Recent allegations made against PricewaterhouseCoopers (PwC) claim it used government secrets to help clients in Australia and the USA to avoid tax.
The Australian government employed PwC several years ago to provide advice on the design of tougher multinational laws as part of a global push to deter huge companies minimising their tax bills and shifting profits overseas. The government insisted that those firms offering it specialist advice signed confidentiality agreements due to the sensitive nature of these potential changes. However, at least one PwC advisor shared privileged details of these changes with some of his colleagues. Several partners expressed concern at the potential legal consequences and reputational ramifications of PwC receiving and using this confidential information whereas some PwC partners went on to form a global team to consider how they could use this information for competitive advantage and commercial gain around the world, particularly in the USA. Email chains show PwC partners used the information to give at least 14 US companies the opportunity to prepare and pre-empt these changes in Australia’s new laws and reduce their future tax liability. It allegedly involved the collaboration of PwC staff in Singapore, the Netherlands, the USA, and several other countries.
The Australian Labour Senator Deborah O’Neill recently 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.”
PwC agreed to an Australian federal government order to stand down all employees involved in the alleged misuse of confidential information from government work. A few PwC partners’ have resigned. PwC has retained a law firm to allegedly investigate these incidents. PwC Australia is in ‘damage limitation mode’: its reputation and credibility is seriously under threat.
This tax scandal highlights many concerns at different stages: the Australian government relied (perhaps naively) on the integrity and honesty of a global third party; a PwC advisor shared sensitive information with partners despite knowing it breached confidentiality and ethical standards; some PwC partners’ in multiple countries used this information for commercial gain instead of heeding the warnings from their colleagues; PwC’s global culture failed to deter these partners from collectively exploiting this ‘insider information’: PwC’s organisational controls failed to detect these troubling breaches swiftly; PwC’s systems failed to empower its staff to report the wrongdoing (without recrimination); PwC failed to respond briskly and decisively when it became aware of these professional breaches; PwC failed to insist on the resignation of all the partners and staff involved; PwC failed to communicate unequivocally both internally and externally about this matter; PwC failed to be open and transparent.
This scandal has wide repercussions for governments and companies who use third party professional services. These third parties, which tend to be profit driven, have the means, opportunity, and motive to use confidential information inappropriately. So, the question is: Should (and can) these ‘professional firms’ be trusted?
The Tax Team
Department of Accounting, Finance and Economics