For decades, Australian governments were infiltrated by a shadowy organisation of identically dressed people who venerated each other as “heroes”, “rainmakers” and “untouchables”. But it’s only recently that the wider public began paying attention.
We’re talking about PwC Australia, of course, the accounting giant whose spectacular and self-inflicted implosion has been one of the defining stories of 2023.
PwC’s fall from grace
When the year began, PwC and the other firms in the so-called “Big Four” were riding high on a wave of privatisation and public service constraints that had seen federal government spending on consultancies increase by 1,270% in a decade. In 2021-22, the Morrison government spent $20.8 billion on external contractors and consultants.
Those heydays might have continued if it weren’t for an investigation by a tax advisory regulator that found a PwC partner had misused confidential taxation information to market the consultancy to new clients.
The regulator, the Tax Practitioners Board (TPB), said in December 2022 it had suspended the tax licence of the PwC partner, but the reasons why weren’t revealed until January when the Australian Financial Review broke the story: “The former head of international tax for PwC Australia, Peter Collins, has been deregistered by the Tax Practitioners Board for dishonesty and for sharing confidential government briefings with PwC partners … who knew the confidential information would be used to help clients sidestep new tax laws and to attract new clients.”
The AFR’s Edmund Tadros, who shared top prizes at the Kennedy and Walkley Awards with Neil Chenoweth for their coverage of the PwC saga, said the impact of the story wasn’t immediately clear.
“We were aware that the first May article, which featured the cache of emails, would be important,” Tadros told Crikey. “Once that was published, it became a case of writing the next article, then the next and so on. I was aware that they were big pieces individually but not of the overall impact.”
“So we were writing non-stop and there was also a lot going on at once. Treasurer Jim Chalmers and Assistant Treasurer Stephen Jones were taking action; Senators Deb O’Neill, Barbara Pocock and Richard Colbeck were obtaining all sorts of extra information via the consulting inquiry; there was a NSW inquiry also revealing new information; and the Tax Office and the Tax Practitioners Board were also taking action. Then there was the turmoil within PwC which is still playing out.”
“I only realised [the story] had become mainstream when I watched the Mark Humphries skit on PwC on 7:30.”
Insider info helped PwC clients
Collins, a PwC veteran, had been a member of Treasury consultation groups since 2013, helping the government shape legislation to combat international tax avoidance.
In January 2016, a new such law, named the multinational anti-avoidance law, or MAAL, came into effect.
“We became aware of a handful of multinationals suspiciously and quickly attempting to restructure their affairs upon the [MAAL’s] introduction,” tax commissioner Chris Jordan told a Senate estimates hearing in May this year.
The ATO deduced that someone must have shared inside information about the law with the multinational companies, and suspicions fell on PwC. But it would take years of frustrated attempts before authorities could get to the bottom of what had happened.
In a response to a Senate inquiry, PwC said in August this year it had lost track of how many notices it had received from the ATO to produce documents and information related to the breach, but stated it was at least 46.
“It appeared our investigation was being frustrated through false [legal professional privilege] claims,” Jordan told the May estimates hearing.
Since Collins’ confidentiality breach wasn’t a tax offence, the ATO couldn’t investigate it, he explained, so the AFP was notified in 2018. But rules aimed at preventing the disclosure of protected information meant the ATO couldn’t share enough material with the AFP for it to begin investigating: “They felt they didn’t have sufficient evidence at that time to pursue that,” Jordan told the hearing.
It fell then on the TPB to probe the matter — and once the breach was out in the open, things escalated quickly for PwC. Chief executive Tom Seymour was revealed in May to have been included in emails on the scheme and stepped down from his post. That same month, the Finance Department effectively banned PwC from winning new federal government contracts, affecting some 1,600 PwC staff and $500 million in annual revenues.
Also in May, the AFP began a criminal investigation of the affair. AFP commissioner Reece Kershaw described the probe in August as “underway” and “complex”.
‘Revenue is king’: Company culture under fire
An internal investigation at PwC resulted in eight partners losing their jobs, and in July, the firm offloaded the part of its business that deals with government contracts to a private equity firm in a $1 fire sale.
In September, PwC released an internal review, conducted by former Telstra chief Ziggy Switkowski, which found a number of weaknesses in governance and accountability that had gone “unexamined and uncorrected for many years”.
“[PwC’s] aggressive growth agenda overshadowed and occurred at the expense of the firm’s values and purpose,” Switkowski wrote. “The focus on ‘whatever it takes’ seems, at times, to have contributed to integrity failures.”
Staff who spoke to the review reported a company culture where “revenue is king”, and where partners who exceed money targets were celebrated as “heroes”, “rainmakers” and “untouchables”.
“They think the revenue they bring in means they can do what they want,” one insider was quoted as saying.
However, the extent of the tax leaks matter was known to only a few people inside PwC before it became public, according to Tadros.
“That meant when Neil did the initial January article we were assured that it only involved one former partner from years ago,” he said.
“That meant that most people within PwC were as surprised as the government and the public by the May article about the number of people involved in making use of the leaked information. So while there was anger externally about what happened, there was an equal or greater rage inside PwC that this had happened.”
Asked to comment for this story, a PwC spokesperson pointed to an open letter published by the firm’s new chief executive Kevin Burrowes in September.
“We now know that an environment, driven by leadership, where pressure to perform was paramount and a culture that promoted aggressive marketing was allowed to infiltrate the business, meaning that profit was placed ahead of doing what is right,” Burrowes said.
He pointed to the firing of individuals involved in the scandal, the divestment of PwC’s government business, and an action plan that has been set in motion.
“We realise the challenge ahead, but we also view it as an opportunity to start with a blank page, working with our clients and stakeholders to set a higher bar for our industry,” he said.
Public service overreliant on consultancy firms
Apart from government regulation and the break-up of PwC, the scandal has also brought attention to the public service’s dependence on consultancy firms in general, and the perceived conflicts of interest experienced by some consultants who sit on government boards or accept work from the same agencies that regulate them.
One example of many was how PwC helped NSW Health slim down and decentralise its operations, then raked in $30 million in contracts over 12 years, including from a board where a top PwC official was a member, which Crikey revealed in July.
Crikey has also chronicled the widespread links between consultants and politicians: a project in collaboration with The Mandarin outlined the dozens of politicians and senior bureaucrats who used to be Big Four consultants, and vice versa.
University of Technology Sydney business school dean Carl Rhodes said the scandal showed how a “ruthless winner-take-all culture” had infected corporate Australia.
“The most important consequence is that PwC were held to account publicly for their behaviour, revealing that the Australian public found this manifestation of corporate greed to be reprehensible,” he told Crikey. “This will be even more important if it leads to permanent change in the ways that corporations are regulated to ensure they act in the best interests of the societies they serve.”
He said the PwC revelations should lead to a broader reckoning over corporate arrogance and greed.
“The scandal provided an opportunity to look at the problems beyond PwC, and beyond the consulting industry. 2023 was a year of high inflation, widening wealth inequality and a cost of living crisis. It was also a year when so many of our large corporations posted record profits,” he said. “As Australians’ trust in corporations continues to fall, we need to revaluate the role of business in society, and rebuild the confidence in an economy that can lead to prosperity for all rather than just for the few.”
Tom Ravlic, a journalist focused on regulatory affairs, said it will be important to continue scrutinising the consultancy industry, including Scyne, the company created to take over PwC’s former government contracts.
“One of the things people will need to watch carefully is how the new consulting firm, Scyne Advisory, works with the government after its separation from PwC,” Ravlic said. “What, if anything, happens with the consulting practices of other firms in coming years may hinge on how the one-sector consulting play is received by the various government departments across Australia. It is too early to tell whether the Scyne model will cause practitioners in other firms to look at joining or creating another pure play for government work.”
