Christopher Niesche: Reputational stench could linger around PwC Australia for some time

The scandal currently engulfing PwC Australia has a long way to run. Photo / 123RF

Opinion

PwC Australia faces a mammoth task in regaining the trust of the Australian Government, the corporate sector and, indeed, the public.

The scandal currently engulfing the “Big Four” accounting firm has a long way to run and leaves many questions unanswered. The answers will have profound implications, not only for PwC, but for Australia’s entire consulting industry and tech sector.

This is what we know so far.

Back in 2015, the Australian Government engaged PwC tax partner Peter Collins to help design an effective tax for multinational tech companies such as Facebook and Google, which were minimising their tax from Australian operations by shifting profits to lower-tax jurisdictions offshore.

Despite having signed confidentiality agreements with the Government, Collins shared intelligence gained from the Government with tax colleagues at PwC to help them win tech company clients. The information was used to give 14 US tech clients a head-start on Australia’s new tax laws, enabling them to devise ways to evade the law changes and continue to minimise their tax bill.

The project generated about A$2.5 million in revenue for PwC and involved collaboration from PwC staff in Singapore, the Netherlands and the US.

The scandal has already seen Collins, chief executive Tom Seymour and two other partners leave, but there are likely to be many more.

Seymour – who was head of tax when the leaks occurred – revealed before he resigned from the firm that six to eight PwC partners shared the leaked information.

Another 30 to 40 partners received the emails and used the information within to pitch to clients, but Seymour said those partners weren’t aware the information was confidential. This seems disingenuous. The currency of the information wasn’t that it was an educated guess about the tax reforms. It was rock-solid information. We have to wonder how PwC conveyed this to clients without at least a nod and a wink.

We don’t know the names of these partners yet, but Treasury is currently considering whether there should be criminal charges against those involved. The future of the PwC staff involved will be under a cloud.

We are yet to learn which tech companies relied on the information and whether they were aware the information had been misappropriated from the Government. There’s no reason why we shouldn’t be told the names of these companies – PwC can hardly claim client confidentiality. Any found to have knowingly drawn on this information will find their already murky reputations further dented, not just in Australia but around the world.

The tech companies involved would be unlikely to receive a sympathetic hearing from the Government next time they want concessions. With any luck, they’ll find themselves facing tougher tax laws in the future.

What’s also unclear is how much tax the multinationals avoided by using PwC’s pilfered intelligence. How many new primary school teachers or hospital beds has it cost Australia?

PwC has engaged former Telstra CEO Ziggy Switkowski to run an inquiry into the leaks to report by September, but said it will make only a summary of the internal inquiry’s key recommendations public.

They are essentially asking us to trust them that the review is thorough and that those involved in the wrongdoing have been appropriately dealt with. This is laughable, given what we know of its conduct to date.

A broader question facing PwC - and, indeed, the entire consulting sector - is how deeply these practices run. Was it the result of a single rogue partner at PwC who roped in a few colleagues? Or is this sort of dishonesty commonplace in the firm? And does it extend to other consultancies advising the Government on reforms while, at the same time, receiving retainers from clients affected by these reforms?

The inherent internal conflict for a firm advising the Government and clients on the same issue has arisen as the Big Four accounting firms have expanded their services far beyond their bread-and-butter corporate auditing work. They are increasingly hired by governments which have hollowed out their public services, with a resulting loss of policy-making expertise. PwC alone has earned A$537m in federal government contracts in the past two years.

The firms argue they manage the conflict with confidential agreements and “Chinese walls”, through which no information flows. But we’d have to wonder how effective these protections are.

The Big Four will come under close scrutiny not only in Australia, but also in other countries where governments rely on them for advice.

We have to wonder how much more work Australian governments are prepared to give to PwC. Even if there’s no official ban on engaging the firm, a lot of department heads and ministers won’t want to go near them after this huge breach of trust.

Likewise, a lot of corporates will likely reconsider engaging them, if for no other reason than they don’t want to be associated with the reputational stench that will surround PwC Australia for years to come.