‘Disgraceful breach of trust’: how PwC, one of the world’s biggest accountancy firms, became mired in a tax scandal

PricewaterhouseCoopers used government secrets to help clients in Australia and the US avoid tax – a scandal that has forced resignations and threatens contracts worth hundreds of millions

In the depths of winter 2015, an Australian tax specialist adopted the language of a spy. “For your eyes only,” he wrote, while emailing government secrets to colleagues who would later use them to help clients and make millions of dollars.

Nearly eight years later, that email and dozens more like it have engulfed PwC in a scandal that has forced resignations, possible criminal and corruption investigations, invited furious rebuke and accusations of insider trading, and threatened future government contracts worth hundreds of millions of dollars.

Australian politicians, armed with 144 pages of internal PwC correspondence, are now pouring scorn on a company that is central to the provision of government services. In parliament, one senator likened PwC to a cancer, while warning other governments it could be committing acts of “deception and betrayal” in their countries too.

The man who sent the 2015 email was the former PwC adviser Peter Collins, who at the time was helping the Australian government design tougher multinational tax laws. It was part of a global push to stop huge companies minimising their tax bills and shifting profits overseas.

Collins had signed confidentiality agreements with the Australian government and agreed to keep the information secret. But instead he fed intelligence to his colleagues at PwC so they could prepare clients for what was coming.

A raft of emails uncovered by a parliamentary inquiry suggests Collins, who was de-registered as a tax agent last year, knew the details were sensitive. He frequently urged colleagues not to share the information widely, or to treat it as merely rumour or expectation.

Collins provided information about multiple tax initiatives, meeting agendas, expected timings and government thinking, as well as a confidential copy of an OECD draft paper on “mandatory disclosure of tax planning schemes”, which outlined possible measures to reduce tax avoidance globally.

At least one PwC partner realised sharing this document could lead to damaging accusations of insider trading, with potential legal consequences, and sought to limit damage to themselves and the company.

“Because it was provided to us on a confidential basis, I ask that you don’t circulate it beyond us or discuss it outside PwC – it would really put PwC Australia and me in a real bind,” the unnamed executive wrote.

Despite this, PwC partners then formed “a global team” that would consider how this information could be used for commercial gain around the globe, but particularly in the United States.

Labor senator Deborah O’Neill has accused PWC of ‘a toxic culture of unprofessional practice’
Labor senator Deborah O’Neill has accused PWC of ‘a toxic culture of unprofessional practice’ Photograph: Mick Tsikas/AAP
Email chains reveal PwC partners began working on “our first North America project” and used the information to give 14 US companies, primarily in the tech sector, a head start on compliance with Australia’s new laws.

Days after the laws were introduced in January 2016, PwC partners praised the work of Collins and the competitive advantage he’d given the firm, given “a significant number of these clients were not PwC Australia clients”.

PwC acting chief executive, Kristin Stubbins, said the firm was committed to building a stronger culture of trust and transparency.
PwC Australia chief executive Tom Seymour resigns in wake of tax policy leak
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“We were aggressive in telling these relationships they needed to act early, heavily helped by accuracy of the intelligence that Peter Collins was able to supply us and our analysis of the politics,” one executive wrote.

The US project generated about $2.5m in revenue and relied on collaboration from PwC staff in Singapore, the Netherlands and the US. Separately, senior UK partners commented on the confidential information and provided input.

‘A sickening example of lack of integrity’
The Australian senator who ordered the PwC emails be released has accused the company of not being upfront about the global scale of the scandal and how many people may have been involved.

“PwC is a global company,” the Labor senator Deborah O’Neill said. “The emails demonstrate international collaboration on this issue among PwC staff across the jurisdictions of Singapore, the United Kingdom, Ireland, the United States and Europe.”

“This is a disgraceful breach of trust, a sickening example of a lack of integrity, and reveals a toxic culture of unprofessional practice at PwC that stretches across the globe.”

Dr Erin Twyford, an Australian academic researching the power of consultants, said PwC used its privileged access to government and its global contacts to gain a commercial advantage in new markets.

“When the OECD’s 2015 final report on the base erosion and profit-shifting action plan to tax multinationals was adopted in Australia in 2016, PwC had already implemented new tax practices for clients to avoid the new law,” Twyford told parliament earlier this month.

James Guthrie, an emeritus professor of accounting at Australia’s Macquarie University, said the scandal should concern governments worldwide, especially those who rely heavily on the firm for policy advice.

“This inside information, it would appear, has been used to create a scheme of evasion, which they then went out and sold to various multinational companies around the world,” Guthrie told an ongoing Senate inquiry.

“So we’re not just talking about Australia; we’re talking about how the partnerships work. This inside information was used to create schemes to avoid the 2016 activity.”

‘A shocking breach of trust’
When PwC’s breach of confidentiality was first reported by the Australian Financial Review earlier this year, Australia’s treasurer, Jim Chalmers, said he was “absolutely furious”. He vowed to “throw the book” at those responsible for “a shocking breach of trust”.

The government’s first response was to give the regulator more money and more power. But further action now appears likely. On Thursday, Treasury confirmed it was considering whether a criminal investigation should be pursued against Collins.

Some politicians want the scandal to be investigated by a powerful new anti-corruption commission, which can call witnesses and compel evidence.

The Greens senator Barbara Pocock believes PwC should repay the $2.5m it won from US clients, based on information supplied by Collins.

“This company has made millions selling secret government information to help its multinational clients minimise tax,” Pocock said.

Others, including the former commissioner of the Australian public service, Andrew Podger, warn the company should not be allowed to sign new contracts with Treasury and potentially other departments.

‘Trust in PwC at an all-time low’
PwC Australia’s early response to the scandal was to claim those directly involved in the breach had already left the company.

On Tuesday the chief executive, Tom Seymour, resigned from his position after acknowledging he received emails from Collins. Days later, two other Australian executives resigned. All remain partners.

The company has apologised to parliament and the new acting chief executive, Kristin Stubbins, said PwC was committed to learning from its mistakes and building “stronger trust and transparency”.

“We have retained an independent law firm to evaluate prior reviews, conduct additional investigation where necessary and make recommendations for improvements,” a PwC spokesperson said.

“We are continuing to look into this matter and we will not hesitate to take further actions.”

So far these actions have failed to convince many. Some politicians believe more resignations are necessary. Others doubt whether PwC is taking the scandal seriously.

“There is no public document revealing the terms of reference of the inquiry and the independence of the enquirers appointed by PwC is completely unknown,” O’Neill said.

“With trust in PwC at an all-time low, you think they would have figured out that such an inquiry is not to be trusted – when it is self-appointed.”

There is also concern that this may not be an isolated incident. PwC had more than half-a-billion dollars worth of contracts with the Australian government last year.

“We need to ask whether we are only looking at the tip of the iceberg. We need to know much more about the huge, opaque consulting industry at large,” Pocock said.

The free press is under attack from multiple forces. Media outlets are closing their doors, victims to a broken business model. In much of the world, journalism is morphing into propaganda, as governments dictate what can and can’t be printed. In the last year alone, hundreds of reporters have been killed or imprisoned for doing their jobs. The UN reports that 85% of the world’s population experienced a decline in press freedom in their country in recent years.

Article Credit: https://www.theguardian.com/business/2023/may/12/disgraceful-breach-of-trust-how-pwc-one-of-the-worlds-biggest-accountancy-firms-became-mired-in-a-tax-scandal