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KPMG fought for months to block public from seeing court document
A once-sealed affidavit filed with the Tax Court of Canada and obtained by The Fifth Estate details how alleged scammers tricked the Canada Revenue Agency and made off with $37 million of taxpayers’ money.
In the document, a litigation officer with the Canada Revenue Agency alleges that Toronto-area company Gold Line Telemanagement made “material misstatements” on tax returns and was “part of a group of companies that participated in sham transactions.”
The affidavit, which lawyers at KPMG said could cause “irreparable harm” to Gold Line if it was released, was kept off the public record for 10 months.
After a petition to the court from The Fifth Estate, KPMG eventually reversed its position late last year and said its client would no longer oppose the release.
In its own court filings, Gold Line has rejected CRA allegations, stating “there was no deceit, intentional or otherwise,” in its filings and that it was genuinely engaged in the long-distance telecom business.
Gold Line has been in the telecom business for decades, selling prepaid long distance telephone cards and other services.
The CRA alleges that starting in 2016 Gold Line acted as a middle party in the world of wholesale telecom, purporting to buy and sell international telephone call minutes. Based on what the CRA now alleges were “sham” transactions, the company claimed — and received — $37 million in sales tax refunds.
Some of the companies in Gold Line’s supply chain are alleged to have participated in a separate case reported on by The Fifth Estate late last year. In that instance, the CRA admits it paid out more than $63 million in what it now calls “illegitimate” tax refunds.
WATCH | The “Swindling the System” from The Fifth Estate:
Between these two cases, the CRA claims to have wrongly dispersed $100 million to carousel schemes, a type of fraud that has been well-known to Canadian tax authorities for many years.
Also known as “missing trader fraud,” carousel schemes rely on complicated supply chains filled with fake companies and invoices to create the appearance that legitimate business transactions are taking place. The companies then submit bogus tax refund claims that are paid out by unwitting governments.
“How much do you have to lose before you realize that your tax system might be vulnerable?” Mike Cheetham, a Dubai-based tax fraud analyst, said in an interview. “If I have to put the blame anywhere, it’s all squarely and fairly on the CRA.”
Cheetham has previously appeared as an expert witness before European Union committees regarding carousel schemes. He said other countries have implemented a “reverse charge mechanism” to sectors prone to carousel fraud, like telecom and precious metals trading — something Canada has not done.
With a reverse charge mechanism in place, certain industries are exempted from collecting sales taxes, in order to prevent bogus refunds.
“It would take a single paragraph of text in the legislation” to inhibit this kind of fraud, Cheetham said, adding that there are “20 years of milestones in Europe proving it works.”
He said that without these kinds of changes, Canada’s tax system is wide open for abuse.
“I will bet there’s another five or 10 cases that haven’t yet been discovered underway now as we speak.”
Federal Revenue Minister Marie-Claude Bibeau did not respond to an email from The Fifth Estateasking why the federal government has not implemented the kind of preventive measures taken more than a decade ago in Europe.
In January, Gerald Soroka, the Conservative member of Parliament for the Yellowhead riding, west of Edmonton, asked the government in writing for an estimate of how much unwarranted money the CRA has paid out as a result of carousel schemes.
Bibeau responded that the CRA was “unable to provide the information” because “there is no systematic way to estimate the amount of all unwarranted payments.”
Previous filings made in the case, and not under seal, state that while KPMG provided Gold Line with external “accounting support” and audited its financial statements, it did not prepare the GST returns at issue.
Today, KPMG Law, the legal branch of the firm, represents Gold Line in tax court.
In a statement, KPMG said that “due to client confidentiality,” it cannot provide comment on the case.
Gold Line also said that as the matter is before the courts, it had been advised not to comment.
‘Sham’ transactions
According to a CRA analysis, Gold Line sold 10 million more minutes than it purchased. But as an intermediary, Gold Line’s sales and purchases should be relatively equal, it said.
“There is overwhelming evidence that Gold Line was colluding with its suppliers and customers to deceive the CRA” the once-sealed affidavit states.
The CRA alleges the company was either knowingly involved in the scheme or “grossly negligent,” noting that Gold Line did business with Canadian suppliers that were not registered to collect GST or HST, didn’t have proper telecom licences, “had no business location, had no telecommunications experience and had no employees other than the shareholder/director.”
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THE FIFTH ESTATE
Based on this and a number of other factors, the CRA concluded that “the purchase and sales transactions are sham.”
The case is ongoing in the Tax Court of Canada and Gold Line argues that the tax credits it claimed were entirely based on taxes it paid to its Canadian suppliers.
Other companies in the supply chain have also gone to court to deny the CRA’s allegations, none of which have been tested in court. It is possible that some intermediaries in carousel schemes can be caught up unwittingly.
If you have any tips on this story, please email in confidence Matthew.Pierce@cbc.ca or Harvey.Cashore@cbc.ca or call 416-526-4704.
Grant Scandal Exposed: Government Favors Kickbacks Over Innovation
Edison Motors: The Integrity Test in British Columbia’s Troubled Grant Landscape
In the politically charged atmosphere of British Columbia’s grant administration, a scandal is unfolding that encapsulates the struggle between innovation and bureaucracy. At the heart of this controversy is Edison Motors, an ambitious electric vehicle manufacturer, and MNP, a firm accused of manipulating its pivotal role in the distribution of provincial funds.
Watch the video posted by Chace Barber, founder of Edison Motors with Eric Little.
Overview of the Controversy
British Columbia’s opposition parties, including BC United, BC Green, and BC Conservative, have called for an independent audit by the Auditor General into what they describe as a “kickback scheme.” This scheme allegedly involves MNP, an accounting firm appointed by the government to administer significant clean technology grants.
Todd Stone, a BC United MLA, voiced his concerns loudly in the legislature, stating, “Requiring 20-percent success fees on grants, success fees to the company that’s actually doing the adjudication, if true, is wrong on so many levels.” This outcry is a stark reflection of the tensions that can arise when private firms are intertwined with public funds.
Edison Motors’ Plight
At the center of this storm is Edison Motors, led by co-founder Chace Barber, who has publicly criticized the grant administration processes. His company, which specializes in the production of electric semi-trucks for logging, has faced repeated rejections for grant applications, despite their pioneering status in North America. Their struggles highlight a potentially systemic issue in how grants are awarded and administered in the province.
After being turned down for $3 million grants under both the CleanBC Electric Advanced Research and Commercialization (ARC) program and the CleanBC Go Electric Commercial Vehicle Pilots (CVP) program—both managed by MNP—Barber received a dubious offer from MNP. The firm suggested that hiring them could increase Edison Motors’ chances of securing government funds, with a proposed “success fee” of 20 percent of the grant amount.
Barber’s response in an interview was visceral: “Morally, this feels fucking wrong.” His sentiment encapsulates the ethical dilemma faced by many innovators who feel coerced into compromising their integrity for financial support.
Government and MNP’s Stand
In response to the allegations, MNP has firmly denied any wrongdoing or conflict of interest in its dual role as both grant administrator and consultancy firm. Todd Nash, a partner at MNP, stated, “MNP is careful to ensure there is no conflict with this type of service and programs that we consult on or help administer.”
Similarly, B.C.’s Ministry of Energy, Mines and Low Carbon Innovation has defended the integrity of the grant processes, asserting that no technical violations have occurred. According to the ministry, the specific programs mentioned do not fall under MNP’s administrative purview, thus supposedly precluding a conflict of interest.
A Deeper Look: Chace’s video overview
In the video posted to Edison Motor’s Youtube page, Chace Barber, co-founder of Edison Motors, delves deep into the fraught journey his company has endured while attempting to secure government grants for their electric semi-trucks. “We are the only company building heavy-duty electric commercial trucks in British Columbia,” Barber states, emphasizing the unique position of Edison Motors in the market. Despite this, their grant applications have been systematically rejected. He shares a troubling interaction with MNP, the firm responsible for managing these grants. “They made it kind of clear, if we want to get a government grant we have to go through them,” Barber recalls, revealing the pressure to hire MNP with the promise of increased chances at securing funding—a practice he describes as “morally fucking wrong.”
Barber’s frustration is palpable as he discusses the opaque criteria and potential conflicts of interest that seem to permeate the grant process. “After the rejection, MNP reached out to suggest it hire them to be more successful in winning government money,” he explains, detailing how this approach not only felt unethical but also highlighted a significant conflict within the grant administration system. This incident led him to question the integrity of a system that ostensibly supports clean technology but seems rigged to benefit specific gatekeepers.
The video concludes with a somber reflection on the broader implications of his experiences, suggesting systemic issues within the grant administration. “We’ve got innovative technology, and are doing cool things, and are all getting told no,” Barber laments, expressing his disillusionment with the process. He emphasizes the need for transparency and fairness, calling for an investigation into the administration practices that have left many innovators like him sidelined. “This is where it got interesting,” he notes, pointing out the peculiar recommendation from MNP that appeared self-serving at best. His story is a stark reminder of the challenges small businesses face in a system that appears to favor established interests over pioneering innovation.
Political Reactions and Public Outcry
The controversy has not only drawn attention from the affected company but has also stirred the provincial legislature. Skeena MLA Ellis Ross highlighted potential corruption, stating, “There are hints that there’s corruption here, coming from a party that’s been appointed by government to distribute dollars for a clean energy plan.”
Adam Olsen, a Green MLA, supported the call for investigation, emphasizing the need for transparency and fairness in the administration of government programs: “This is exactly the work of opposition: to critique government programs and to ensure that they’re being delivered fairly.”
Consulting firm KPMG overcharged Defence while raking in billions of dollars, whistleblowers say
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