PwC Australia tax scandal deepens as firm offers up names to stem bleedingby
At least 67 current and former PwC Australia staff involved in the leak of sensitive government tax plans have been named in an unpublished letter to lawmakers in advance of forthcoming parliamentary hearings.
The Big Four firm is struggling to contain the fallout from the scandal, which erupted after a former partner who was hired by the federal government to shape corporate tax laws shared the confidential drafts with colleagues who used them to win business.
In May, a tranche of partially redacted emails revealed dozens of staff across the UK, US, Singapore and the Netherlands were helping multinational businesses avoid a new Australian tax law.
A number of senior leaders at PwC Australia have stepped down, including the company’s chief executive, Tom Seymour, whilst at least nine partners have been suspended and international executives have flown to Sydney to assess the damage of the brand.
In January, the partner at the centre of the row, Peter Collins, had his registration as a tax agent terminated for leaking the intelligence to colleagues around the world who then helped clients minimise their tax liabilities.
His name, along with three other former partners, was handed to a senate committee overseeing the probe.
According to the Australian Financial Review, PwC also offered up a separate group of 63 current and former partners who received at least one email containing confidential information relating to Australia’s 2016 Multinational Anti-Avoidance Law
Those named did not necessarily know about the confidentiality breach.
A group of partners at the firm have reportedly hired a crisis communications specialist to advise them ahead of their grilling by lawmakers.
PwC has said that it is “deeply disappointed” by the actions of its former partners and is cooperating with Australia’s tax watchdog.
Australia’s largest pension fund has halted all work with PwC, indicating the firm’s actions to stop the damage from engulfing the wider business may be too late. Industry body Chartered Accountants Australia & New Zealand has also opened an investigation into the PwC matter.
Attention is also turning to the firm’s activities in the UK and UK, given colleagues in these jurisdictions shared the confidential data.
UK efforts to reform the top end of the audit and consultancy sectors by forcing the Big Four to split both arms are ongoing following longstanding conflict of interest concerns.
Last year, US regulators opened an investigation into the quality of audits carried out by large accounting firms in regard to the consulting services they provide to the same firms.
The PwC Australia scandal has put the ethics of the profession under the spotlight again, and the firm’s reputation may not recover, experts said.
“Questions are now being asked about the obvious conflict of interest presented by large global consulting firms like PwC that wear multiple hats depending on what services are required from them,” said Rui Rong Lam, Asia-Pacific regional legal counsel at Oracle. “Identifying and managing conflicts of interest is essential to maintain ethical integrity and preserve trust.”
The predicament points to a “broader paradox” in the Big Four, said Jon Bradshaw co-founder of the Project Alpha Plus business innovation advisory and think tank.
“While they market themselves as experts in strategy, governance and risk management, the PwC scandal shows they can sometimes be surprisingly bad at all of these as applied to themselves,” he said. He also questioned why nations such as Australia rely on the likes of PwC over their own public servants.
“Under ‘capabilities’, the firm lists a grab-bag of broad service lines that include assurance, consulting, legal, human resources, technology, infrastructure, deal-making, ‘Business Align & Connect’, and of course, tax-related services,” he said. “Starting from their unglamorous origins in auditing and accounting, the Big Four have expanded into new businesses seemingly without limit.”
Echoes of Enron
Given the pace the scandal is continuing to grow, and PwC seemingly unable to reverse the tide, legislation may arrive sooner rather than later, said Australian chartered accountant Arun Chacko, partner at Chacko Business Consultants.
“I think there will be a renewed push by the regulators, politicians, media and the public at large in Australia to separate audit, tax, consulting, and other divisions into separate firms to minimise risk and prevent another Arthur Andersen/Enron situation from happening,” he said.
Arthur Anderson was the fifth member of what was the Big Five until its questionable accounting practices were unearthed in the spectacular 2001 collapse of energy company Enron.
While calls for clearer lines of accountability between advisers and corporations are inevitable, “regulation on its own does not change behaviour or motive”, added Tim Richardson, director at leadership development experts Waverley Learning Ltd and a former PwC director.
He said the firm may be facing “an existential crisis” given senior management would have been fully aware of what was happening.
“The consequences will be significant and far reaching for PwC,” he said “The temptation to hurry to find a ‘fix it’ solution should be avoided. What is needed is depth of reflection and understanding that leads to genuine ownership and commitment.”