KPMG Dubai partners raised concerns about Freshfields review

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KPMG partners in Dubai raised concerns about the cost and transparency of a $1.5mn review by lawyers at Freshfields that followed allegations of misconduct at the Big Four firm.

The review was announced in July 2022 after the FT reported allegations of nepotism by KPMG’s then-boss in the United Arab Emirates, Nader Haffar, whose tenure had been extended by five years after a snap vote with no opponents. Freshfields also advised on a fresh leadership election as part of the mandate.

Board members complained they were being kept in the dark about the “magic circle” law firm’s investigation, according to new information disclosed to the Financial Times. One person with knowledge of the matter said board members did not receive a copy of any Freshfields report.

They were also told that the law firm had been “swayed” on matters where its view had differed to that of KPMG’s local governance review committee, which commissioned Freshfields and ran the process, according to the information disclosed. 

The board members also questioned why Freshfields was being paid so much and why KPMG had bypassed the normal procedure for procurement worth more than $500,000, which insiders said required executive committee approval after obtaining at least three quotes.

KPMG’s UAE and Oman business, called KPMG Lower Gulf, never published Freshfields’ recommendations. 

KPMG International and KPMG Lower Gulf declined to say whether Freshfields produced a written report or to comment on any of the governance issues raised in this article.

A person close to KPMG said the review was “complete” and that the firm had “moved forward with a number of recommended changes and initiatives” without providing details. The results of the review were shared with KPMG Lower Gulf partners, two people briefed on the matter said. One of the people said “due process . . . was followed in the appointment of the independent law firm”.

Freshfields declined to comment, citing client confidentiality. There is no suggestion that Freshfields breached professional standards.

The magic circle firm, whose work cost about $1.5mn in total, was also called on to advise on a fresh Lower Gulf leadership election after the 2022 governance scandal. Emilio Pera was elected as chief executive, replacing Haffar, who left the firm after opting not to stand.

Some current and former partners have questioned Pera’s suitability as chief executive, citing internal rules that candidates for the role be fully compliant with quality standards.

Deficiencies in Pera’s audit work had been flagged in two years’ internal quality reviews, said people familiar with the findings. Emirati authorities this year ordered at least one company to find an auditor other than Pera, according to information obtained by the FT.

Pera did not comment when approached via KPMG Lower Gulf. A person close to the firm said his selection followed a “robust appointment and risk management process”.

The revelations create further scrutiny of KPMG’s global boss Bill Thomas, who was criticised by staff last year for failing to act more decisively on reports of poor governance in the Lower Gulf business.

Thomas has now ordered the scandal-hit Dubai business to merge with KPMG’s larger Saudi enterprise in a move that current and former partners said appeared to be an attempt to rescue the Emirati operation. The Canadian, whose tenure was unexpectedly extended this month until 2026, has pushed partners in both countries to agree a deal by next year, three people familiar with the matter told the FT. 

The move comes as the Lower Gulf firm battles potentially financially ruinous legal claims over failings in its audits of Abraaj, a private equity group that collapsed in 2018. Its audit division was also banned last year from winning new contracts from Abu Dhabi state-related companies. 

The possibility of an alternative transaction involving KPMG UK was discussed in recent months, said some current and former partners, but a tie up between the Middle East firms is being pursued instead. The UK operation is separately preparing to merge with KPMG Switzerland.

The transaction “might be more of a takeover” by the Saudi firm given the problems facing the Lower Gulf operation, said a former partner, adding that the potential Abraaj-related liabilities were “the elephant in the room”. 

“I don’t see how the Saudi partners will get married to the Lower Gulf business with that Abraaj litigation hanging over it,” said another former partner. “You could come up with a ringfence [to prevent the Saudi firm having to absorb the liabilities] but if it takes down your UAE firm what are you going to do? Start again?” 

KPMG has not said whether or how it could fund payouts running to hundreds of millions of dollars and declined to say whether either insurers or its international operations would step in to meet the cost. 

Both the Saudi Arabia and Lower Gulf businesses are part of the global network of domestically-owned firms that pay a levy to KPMG International to use accountancy’s brand and agree to abide by its global standards. 

KPMG International said there were “opportunities for more clustering of some of our member firms over time”, building on its existing international structure. “This should see greater shared economic interests, including collective investments and efficiency gains,” it said. 

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