Jozef Imrich, name worthy of Kafka, has his finger on the pulse of any irony of interest and shares his findings to keep you in-the-know with the savviest trend setters and infomaniacs.
''I want to stay as close to the edge as I can without going over. Out on the edge you see all kinds of things you can't see from the center.''
Almost five weeks into the crisis that has devastated Australia’s largest accounting firm, the PwC tax leaks scandal has taken a darker turn.
Senate hearings this week uncovered the firm’s deep reach into the government, and the behind-the-scenes manoeuvres that kept this affair secret for six years.
“The more this goes on the smellier it gets,” says Labor senator Deborah O’Neill, who helped the Senate obtain internal PwC emails on May 2 that showed dozens of partners were involved in a scheme to use confidential Treasury information to win new clients.
At the centre of this new chapter in the saga is the Tax Office, which in a virtuoso performance before the economics committee on Tuesday managed to blame everyone else for what looks like a disturbingly ineffective investigation into the scandal, while providing little detail of its own relationship with PwC.
If PwC was a Sherlock Holmes case, it might be titled, The Dog That Didn’t Bark in the Night. Why was the ATO so silent?
The ATO mystery has emerged during a second week of Senate estimates hearings that featured questions about PwC in almost every session. It was, unbelievably, as damaging to the firm as the previous week when Finance all but confirmed PwC had been shut out of future federal contracts over the scandal.
As the days wore on, officials became increasingly defensive about their current and future use of the firm. The message was clear: hiring PwC now would be career-limiting – in extremis.
The firm’s executive had started the week with what they hoped would be the much-needed circuit breaker to the endless new revelations shredding their brand.
Acting chief executive Kristin Stubbins announced on Monday that the firm would put nine unnamed partners on leave, until its internal inquiry into the scandal reports in September. There were other leadership changes and a promise to release the full Ziggy Switkowski report into the firm’s operations (as opposed to earlier promising to only release a summary of key findings).
The damage control lasted for at least several minutes before O’Neill and Greens Senator Barbara Pocock dismissed the moves as too little, too late, while again demanding PwC reveal all partner names that appear in the redacted emails.
In the days that followed, the 900 PwC partners discovered a whole new pain threshold as the Prime Minister, the Treasurer and the Governor of the Reserve Bank all lashed the firm’s trustworthiness, while the Tax Practitioners Board, the regulator that uncovered the PwC scandal, told the Senate it had begun wider inquiries into the role of all PwC staff who appeared in the emails.
Festival of distraction
Estimates hearings unfolded with all the pageantry, side-eye and magnificent insincerity which is the hallmark of the Westminster tradition – a festival of distraction. Like a recurrent chorus, at almost every estimates session public servants were quizzed about their consulting contracts with PwC.
Treasury secretary Stephen Kennedy’s decision to refer the PwC matter to the Australian Federal Police on May 24 also became an off ramp for public servants, who could cite the inquiry as grounds to avoid answering questions about how they responded to the revelations that as former partner Peter Collins was helping Treasury write tax avoidance laws, he was helping other PwC partners to tell clients how to sidestep the new laws.
It has now emerged that PwC is the internal auditor of the AFP, Treasury and the Reserve Bank, while former PwC partners (who receive a PwC pension of up to $140,000 a year dependent upon the firm’s revenues) are also deeply embedded in this audit process.
Just how the tiny Tax Practitioners Board, which polices Australia’s 65,000 tax agents with a staff of 150, achieved what the ATO couldn’t and brought the PwC affair into the light is a saga full of unexpected turns.
It saw Kennedy expressing outrage over the emails, which Treasury saw for the first time on May 2 when they were published by the Senate. The outrage was no less real even if Treasury had joined the Tax Office in March and April in arguing forcefully first to the TPB then to Assistant Treasurer Stephen Jones that the redacted emails (which Treasury had not seen) should not be released.
If this engendered a certain awkwardness in some of the Treasury responses, it was the Tax Office in the hot seat.
It was hard not to feel sorry for Commissioner Chris Jordan and Second Commissioner Jeremy Hirschhorn as they traced the faintest of outlines for the economics committee on Tuesday, of what happened after they discovered the PwC emails nearly six years ago.
ATO personnel have never been timid types, but Jordan has cultivated a muscular vision of tax officers who are ready, capable and eager to take on anyone, any time, never taking a backward step.
There was none of that body language on Tuesday, as they laboured to explain that the Tax Office hadn’t dropped the ball on this case which has become a national controversy. In fact, their hands had been tied.
They offered up a new timeline for the case that began in late 2016 when the ATO issued a series of notices to produce documents to big four firms, to reveal what they told clients about the Multinational Anti Avoidance Law that came into force in January 2016.
While other firms supplied information, PwC made a blanket claim of legal professional privilege over all its correspondence with clients.
In an inspired move, the ATO then demanded all internal PwC correspondence about the new law, on which no legal privilege could be claimed. That began producing a stream of what became thousands of pages of emails from somewhere in mid-2017.
Hirschhorn told the Senate that by the end of 2017 “we found hints that there had been a breach of confidentiality by Mr Collins”.
It must have been a fairly solid hint. In October 2017 the ATO was asking Treasury for a generic copy of its confidentiality agreements, a move that probably would have required legal advice about secrecy requirements and a decision by a senior ATO officer.
‘We were horrified’
“This was a unique situation for us,” Hirschhorn testified. “It’s the first time we’ve come across it. And ... we were horrified when we came across it.”
Tax officers were irate that Collins was breaching the confidentiality agreements he had signed and that PwC was monetising this knowledge. Incredibly, Treasury wanted Collins for a new round of advisory sessions and he signed a new confidentiality agreement on February 19, 2018, while Treasury had no knowledge of what the ATO had discovered.
It was the following month that the ATO obtained legal advice it could only share the Collins emails with the AFP, the Commonwealth Director of Public Prosecutions, a designated inter-agency task force, or the Tax Practitioners Board.
Jordan told the Senate, “We got advice from our general counsel and from [the Australian Government Solicitor] that we could not provide that information to the treasurer or assistant treasurer, and in fact we could not provide it to Treasury.
“As the confidentiality breach was not a tax offence, we were unable to investigate the matter further and from 2018 we sought to refer this matter to the correct authority.”
Hirschhorn said, “Our path was to first explore, with the Federal Police, with the information that we had, noting as the commissioner said, because this is not a tax offence, we could not use our powers to investigate further, we just had to sit on the information we had and provide that to the police.”
This was the double bind the Tax Office found itself in: it wasn’t just that it couldn’t tell anybody what it had found, it couldn’t investigate it either because breach of confidentiality is not a tax crime.
It gets worse. The ATO reached out to the Federal Police in March 2018 and shared what an AFP spokesperson called “representative sample documents” for assessment.
Six months later (apparently at the AFP’s request) the ATO asked Treasury to provide information including a copy of the agreements Collins had signed, noting that it was about a possible breach of confidentiality relating to the 2016 MAAL legislation. But Treasury, under then secretary Phil Gaetjens, didn’t seem to twig there was a problem.
By about March 2019, a full year after the initial referral, “the AFP assessed, based on the material that the ATO provided, that there was insufficient information in the material, to support a formal referral,” the spokesperson said.
“With hindsight I wish that process was faster,” Hirschhorn said in a delicate dig at the AFP.
Nobody could investigate
Jordan said it was a joint decision not to proceed, after the Tax Office told the AFP that the ATO could not investigate further to provide more information. Implicit in this is that the AFP wasn’t free to do these investigations on its own. Which meant nobody could investigate.
And that’s where the matter lay through 2019. The ATO considered then dismissed the idea of levying tax promoter penalties on PwC.
It was the curse of secrecy laws that tied the ATO’s hands. Jordan and Hirschhorn were models of frustration as they described this. But was that really the only option they had?
What the emails appear to show is an attempt that involved many PwC partners marketing schemes to avoid tax using illegally obtained information. Hyper aggressive tax advisers had been a major focus of the Black Economy Taskforce’s recommendations.
The task force’s final report in September 2017, around the time the ATO was picking up something funny about the Collins emails, quoted a PwC submission: “Equity and trust in our tax collection process is paramount to a successful and sustainable system for all Australians ... Tackling destructive social norms as part of the Black Economy Taskforce’s recommendations must be considered.”
The Tax Office has a proven history of ingenuity and vigour when it decides to pursue new lines of inquiry. In 2018 it must at least have considered referring the PwC emails to a joint task force, which would then investigate the wider role of the big four firm in possible tax crimes.
Until six years before, Jordan had spent all of his working life at KPMG. Hirschhorn had jumped from KPMG only four years before.
For both men, the idea of calling the police into a big-four firm must have seemed unthinkable. And just how big was the problem?
A former tax officer who was aware of the initial investigation says the ATO concluded that within the firm, only 12 people were actively involved in marketing the confidential information. “Everyone else were drones,” he says.
A couple of bad apples
But the ATO drew the line of culpability closer still. “Within that 12 it was actually Collins and the guy marketing the scheme in the US,” the former tax officer says.
Really it was just a couple of bad apples. A task force would be overkill.
Another ATO source says that senior tax officers had conversations with PwC and two partners left the firm. But not Collins.
It’s not suggested that any of this was improper. There is disagreement at any regulator over how best to proceed.
The ATO referred Collins to the TPB in July 2020, almost three years after the matter was uncovered. After preliminary inquiries the TPB opened a formal investigation into Collins in January 2021. Then on March 8 it broadened its inquiries with a second investigation into PwC itself.
Last November the TPB’s board conduct committee found Collins had breached the tax agents’ code of conduct and deregistered him for two years. PwC was ordered to run courses to help staff recognise conflicts of interest.
The decision attracted no attention until January when The Australian Financial Reviewreported detailed findings released by the TPB.
Commissioner Jordan has a long history of opposing any release of confidential taxpayer information, so it’s not surprising the ATO strongly opposed the release of the PwC emails Senator O’Neil had requested in February through a Question on Notice.
Treasury advanced similar arguments – that it would set a dangerous precedent, and that it might endanger an ongoing investigation.
On March 2 the emails were released, and the multiple relationships that PwC has built across federal and state governments suddenly looked way too cosy.
In the end officials did little to answer the core question of why it took so long for this all to become public. There were lots of explanations and words (and finger-pointing) but none of it managed to fill the silence.
If there is a ray of light for PwC, it is the future-focused view of Peter de Cure, the new TPB chairman and former KPMG partner, who was appointed to the role two weeks ago on Treasury’s recommendation.
Greens senator Barbara Pocock, referring to the requirements of the Tax Agents Services Act, asked de Cure: “Has PwC acted honestly and with integrity?”
De Cure: “In relation to what happened in 2015, arguably no.”
Ms Pocock: “Arguably?”
De Cure: “In relation to what they’re doing today, I would imagine they probably are.”
PwC sends nine partners on leave, chairman exitsPwC will put nine senior partners on leave and will “ringfence” all federal government advisory work as part of a suite of measures designed to signal to the Commonwealth the firm is taking decisive action over its ongoing tax leaks scandal.
The Labor senator spearheading a probe of embattled accounting firm PwC has received whistleblower reports that the consultancy deliberately hired former government staff to mine for confidential information.
As senior ministers and government departments put a pause on working with the firm after revelations it leaked sensitive government tax plans to partners and clients, Senator Deborah O’Neill has aired concerns that its attempts to obtain sensitive information were more systematic.