PwC breached the Australian government's trust, now it is facing the consequences (2023)

PwC gets paid millions to get companies and governments out of trouble, butit's in the middle of an international crisis after a former tax partner usedconfidential Treasury information to make millions for the consulting firm.

Key points:

  • PwC expert Peter-John Collins shared confidential information about future tax laws with partners, staff and clients that would be impacted by them
  • PwC's biggest client is the federal government, with more than $500 million in contracts in the past two years
  • Questions are being asked about conflicts-of-interest at large consulting firms

"PwC was brought in as a trusted adviser and expert to help shape [new]laws," says columnist and author Tom Ravlic.

"They've taken that knowledge and then used it to undermine them almost immediately."

Now PwC Australia's biggest client —the federal government —is seething.

There are ongoing investigations that could lead to criminal charges and it's about to getworse: with a week of questions using the full force of parliamentary accountability.

Criminal potential

For months the treasurer has said he's "ropeable" and "furious" about the breach. Now it's stepping up.

PwC breached the Australian government's trust, now it is facing the consequences (1)

Speaking to Nassim Khadem for ABC TV's The Business program,Assistant Treasurer Stephen Jones confirmed he expects a "clear message" about the behaviour.

"We've got Treasury looking at an investigation into what has occurred, andlooking at whether criminal charges should be referred to theAFP (Australian Federal Police)."

"We're all appalled (with)what's goneon with PwC," he continued.

"We want to send a very clear message to them and anyone else who is providing services to government: that you cannot breach the trust of the government or the Australian people."

"So if criminal charges or other charges can be laid, we're looking forward to the outcomes of that investigation from Treasury."

What went wrong

About a decade ago, the government asked PwC tax expert Peter-John Collins to help it design laws to better tax multinational companies.

Large companies, particularly tech giants, were shifting profits from higher-taxing countries like Australia to others like The Netherlands and Singapore with lower tax rates.

Mr Collins signed multiple confidentiality agreements, specifying the knowledge could not be disclosed.

But he shared the secret knowledge within PwC, helping the firm create a system for those companies to avoid paying the new taxes.

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The company used the scheme to make money and win new clients, then gloated about it.

The Tax Practitioners Board was damning in its assessment of Mr Collins, saying he "did not act with integrity" and disqualifying him from working in the field for two years.

The board said he signedmultiple confidentiality agreements and it was clear the Treasury information was being disclosed on a confidential basis.

"[Despite that],some of the confidential information was disclosed by Mr Collins with other PwC personnel who, in turn, disclosed to clients or potential clients of PwC."

Damage done

But will there be criminal or civil charges? That's unclear, according to UNSW business law expert Dr Scott Donald.

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That's because the allegation so far is that PwC benefited from a breach of a confidentiality agreement. An agreement we haven't seen.

"That really colourswhether there's going to be criminal or other sorts of consequences that flow from it," Dr Donald said.

"Clearly where there's a formal confidentiality agreementand the other party breaches that you're likely to have some kind of action against them. But the problem for the government in this sort of situation is: How do you quantify the loss?"

By helping multinational companies avoid tax, Australian taxpayers could have lost huge sums.

So far, all we know is that PwC won $2.5 million in fees from new clients when it marketed the arrangements. (There is no suggestion the clients were aware of how the information was obtained).

Dr Donald says that's underquoting what probably occurred, because the firms create value by having close relationships with government and "being able to interpret, anticipate, perhaps even influence the way that government sets up various regimes, whether it's tax or other sorts of (policy)and then being able to then sell that information that knowledge off to their clients."

"So the profit that they make isn't $2.5 million. It's actually much larger than that, because they have a whole business. This is what they do."

'Blatantly unethical'

People working in finance are blown away by the scandalbecause there are clear rules about confidentiality and managing conflicts of interest,particularly when you have your hands on other people's money.

PwC breached the Australian government's trust, now it is facing the consequences (4)

Verve Financial chief executive Christina Hobbs has investment funds and a superannuation product to run. But she's found time to be astonished as the details of the PwC scandal have come out.

"I think most people are fairly shocked that a professional financial services company in Australia the size of PwCcould be committing such blatant unethical and potentially illegal behaviour."

The departure of former CEO Tom Seymour was a "real moment" she says.

"Because it really showed that this isn't just a couple of 'bad eggs'. This is the culture of the organisation in Australia."

Mr Seymour has stood down from his role and will leave the partnership in September. That's also when a report commissioned by PwC into its own governance failures will be partially released to the public.

As a finance professional, Ms Hobbs must consider the interests of clients and members above all else when making decisions.

She sees the PwC matter, which appears to be "walking both sides of the street"in dealing with confidential information, as a potential turning point in how consulting firms are used by government to provide advice.

"From the outside, it seems like an astounding breach of what are relatively straightforward and common and competent confidentiality rules and requirements around financial services," Ms Hobbs said.

"To see these flouted in such an open way is really quite astounding."

Complicating factor

One issue that clouds the role of PwC and other consulting firms — such as EY, KPMG, Deloitte and others —is that our tax system is notoriously complex.

"There's probably handfuls of people in this country that truly understand how the corporate taxation system works," saidMs Hobbs.

"And that's just not tenable in the long term."

It means that big businesses require firms like PwC to help them navigate the tax system. And that the government has also needed the firms to show it the loopholes that need closing.

"How are they, so soon afterwards, able to turn around to some of the largest multinationals in Australia and say, 'Hey, these laws are coming, and we can help you get through them'?"

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Inside PwC

Tom Ravlic, author of books Crown: Playing in the Shadowsand Rorts and Rip-Offs, says the crisis within the firm won't be contained to a single part.

PwC Australia has more than 10,000 staff, most of them far removed from the division that deals with tax. Key money-makers are audits (examining and 'signing off on' the finances of companies) and management consulting (providing business advice).

PwC breached the Australian government's trust, now it is facing the consequences (5)

"Every firm has its internal cops, if you like, that are responsible for ensuring the firm stays on the right side of the road regardless of the division," he said.

"Just imagine what it must be like to an internal firm risk management person right now at PwC.

"Every day there is a reminder that some folks decided it was okay to drive on the wrong side of the road, go onto the footpath and take out sandwich boards, a lamp postand a fire hydrant in the process."

Tough week

And it's set to get worse.

Senate committee hearings will increase the pressure all week, as the Department of Prime Minister and Cabinet, Finance Department and the Australian National Audit Office are quizzed on their dealings with PwC and other consulting firms, how they manage conflicts and what they've changed in the wake of the revelations.

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Tom Ravlic says previous royal commissions and inquiries have exposed how powerful the concept of 'culture' is inside large organisations.

"When people make the decision that something is acceptableto do in a particular circumstancethen it becomesokay to do what they've done."

He says this answer isn't as simple as banning aparticular firm from having government contracts.

"That's not going to deal with the broader regulatory issues and only deals with the immediate impulse for punitive measures," he argued.

"Let's take a wide-angle approach. Let's look at the entire system. And let's see what we can do better."

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