A High Court Judge granted Prince Jefri an injunction which upheld his claim that KPMG faced a conflict of interest in working on an investigation into the Kingdom of Brunei's finances after previously acting for Prince Jefri.

KPMG, which has been ordered to abandon its work for the Brunei Investment Authority, is challenging the judgment, which it claims will severely limit the number of clients which firms can represent.

Last night in the City, the judgment was being interpreted as a direct challenge to the established principle of "Chinese walls" operating within firms, whereby teams are trusted to work in complete confidence for different, often competing, clients.

KPMG was hired in the summer by the Brunei Investment Agency (BIA) to conduct a thorough investigation, codenamed "Project Gemma", of the oil kingdom's finances, after suggestions that billions of state revenues have gone astray. Prince Jefri suspects these investigations could be aimed at him.

Prince Jefri launched a legal action in the London courts last month to stop KPMG working for the BIA, since he feared the accountants could hand over personal information about him to the BIA.

He alleged that KPMG's Chinese walls between the team that had worked for him and the new team working for the BIA would not work. Yesterday Judge Pumpfrey granted Prince Jefri an injunction which orders KPMG to cease working for the BIA immediately.

The judge accepted claims by Prince Jefri's counsel, Gordon Pollock, that KPMG faced a conflict of interest. He said there was a "conflict of interest between a former client and an accountant's interest in getting more work".

The judge told the court that KPMG had had 71 professional people doing its work for Prince Jefri, including 12 partners. That was "enough for his purposes" to show how extensive was their knowledge of Prince Jefri's affairs. He was not satisfied that Chinese walls had operated satisfactorily.

He said the burden fell on the accountants to establish that there was no real risk of leak of information. He did not think there was a threat of a deliberate leak, but an accidental or inadvertent one.

No client such as Prince Jefri could be expected to face such a risk unless "powerful reasons" had been given, the judge said.

KPMG lodged an appeal against the injunction.

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