KPMG accused of misconduct that cost First Nation millions

The Łútsël K’é Dene First Nation is launching a lawsuit against global accounting firm KPMG over its role in an alleged multi-million-dollar fraud.

The First Nation and its chief say KPMG’s staff helped the chief executive of the First Nation’s business arm, Denesoline Corporation, misappropriate vast sums of money between 2016 and 2023.

The chief executive in question, Ron Barlas, was removed from the role once a separate civil case against him began last year. That case continues. Barlas denies the allegations.

Launching a fresh but related civil proceeding in NWT Supreme Court, the First Nation and Chief James Marlowe say KPMG should be held responsible for what they call the company’s “conduct in assisting Barlas” in the alleged fraud.

In a statement to Cabin Radio, a KPMG spokesperson rejected the allegations and said: “We will be vigorously defending ourselves.”

The First Nation’s case against KPMG stems from a huge email trove unearthed last year while searching for evidence that Barlas had committed fraud.

The receiver – a third-party agency placed in charge of Denesoline Corporation and related companies after the case against Barlas began – handed to the First Nation’s lawyers years of emails Barlas sent and received while running Denesoline.

Among those emails, the First Nation’s lawyers allege, were messages that show KPMG employees helping Barlas to hide financial transactions and extract cash from Denesoline for his own enrichment.

Barlas had removed Crowe Mackay as Denesoline’s accountants in 2016 and retained KPMG instead, the lawyers assert.

In the following years, the First Nation’s lawyers say, KPMG helped Barlas by creating financial statements that contained “material misstatements,” failing to investigate “obvious badges of fraud” – in other words, suspect transactions – and making “misleading representations” to the First Nation’s members at some meetings.

The emails, the lawyers say, show KPMG staff “giving Barlas advice on how to extract millions from Denesoline on a tax-efficient basis.”

In sum, the First Nation accuses KPMG of going along with all manner of Barlas requests that had the effect of hiding the fraud the First Nation alleges he was carrying out.

KPMG was “wilfully blind to Barlas’s fraud,” an application by the lawyers states, and its conduct “offends the ordinary standards of morality and decent conduct.”

The Łútsël K’é Dene First Nation is seeking $30 million in compensation and a further $2.5 million in punitive damages.

Barlas has maintained that everything he did had appropriate oversight and his actions were for the betterment of the First Nation and its members, given the revenue increase he says he oversaw while in charge.

KPMG ‘denies all allegations’

KPMG, in its Tuesday statement to Cabin Radio, said: “There is no truth to the allegations that KPMG knowingly assisted Mr Barlas in connection with any fraudulent behaviour.

“KPMG takes its role and responsibilities very seriously and denies all allegations of wrongdoing. As an organization, we are guided by our values of integrity and excellence in everything we do and hold our people to the highest professional standards.

“We will be vigorously defending ourselves throughout any legal proceedings. We remain committed to acting as a trusted and active contributor towards Indigenous economic development and advancing reconciliation.”

KPMG is currently a major player in the City of Yellowknife’s review of how last year’s wildfires and evacuation were handled. It holds the contract to complete the review and its staff are running engagements like this week’s public session for residents.

The accounting firm is not the only company being pursued by the Łútsël K’é Dene First Nation and its legal team in relation to the Barlas case.

Law firm Reynolds Mirth Richards & Farmer – which formerly represented Denesoline – is accused by the First Nation of being complicit in Barlas’s alleged oppressive activities by, for example, issuing cease-and-desist letters to residents who raised questions about what was happening.

In its application regarding Reynolds Mirth Richards & Farmer, the First Nation is seeking up to $22.5 million in compensation and punitive damages for what LKDFN says was a years-long pattern of the firm “aiding and abetting” Barlas in actions that harmed the First Nation’s members.

Through its counsel, the firm has said the allegations against it are “devoid of merit and are designed to discredit and embarrass.”