Scandal over tax leaks threatens to engulf PwC
As chairman prepares to stand down after 40 years at the firm. . .
PwC’s global chairman has seen his fair share of controversy during a four-decade career at the firm. From a record fine over the collapse of BHs to the infamous Oscar ‘envelopgate’ mix-up, when one of his executives presented the Academy Award for Best Picture to the wrong film, Bob Moritz has had to navigate a number of storms.
But as the accountancy giant’s New York-based chairman prepares to retire, there is one scandal which arguably poses an even bigger risk to the British brand’s reputation and is threatening to blow up again.
Moritz, 61, has spent the twilight phase of his accounting career overseeing efforts by PwC International’s top executives in London and New York to contain the Australian tax leak scandal, a blot on the firm’s copy book big enough to have its own wikipedia page.
These efforts may well be in vain, with Australian senators determined to prove that partners around the world were complicit.
Last week, a damning Australian senate report piled on further pressure by accusing PwC of covering up the role of its international arm, in a bid to contain the crisis. It concluded that PwC International’s refusal to release a report by London law firm Linklaters into the role played by staff outside Australia is part of multi-year coverup that ‘worsens the crime’.
In January last year it emerged that a former tax partner at PwC’s Australian arm called Peter Collins had exploited confidential information from his client – the Australian Treasury – to help multi-national companies dodge tougher tax laws he was helping to design.
The scandal erupted in May when a large cache of emails revealed Collins had shared this information with colleagues in Australia and overseas, who then sold the information to Us firms as part of an initiative dubbed Project North America.
Almost a year after accusing PwC of ‘a calculated breach of trust’ in its initial report, Australia’s senate Finance and Public Administration References Committee released its equally scathing follow-up entitled The Cover-Up worsens The Crime.
Accusing PwC of making only ‘superficial commitments to change’, it argued the group has yet to come clean about the involvement of partners and staff outside of Australia in the scandal, and failed to fully co-operate with investigations.
The committee singled out Moritz’s refusal to hand over Linklaters’ report, which focused on the role of a group of international partners referred to by senators as the ‘dirty six’. Describing the publication of the Linklaters report as a ‘first step to restoring trust with the Australian parliament’, the senate committee said the ‘extent of the involvement of the dirty six and others overseas in the misuse and attempted monetisation of confidential government information remains a crucial and glaringly absent piece of the puzzle’. It added: ‘The committee does not see how PwC can recover their reputation while it continues to cover up because the two are incompatible. Indeed, the cover up worsens the crime.’ PwC International, which is based in London, had commissioned a separate inquiry into wrong-doing within its Australian arm, publishing the findings in september.
In contrast, it only published a one-page press statement on the Linklaters report, declaring the investigation had found ‘no evidence that any PwC personnel outside of Australia used confidential information from PwC Australia for commercial gain’.
PwC said the report had concluded that six individuals, who it refused to identify, should have raised questions as to whether the information was confidential. It said ‘appropriate action’ had been taken against those who remained with the firm, but left it at that.
Bosses at PwC International, led by Moritz, who is retiring at the end of June, have incensed the senate committee by refusing to hand over the report, citing legal professional privilege.
They have adopted the same approach to block demands from the Australian Tax Office (ATO) and the Tax Practitioners Board, which is conducting nine investigations into the tax leaks.
Even Kevin Burrowes, pictured, the British veteran parachuted in to run the Australian operation and clean up the mess, has been denied a copy. The senate committee noted that PwC Australia used the same argument of legal professional privilege to conceal thousands of internal documents from the ATO during its early investigations into the affair years ago.
PwC’s Australian arm has already paid a hefty price. It was forced to sell its government consultancy arm for $1, has laid off hundreds of staff, and overhauled its internal governance. It is also facing numerous investigations, including a criminal probe by Australian Federal Police.
BUT the senate committee cited the lengths taken by PwC International to protect its global empire, which spans 151 countries and employs more than 360,000 staff. Last month it emerged that it quietly used network rules to bring the Australian arm under its control after deciding that the tax leaks scandal was causing ‘ongoing reputational and global brand damage’ to the firm.
Business newspaper the Australian Financial Review revealed that the global network sent a legal letter to PwC Australia in June last year putting it under ‘ supervised remediation’ and instructed the branch to ‘take all the necessary steps’ to bring Burrowes in as the interim boss.
Deborah O’Neill, a Labour party senator and committee member, described the publication of the Linklaters report as an ‘essential’ step to restore trust.
‘The reputational and financial damage that the firm has deservedly suffered as a consequence of their misconduct is not easily erased despite the firm’s attempts to cauterise its Australian operations from its global network,’ she said.
‘ Unless PwC shows this commitment to accountability and reform, the firm’s government and corporate clients cannot be confident that the firm can be considered a trusted entity.’
A spokesman for PwC said it had taken ‘considerable steps to transform our firm’, including plans for a major governance reform package’ which will include ‘ the implementation of cultural change from the top down’.