PwC Should Face Consequences For Brazen Breach Of Trust

Who better to comment on PwC’s current woes than Mark Forbes (lead image), a director at Icon Reputation. In this guest post, Forbes gives his expert tips on dealing with any reputational crisis…

Let’s call it. PwC, personnel directly implicated in misusing confidential government tax plans and those involved in its cover-up, should be banned from working with any government for at least seven years.

The brazen breach of trust, ethics and potentially law involved in advising Canberra on how to crack down on tax fraud by multinationals, then using that information to market avoiding the crackdown on those same companies, is breath taking. Worse still is how PwC, from the top down, blocked and obfuscated to hide its transgressions.

Why a seven-year ban? In 2016, the firm had its first opportunity to come clean when the taxation office asked what staff and clients were told. PwC avoided accountability for at least seven years. Its corporate penalty should continue at least that long.

In a reputational crisis, the response can have more impact than the initial incident, and PwC broke every reputational rule. In our crisis ebook, I spell out the four R’s of crisis: recognise, respond, regret and remediate. The second-largest professional services network in the world failed on all counts.

The scandal dates back to 2014, when a taxation partner at PwC, Peter Collins, signed a confidentiality agreement in order to advise Treasury on measures to crack down on multinationals circumventing Australian taxes.

On May 11, 2015, Treasurer Joe Hockey announced the new legislation to tackle tax avoidance, naming 30 global companies that paid no tax in Australia as targets of what was dubbed the ‘Google tax’. “This is about the integrity of the Australian tax system,” he said.

Within minutes, PwC’s tax partners began emailing and calling customers with plans to circumvent the tax. Collins had shared details with colleagues – an internal email from Collins, recently uncovered, described it as a both controversial and“treasure trove”.

In 2016, the ATO, alarmed at proliferating schemes to avoid its new taxes, began requesting information from its consultants, including emails sent between advisers within their firms and to their external clients.

In 2017, the tax office ramped up inquiries into the big four consulting firms, PwC, KPMG, EY and Deloitte, who were peddling schemes to avoid the tax on multinationals, demanding documents and emails. Only PwC refused.

Tax Commissioner Chris Jordan told a Senate Estimates hearing last week, “it appeared our investigation was being frustrated through false legal professional privilege claims…Despite our best efforts, due to the obstacles placed in our path, it took a long time to obtain the information requested (from PwC).”

What it did learn raised significant concerns about schemes being marketed by PwC, and Collins’s inside knowledge. “As the confidentiality breach was not a tax offence, we were unable to investigate the matter further,” Jordan said.

The case was handed to the Federal Police, who were also stymied in obtaining information, and in July 2020, the ATO informed the Tax Practitioners Board. Last December, the board announced that it had deregistered Collins as a tax agent for two years and ordered PwC to run conflicts of interest training.

When the Australian Financial Review pressed PwC for details, it downplayed the issue, denying its leadership was aware of what happened. But a couple of determined Senators were more than curious, and when the Practitioners Board’s CEO appeared before Senate Estimates in February, he revealed that between 20 and 30 PwC partners and staff had been involved in sharing the confidential information.

PwC CEO, Tom Seymour, who had headed the firm’s tax practice during these years, claimed it was a “perception issue”, and there had been “no finding” that 30 staff were involved in sharing the information.

Unfortunately for PwC, Labor Senator Deborah O’Neill lodged a Question on Notice asking the Board to table the report of its investigation, as well as all PwC emails. Its investigation report was suppressed, but 144 pages of heavily redacted emails painted a devastating picture of how deeply involved many PwC partners were in sharing the confidential information from Treasury and Taxation.

Seymour confirmed he was a recipient of the damning emails and stepped down. PwC subsequently announced that nine senior partners were “sent on leave” and chairs of the governance board and its risk committee were stepping down.

The new acting CEO, Kristin Stubbins, then issued an apology in an open letter, another example of what she concedes was the firm’s “too little, too late approach”. She apologised for “betraying the trust” of the public and vowed to “ring-fence” its Federal Government work.

Labour senator Deborah O’Neill called the apology “too late and not complete” and demanded the firm “name the names” – the list of 53 names in the cache of redacted emails”. Many question how PwC can continue to receive any government work. This week PwC handed over names – the four partners nominated are no longer at the firm.

Police have launched a new investigation and there could be a wider parliamentary inquiry. Legal sources suggested the case could even be one of the first referrals to the new National Anti-Corruption Commission, when it commences on 1 July.

A cloud hangs over PwC’s future government work, with the Finance Department ordering officials to consider confidentiality breaches when evaluating bids. The fallout won’t be contained to the public sector; our biggest superannuation fund, AustralianSuper, which paid PwC $2.3 million last year, has paused any new contracts due to the scandal.

The essence of crisis management is simple: do the right thing – something lacking at PwC’s every turn. Potential conflicts and confidentiality should have been front of mind for a company attempting to work both sides of the fence, designing tougher tax laws to stamp out avoidance while marketing tax minimisation to corporates.

For PwC, any concept of Chinese walls was quickly breached by a funnel of confidential information. Its leadership either approved or turned a wilful blind eye.

Too right it’s been ‘too little, too late’. From the start, PwC has missed every opportunity to come clean and remediate. Back in April 2015, as the breach was beginning, Seymour and Collins appeared together before a Senate tax avoidance inquiry, when Seymour stated no one at PwC was breaching tax laws. “I think we have a great contribution to making Australia’s tax laws work better,” he said.

It is difficult to see a clear path for PwC’s reputational recovery, possibly dismissal of implicated staff and a split up of the firm – separating government advisory from corporate services – but the delay in coming clean and making good means the reputational stain, to some degree, will remain indelible.