Amid the forest of emails surrounding the case and the questions of who, among the partners of the firm, knew what and when, etc., the essence of what PwC did, largely in plain sight, is straightforward enough.
“Network of tentacles”: Tax Board forced to come clean on PwC ties
PwC tax leaks scandal gets even bloodier
The firm’s decision to name the four former partners on Monday had an air of casual brutality, more like throwing chum from a shark boat.
It was Wednesday evening when the full cost of PwC Australia’s position began to dawn on the firm’s senior employees – the kernel of true believers on the brink of realising their life ambition to become partners at Australia’s biggest accounting firm.
PwC’s brand had already taken another drubbing earlier in the day at the Senate consultants inquiry. And two days before, acting chief executive Kristin Stubbins had revealed the names of four former partners who appeared in the internal emails that triggered the crisis that has devastated the firm, and flagged that 63 more former and current PwC people also were in the messages.
Acting PwC chief executive officer Kristin Stubbins revealed the names of four former partners this week. Jessica Hromas
The decision to name the four former partners – none of whom had been forewarned of Stubbins’ move – gave the announcement an air of casual brutality, conjuring an image more like throwing chum from a shark boat.
But it was only on Wednesday evening, as the clock ticked past 6pm, that the almost 50 senior staff waiting to be confirmed as partners realised the depth of what they must have seen as betrayal, that their dream might be denied.
Originally, they had been told that the list of new partners was due for approval by the board on Tuesday before a formal announcement would be made by close of business Wednesday.
What they instead received as the night wore on were hastily arranged calendar bookings for the following day when they would be formally told that the promotion round was being delayed.
It raised a basic issue: with the financial payouts the firm is facing as partners including former CEO Tom Seymour leave, together with lost government and corporate business, can PwC afford new partners?
This was the week during which the damage to PwC’s business caused by the leaks scandal began to expand beyond its already king-hit federal government consulting business.
A third major superannuation fund, HESTA, joined AustralianSuper and Australian Retirement Trust in announcing they would no longer hire PwC; a public day of hearings on Wednesday for the Senate inquiry revealed that the agency that first uncovered the leaks was looking into the failure by individual partners to report the matter; and two former partners criticised the firm for naming them at the start of the week without warning.
The chapter heading for the week would be Lost in the Fog.
For years PwC used claims of legal professional privilege to hide its emails from an at times forthright Tax Office. Now that cloak of legal invisibility is more of a blurry haze, as the Tax Practitioners Board revealed it was looking at the people who made the LPP claims, and the partners and entities within PwC which should have reported the breach of confidence by former partner Peter Collins. That’s on top of general confusion about what the firm’s new leadership is doing.
Treasury had its own visibility problems, as officials confirmed they had received at least five communications from the ATO and the TPB between 2017 and 2022, raising issues about breaches of confidentiality without Treasury having the foggiest idea there might be a problem.
More than five weeks after The AustralianFinancial Review first revealed the extent of the tax leaks scandal, which involved then former tax partner Peter Collins sharing confidential government information that was used to advise clients how to sidestep new tax laws, the firm remains unable to stem the bleeding. This is despite the firm’s executive taking previously unthinkable measures such as naming the four former partners as being “involved in the confidentiality breaches”.
“I don’t know why we haven’t told people what happened,” one partner says. This partner believes the “cover-up and … the mishandling” of the scandal means the firm will be unable to “stop the bleeding” until it comes clean.
What is especially confusing for this partner, and many others in the firm, is that it’s clear the firm’s executives must have already received at least one or more draft reports outlining what happened. This is despite Stubbins writing in the Monday email that the investigation is ongoing.
How else could the firm have decided which four partners to name on Monday? Or pick the nine partners put on leave? And that list of 63 email recipients has clearly come from an examination of the unredacted internal emails. That’s not to mention the multiple versions of lists naming partners floating around the firm and parliament relating to the scandal.
One version, seen by AFR Weekend, features about 35 current Australian partners colour-coded by level of involvement and knowledge that confidential government information was used to develop the tax schemes.
“Why not release the results?” the partner asks. “The first thing we [should] do is [explain:] ’These are the circumstances. We believe these…people are truly responsible for these reasons and these other [people] are not involved.”
PwC’s latest attempt to clear the air on Monday was a marked escalation in terms of disclosure and a demonstration of a new level of ruthlessness. The email named names, but stopped short of clearly explaining, well, much of anything.
The message, from acting chief executive Kristin Stubbins, identified four former PwC tax partners: Peter Collins, Neil Fuller, Paul McNab and Michael Bersten.
Former PwC partners Paul McNab (l), Michael Bersten (middle), and Peter Collins (r).
Collins, who has already been named in the original TPB investigation, is the man who signed multiple confidentiality agreements with Treasury, and shared the confidential information internally at PwC.
Fuller, now based overseas, went to the US to help advise high-tech firms on how to respond to the new MAAL rules. He retired in 2019 after 31 years at the firm, according to his LinkedIn profile. Neither men have commented on the matter so far.
McNab worked at the ATO from 1980 to 1988. After a decade at BDO Nelson Parkhill, he joined PwC in 1997. He left the firm in May 2020 to become a partner of law firm DLA Piper’s tax dispute resolution division. He has effectively been forced to leave that role because of the firm’s decision to name him.
Within hours of the PwC email being released, McNab became the first partner associated with the matter to make a public statement. He put a message out on LinkedIn on Monday afternoon denying any wrongdoing and later in the day revealed that he had left DLA Piper by mutual consent the previous Sunday evening. A spokesman said McNab knew the firm was planning to name him but had not been given advance notice of the timing.
“PwC has today released my name as one of four former partners they say were involved in confidentiality breaches. It is noteworthy that the firm has taken this action to name former partners only. I had no forewarning or opportunity to respond,” McNab’s statement says.
“”For the record, I was not involved in any Treasury consultations regarding MAAL where confidential information was discussed. In addition, I trusted that the information shared with me as a partner of the firm would comply with any confidentiality agreements that may have been in place with Treasury.
“At all times I worked with my clients to comply with Australian law, and not avoid it.”
Bersten was deputy government solicitor from 1996 to 1999 before serving as deputy chief tax counsel for the ATO from 1999 to 2001, his LinkedIn profile shows. He was a partner at Deloitte from 2001 to 2004 before moving to PwC where he helped set up its tax controversies division. He resigned from PwC in July 2018 and became a barrister.
It took a few more days, but on Thursday Bersten broke his silence by issuing a statement to Rear Window. In it he denied wrongdoing and said he also had no warning from the firm about the timing of its statement.
“I vehemently deny the allegations. I had no notice that PwC would make the statement on Monday that would be attributed to them in the media,” he says in the statement. “I am very concerned about the damage to my reputation that the allegation had and will continue to cause. My family and I are finding the whole situation very stressful and unwarranted as I do not feel I have done anything wrong.” He added that he was in “the course of seeking legal advice.”
The comments from McNab and Bersten highlight why the whole issue of the names is a lose-lose proposition for PwC. Labor senator Deborah O’Neill and Greens senator Barbara Pocock have repeatedly demanded the firm name the individuals involved in the scandal. But identifying people, without warning and without detailed explanation, has further complicated the situation for the firm.
Hand balling it all to the Senate committee hasn’t worked either. On Wednesday, the committee decided against revealing the names PwC had provided. That leaves the decision back in PwC’s court. Which leaves PwC’s people hanging in limbo.
This is why the decision to cancel promotions to the partnership was so damaging to morale. It hit the dwindling number of true believers at the firm – professionals willing to sign up to partnership because they could envision a future for the firm beyond the tax leaks scandal currently engulfing the organisation.
After six weeks of flatfooted and inadequate responses to the crisis, this week showed the first signs that when the ponderous decision-making process at the giant firm fully engages, the solutions are going to be brutal.
But the 50-odd staff who will not be partners already know that. This saga will have no happy endings.
