The scandal engulfing consulting firm PwC Australia and its misuse of confidential government data to help clients avoid tax is escalating.
The Australian Federal Police (AFP) are investigating a former PwC partner over potential crimes.
But the firm is the force's auditor and hold lucrative contracts with it.
Senator Barbara Pocock wants a "real separation" of the investigation and the consulting firm working within the same organisation.
"It's not a good look. People share car parks, they share coffee space, they talk to each other in corridors," she said.
In new developments, the ABC can reveal:
- Senate documents reveal PwC is by far the AFP's preferred firm, with more than $20 million in contracts since 2021
- The Greens have asked the Tax Practitioners Board (TPB) to suspend PwC's registration, which would stop it operating in the lucrative field
For the firm, which made $2.6 billion in revenue last year, things will only get worse this week.
On Tuesday, a Senate committee will grill the Australian Taxation Officer (ATO) and Treasury about the scandal.
On Wednesday, the TPB and regulator the Australian Securities and Investments Commission (ASIC) will be asked questions about what they knew, and what they're doing about it.
Conflict probe
The AFP are investigating PwC over a shocking conflict of interest.
However, it has the appearance of one too.
The embattled firm is the AFP's auditor and by far the force's preferred consulting firm.
PwC has won more than $20 million in contracts with it in just the past two years, 39 per cent of the AFP's spending with the biggest seven of the highly competitive firms.
Now it's running a criminal investigation into a former PwC partner, Peter-John Collins, who is accused of sharing confidential government briefings about multinational tax plans with PwC colleagues in Australia and overseas.
It's alleged he then created a plan to get around them, netting millions for the firm.
"The key issue here is optics," says columnist and author Tom Ravlic.
"The investigation might not be corrupted; there may not be any problem with the investigation, it's just how it looks. For example: How can the AFP investigate an entity that is providing it with internal audit services?"
There is no suggestion that there is anything wrong with the contracts the AFP have awarded to PwC or that it will influence the force's investigation.
Big users
Large government agencies including the AFP, Defence and Services Australia have come to rely on consulting firms like PwC to perform key parts of their role.
"PwC does seem to be the consulting firm of choice for the Federal Police," the Australia Institute's Bill Browne said.
"Which obviously puts them in a difficult position now that they're investigating the behaviour of a former PwC partner."
He said this pointed to the problem of government departments and agencies "over-using" consulting firms.
"It multiplies the conflicts of interest or the risk when consulting firms are engaged in all levels of government decision making. The risks of conflict of interest are multiplied," he said.
PwC won $20,742,097.51 in contracts with the AFP in the past two calendar years. By comparison, the rest of the so-called "Big 7" consulting firms – combined – won $30 million of work in the same period.
Questioned last week, AFP Commissioner Reece Kershaw was asked if Australians could have confidence in the force's investigation of PwC given the potential for a conflict of interest.
"On the one hand, AFP has undertaken a criminal investigation of PwC, and on the other hand they're your internal auditors?" asked Greens senator David Shoebridge.
Shoebridge: "Do you believe justice can be seen to be done in that situation?"
Kershaw: "Yes, I do."
Contract millions
After questions from the ABC, the AFP has supplied details of the multi-million dollar contracts which were previously listed as opaque tasks including "management advisory services", "strategic planning consultation services" or "unspecified services".
We know know they include:
- $451,000 for a six-month review of a "Corporate Channel Design"
- $214,500 for developing "Command level Performance Indicators and Metrics"
- $794,200 for a review of ACT policing
In a statement, an AFP spokesperson has reiterated the Commissioner's assertion that it can manage the issue of investigating PwC while having its staff in its buildings and as its internal auditor.
The investigation will be led by the AFP Special Investigations Team, and overseen by the Sensitive Investigations Oversight Board (SIOB).
"PwC personnel are not co-located with operational or investigative teams and will not have access to these teams or the SIOB," the spokesperson said.
"The AFP has rigorous systems and processes in place to control and manage information access. Investigation and operational material is accessed on a strictly need-to-know basis.
"With these stringent arrangements in place, there is no possible way PwC personnel will be able to access the investigation team or any investigation or operational material."
In addition, the AFP has a range of "mitigations" to manage the risks, including treating PwC staff as "AFP appointees" and requiring government security clearances.
The statement confirmed that, as auditors, PwC does not have a "compulsion power" — the ability to force the AFP to give it documents.
Perception problem
Responses to the questions don't satisfy Senator Pocock.
"We really can't have confidence when that level of contracting is so high to PwC," she says.
"The contamination of the process, and the perception of contamination can happen on both levels in terms of contracts and personnel."
At the hearings, Commissioner Kershaw talked about "sterile corridors", where barriers prevent the interaction of an investigation with another function.
"I haven't got a lot of confidence in sterile corridors," says Senator Pocock.
"I think we need a real separation between who's looking after contracting business inside an entity like the Australian Federal Police, and real confidence in the actions that are separate and independent."
Tax advice problems
Additionally, the Greens want PwC blocked from providing any tax advice, as the police investigate potential criminal charges over Mr Collins shopping confidential government information to help multinational companies legally minimise their tax bills.
This would be a substantial move by the regulator, the Tax Practioners Board, because PwC is a key advisor on tax to major Australian companies.
"I think what we have seen is a really significant problem within PwC," she says.
"That certainly relates to the behaviour of a single individual. But that confidential information was shared very widely [including with] a number of partners at very senior levels, in a range of functions and internationally".
The Board's termination of Mr Collins's registration kicked off the scandal in January. He's unable to reapply for two years.
In a letter signed by Senator Pocock and Senator Nick McKim, the pair write that PwC has "at a minimum" breached three of the Board's requirements for registered tax practitioners.
"The actions of the organisation and partners involved was an egregious breach of professional ethics, trust and a position of power"
The letter asserts the firm breaches specific sub-sections:
- "Act with honesty and integrity"
- "Have in place adequate arrangements for the management of conflicts of interest"
- "Not knowingly obstruct the proper administration of the taxation laws"
"There is prima facie evidence in the public domain that PwC is in breach of the above three obligations, most importantly subsection 11 (the last dot point)."
The Latin term is used in the law to mean "at first sight" or "on the face of it" and refers here to the published redacted emails and the termination of Mr Collins registration.
"I think the Tax Practitioners Board protocols are very clear," Senator Pocock says. "If an individual in an organisation is compromised, then that organisation should not be engaged in work that is relevant to tax. And I think that we need to see much stronger action in relation to the whole entity of PwC".
Mr Collins was prevented from reapplying for registration for two years — the maximum penalty is five years.
PwC was forced to "appropriate training" about managing conflicts of interest.
I still don't get it
Back in 2013 our government — and other nations around the world — became increasingly concerned about the tax paid by multinational companies.
Our nation has a lot of rich consumers and tech companies were making billions of dollars in revenue here. But through complex, contentious but legal transactions they were shifting the profits to lower-taxed countries overseas.
Examples from 2018 show the impact:
- Facebook Australia collected $579.7 million from advertising but its 2018 Australian tax bill was $11.8 million
- Microsoft Australia recorded revenue of $2.28 billion for the year ending June 30, 2018 but paid $53.3 million for that year
- Google recorded $4.2 billion worth of gross billings in 2018 but paid a corporate tax bill of $26.5 million
(It is important to note that revenue is the amount of money a company "takes in". It is not the same as profit, because it is before costs are paid).
What happened next
PwC Australia's head of international tax Mr Collins was brought in as the federal government, under then-treasurer Joe Hockey, tried to stop multinational companies shifting profits out of Australia to minimise tax.
As part of consultations with Treasury, Mr Collins received confidential information about the shape of the new laws. Despite signing agreements in 2013, 2016 and 2018 specifying the knowledge could not be disclosed, an investigation by the TPB found he dispersed the information to PwC staff in Australia and abroad.
A plan was hatched to get around the laws – before they were even announced. Marketed, the ploy won new clients in the US and netted millions of dollars in fees for PwC.
In emails, an unnamed PwC partner gloated about their success:
"A significant number of these clients were not previously PwC Australia clients, and among the PwC clients several had not done significant work of this type with the firm even in the US before."
The TPB investigation terminated the tax agent registration of Mr Collins and barred him from reapplying for registration for two years, while also forcing PwC to hold training sessions about managing conflicts of interest.
"Internal communications within PwC indicated that Mr Collins was aware that the confidential knowledge he gained from the consultations with Treasury would be leveraged to market PwC to a new client base," the ruling stated.
The release this month of a tranche of emails from inside the firm showed the information had been shared far more widely than had been previously thought.
Chief executive Tom Seymour stood down, the company announced an internal investigation and the heat cranked up again.
Senate questions
And things are only going to get worse for the firm – and the consulting industry – on Tuesday and this week.
The TPB, ATO and Treasury are all in front of the Senate estimates committee and will have to answer questions about their role in the scandal.
Televised live, the Senate committees have substantial powers to compel evidence, to require the witnesses to attend, to demand answers to question and the production of documents.
Why so long?
The first question might be about the epic time it's taken from the alleged breaches to get to here: a criminal investigation.
In September 2018 Treasury was asked to provide information to the ATO about a possible breach of the confidentiality in relation to multinational tax avoidance laws, after the tax office was reportedly shocked by how quickly PwC clients were getting around the new schemes.
In late 2020 another knock on the door at Treasury — the TPB wanted information relevant to its investigation of Mr Collins.
But it was almost five years after that first ask – on just Wednesday last week – when the Treasury secretary Steven Kennedy requested the AFP to consider a criminal investigation into Mr Collins.
That investigation has just begun.
And so have the bigger questions about the billions spent by government with consulting firms, the sharing of confidential information and just how much taxpayers may have been played.
