PricewaterhouseCoopers’ public slogan is to “build trust in society and solve important problems”.
But its embattled Australian affiliate breached that trust when it misused confidential government tax information for commercial gain, creating its own crisis that threatens to extend beyond national borders.
While the scandal is Australia-centric, PwC used its global network to profit from privileged information, drawing in other parts of one of the world’s biggest professional services firms.
Its admitted failings are now subject to a police investigation, and governments around the world will be taking note amid a growing reliance on private consultants to formulate public policy.
What happened at PwC Australia?
In 2015, the now former PwC adviser Peter Collins, the international tax chief at the Australian affiliate, was helping the federal government design tougher multinational tax laws.
Australia’s treasurer at the time, Joe Hockey, was concerned about the rise of opaque structures such as the “double Irish, Dutch sandwich” that involved sending profits through one Irish company, then to a Dutch company, and back to another Irish company in a tax haven.
Such schemes were particularly popular with US tech firms, including Google (which has said it no longer uses the loophole).
Collins, who had signed confidentiality agreements with the Australian government, fed intelligence on the government plans to PwC personnel both in Australia and abroad. The firm used that information to give more than a dozen US companies an early warning of the changes, netting additional fees and potentially depriving Australia of tax revenue.
The question of which colleagues received Collins’ communications, and what they did with the information, would become a central part of future inquiries.
The structure of firms providing advice to government agencies on sensitive topics is also now under scrutiny. Unlike a pure advisory firm, PwC’s practice of advising authorities on the design of tax laws, and creating tax arrangements for clients, creates a devastating conflict if not strictly managed.
How did the scandal become public?
Collins was deregistered by the Tax Practitioners Board late last year after an investigation found he shared confidential information and documentation obtained from consultations with Treasury.
The findings, which prohibit him from reapplying for tax agent registration for two years, were not publicly known until a story in the Australian Financial Review in January.
It has since been revealed in Senate estimates, which allows Australian senators to examine the use of taxpayers’ money, that the tax office became aware in 2016 that a handful of multinationals “suspiciously and quickly” sought to restructure operations in response to new tax avoidance rules.
Specifically, the Australian Taxation Office (ATO) was concerned by tax schemes marketed by PwC that threatened the country’s tax take, and it suspected there were confidentiality breaches.
Information was passed to police, but it did not initially result in a full investigation. Treasury has since referred the matter back to the Australian federal police, citing new evidence.
The ATO also formally referred the issue to the Tax Practitioners Board in 2o2o, which led to the decision to deregister Collins. Crucially, the tax board passed on 144 pages of internal PwC emails to the Senate, although redactions have frustrated some of the senators.
(January 31, 2013) PwC Australia’s international tax chief Peter Collins consults to Treasury after signing confidentiality arrangements. This includes work on designing tougher multinational tax laws.
(May 31, 2015) Collins sends emails to colleagues that are part of the 144 pages of internal PwC correspondence that has underpinned Senate estimates inquiries. Redactions in the documentation have frustrated some of the senators.
(May 31, 2016) The ATO becomes suspicious at how quickly some multinationals quickly restructured operations in response to new tax avoidance rules. There are also related concerns over confidentiality breaches.
(May 31, 2018) The ATO refers information to the Australian federal police and Tax Practitioners Board (TPB).
(December 31, 2022) The TPB terminates Collins’ tax agent accreditation. It gives the reasons for the decision in January, and is reported by the AFR.
(January 31, 2023) Treasurer Jim Chalmers says he’s furious that confidential government briefings were shared.
(February 2, 2023) The scandal widens after details emerge that potentially dozens of PwC personnel received or monetised the confidential information from Collins.
(May 8, 2023) PwC Australia chief executive Tom Seymour resigns.
(May 24, 2023) Federal treasury refers Collins to Australian federal police.
(May 29, 2023) PwC Australian issues open apology. It directs nine partners to go on leave pending outcome of internal investigation.
How has PwC responded?
The accounting firm’s initial response to the scandal was to claim those directly involved, including Collins, had already left the company.
Ian Ramsay, who formerly headed a federal government inquiry into auditor independence, said the response had been inadequate.
“There has been an abject failure of PwC to effectively deal with this, and basically endeavour to minimise it. At each step they’ve realised that they need to offer more fulsome apologies and take more accountability,” said Ramsay, an emeritus law professor at the University of Melbourne.
In early May, under sustained pressure, PwC Australia chief executive Tom Seymour resigned. He was one of dozens of partners who received emails about the confidential information from Collins, although there is no inference he used that information inappropriately.
In a sign of the seriousness of the situation, senior global executives were in Sydney shortly before Seymour’s resignation.
Separately, nine of the firm’s partners, who have not been named, have been directed to take leave pending the outcome of an internal investigation.
Senators Deborah O’Neill and Barbara Pocock are pressing PwC to release the names of all partners involved in the scandal. O’Neill has warned that anything less would amount to a “continued obfuscation and cover-up”.
Is the scandal fatal for PwC Australia?
The issue has sparked debate over conflicts of interest between auditors, accountants and consultants, and whether one firm can work across all areas, as PwC and other major accountancy groups do.
Ramsay said while he believed the broader business would survive, PwC Australia’s tax division was under threat.
“There’s some real questions about the future of the tax group here. It’s going to be quite challenging for the tax practice to regroup after this.”
On 29 May, PwC Australia published an open apology on behalf of acting chief executive Kristin Stubbins.
“Although investigations are still under way, we know enough about what went wrong to acknowledge that this situation was completely unacceptable,” the apology said.
“No amount of words can make it right. But I am fully committed to taking all necessary actions to re-earn the trust of our stakeholders.”
The company said it would ringfence its services to federal government departments and agencies to prevent conflicts of interest.
PwC has also committed to publishing in full the details of an independent review into its operations and culture, after it was criticised for initially promising to only share a summary of the key recommendations.
In the meantime, the firm’s relationship with federal and state governments, as well as other agencies, is unravelling. The Reserve Bank is among those to publicly say it has halted signing new contracts with it until PwC can demonstrate complete transparency.
All up, PwC had more than $0.5bn worth of contracts with the federal government last year.
The issue has highlighted how dependent the public sector is on the consulting industry which should give government departments reason to rethink the relationship, according to UNSW associate professor Scott Donald.
“Parts of the public service have clearly been hollowed out,” said Donald, a senior lecturer in the law faculty.
“They have somewhat become captive of the industry. Maybe the scandal will be the opportunity to think more broadly about the interaction between sensitive government policy and the private sector.”
