FRC launches inquiries regarding audits of four Liberty Steel companies | Sanjeev Gupta

Britain’s accounting watchdog has opened four investigations into the audits of four companies owned by businessman Sanjeev Gupta under the banner of Liberty Steel.

The Financial Reporting Board said it has launched an investigation into legal audits of businesses by King & King. This step comes in the wake of a call by members of the House of Representatives to the Supreme Council of Audit Committee to refer the auditors for investigation.

Liberty Steel has faced mounting problems since the collapse of its main financial backer, Greensill Capital, in March 2021, which led to an ongoing effort to find new lenders.

Gupta controls Liberty Steel through the GFG Alliance, an informal group of metals and energy companies that employs up to 35,000 people worldwide, including about 3,000 in UK steel.

Its main British assets are a chain of steel mills under the Liberty Steel name, including large operations in Rotherham and Stocksbridge in South Yorkshire and smaller facilities in Wales and the Midlands, as well as an aluminum smelter in Scotland.

A scathing report by a group of parliamentarians on Gupta and his minerals empire, released last November, pointed to several areas of concern, including audits of Liberty Steel. They also called for Gupta to be investigated for possible violations of his duties as a director of the company.

Members of Parliament on the Business Selection Committee said they found “weaknesses in the audit,” adding that frequent changes to auditors and accounting deadlines were “red flags”.

The commission’s report found that the small audit firm King & King had a “lack of ability to effectively complete audits”.

Mylan Patel, a partner at King & King, previously told the committee that his firm was able to audit an organization the size of GFG and said the company had “many clients with sales in the hundreds of millions of pounds”.

The new FRC investigation relates to the audits of the financial statements of the companies: Liberty Special Steels Limited, Alvance British Alvance Limited (formerly Liberty Aluminum Lochaber Ltd), and Liberty Steel Newport Limited for the year ended March 31, 2019, also as an audit of Liberty Performance Steels Limited for the year ended March 31, 2020.

King & King has been contacted for comment.

A GFG spokesperson said that none of the coalition entities or individuals have been the subject of a Federal Reserve investigation, adding: “We recognize the importance of strong audit practices and are working to develop our corporate structure and governance as we continue our efforts to restructure and refinance our business case.”

Concerns have been raised for some time about GFG’s corporate governance. The UK government has rejected the company’s request for a £170m bailout after the collapse of Greensill Capital, the supply chain finance firm that employed former Prime Minister David Cameron. It is understood that ministers have concerns about the company’s opaque structure and the possibility of funds moving abroad.

Transfers between different GFG companies are under scrutiny. The Financial Times reported on Wednesday that a key company at the heart of Gupta’s operations, Liberty Finance Management, received 84 million euros (£71 million) from GFG’s Liberty Ostrava steel mill on July 15, the same day it attempted to repay debts. An $81m (£65m) value related to a French aluminum smelter.

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A GFG Alliance spokesperson said that inter-company transfers have “always been approved and recorded in accordance with local law and appropriate legal advice”, and that they will be “transparently disclosed in annual accounts audited by the companies’ local auditors”.

Last week, investigators from the Serious Fraud Office (SFO) requested documents and questioned executives at the UK offices of Gupta-owned companies. The Fraud Office is investigating “suspected fraud, fraudulent trading and money laundering” in relation to GFG and Greensill Capital. A GFG spokesperson declined to comment at the time.

This came after French prosecutors raided the GFG Alliance offices in Paris as part of an investigation into allegations of “misuse of corporate assets” and money laundering. “We strongly reject any suggestion of wrongdoing and will continue to cooperate fully with the French authorities to help them bring this matter to a swift conclusion,” Gupta’s company said after the raids.

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