How accounting decisions triggered BSEC probe

The Bangladesh Securities and Exchange Commission (BSEC) has opened a formal investigation into Robi Axiata Limited over allegations involving accounting practices, corporate governance and shareholder disclosures, placing one of the country's largest listed companies under renewed regulatory scrutiny.

Documents reviewed by the Daily Observer indicate that many of the issues now under investigation were first formally raised in 2021 by the company's former Chief Executive Officer (CEO), Mahtab Uddin Ahmed. According to the documents, he submitted written complaints to Robi's Board of Directors, the Board of Axiata Group Berhad and the Axiata Board Audit Committee on October 12, 2021. No documented response to those complaints has been found. The matter later reached the High Court, while BSEC has now initiated its own investigation.

At the centre of the inquiry is the accounting classification of several procurement contracts signed with Ericsson and Huawei in 2019. 

Under standard accounting principles, capital expenditure (CapEx) is capitalised and recognised over the useful life of an asset through depreciation, whereas operating expenditure (OpEx) is charged in the year it is incurred. Sources familiar with the matter said classifying OpEx as CapEx can inflate reported profits and, in some cases, increase performance-linked bonuses for senior executives.

According to sources, Robi issued a show-cause notice to the former CEO on October 7, 2021, alleging that the Ericsson and Huawei contracts had been incorrectly classified as capital expenditure instead of operating expenditure. The company claimed the accounting treatment inflated reported profits and enabled the former CEO to receive a higher personal bonus.

However, documents reviewed by the Daily Observer state that the accounting classification had been made by Robi's Chief Financial Officer (CFO) in consultation with Axiata Group's Group CFO and the company's external auditor.

The same documents indicate that the issue had already been reported to Axiata's Regional CEO Dr Hans and Group CFO Vivek Sood during the first quarter of 2020, together with a request to revise annual performance targets. The Group CFO subsequently acknowledged in writing that he had been informed.

According to the documents, the matter was also presented to Robi's Board of Directors during the third quarter of 2020, months before any whistleblower complaint was filed, suggesting that both Robi's Board and Axiata Group had prior knowledge of the accounting issue.

Robi's 2021 financial statements, audited by Hoda Vasi Chowdhury & Co., did not identify any irregularity relating to the transactions, recommend any restatement of the accounts or include any audit qualification. The management report also described the transactions as having been conducted on an "arm's-length" basis and stated that no financial irregularities or undue benefits had been identified.

The documents further state that the transactions complied with applicable rules, procedures and corporate policies, and that the same accounting treatment continued in the company's 2021 financial reporting.

Documents relating to Robi's internal investigation also raise questions about the disciplinary process against the former CEO.

According to the records, an internal investigation committee failed to establish evidence supporting the allegation that he had acted with the intention of obtaining personal financial gain. Despite this, he was dismissed at the final stage of the investigation, although his resignation had already been accepted unconditionally about nine and a half months earlier.

The documents show that Robi accepted his resignation on August 5, 2021, but initiated departmental proceedings against him on October 7 that year over transactions that had taken place nearly two years earlier and had already been presented before the Board.

In his written complaints submitted on October 12, 2021, the former CEO alleged conflicts of interest involving Robi's then and current Chairman Thayaparan Sangarapillai and former Axiata Group CEO Dato' Mohd Izzaddin bin Idris.

Two days later, in his reply to the show-cause notice, he elaborated on those allegations and sought permission to be represented by legal counsel, arguing that the issues could potentially constitute offences under the Bangladesh Penal Code. According to the documents, the request was rejected.

Robi subsequently formed an investigation committee comprising two independent directors. However, on January 22, 2022, the Board appointed Chairman Thayaparan Sangarapillai as chairman of the same committee, despite the conflict-of-interest allegations made against him by the former CEO.

Within three weeks, both independent directors resigned. Akhtar Sanzida Kashem resigned on January 24, while Kamran Baker resigned on February 13. According to the documents, Baker cited "undue interference" in his resignation letter. No new independent directors were appointed.

When the committee submitted its final report on April 23, 2022, it consisted solely of members nominated by Axiata Group.

The former CEO later alleged before the High Court that he had never been provided with the principal whistleblower complaint, the internal audit report or the Ernst & Young investigation report during the proceedings. According to the documents, those reports were neither produced before the court nor submitted to the relevant authorities.

The documents also point to inconsistencies in the committee's final report. Although Kamran Baker had resigned more than two months earlier, he remained listed as a committee member. While four members were named in the report, only Chairman Sangarapillai signed it.

Responding to queries from the Daily Observer, Robi's Chief Corporate and Regulatory Officer Mohammed Shahedul Alam said he was not in a position to comment directly. "Our media team will get in touch with you," he said.

BSEC Executive Director and spokesman Md Abul Kalam confirmed that the commission is examining multiple issues relating to Robi. He said the investigation, initially scheduled for completion within 60 days, required additional time because of the number of issues involved.

"The commission will take appropriate action regarding any irregularities that are identified once the investigation is completed," he said.