How confidential tax information was shared at PwC
At least six former PwC partners were involved in leaking confidential information from Treasury, the Tax Office and Board of Tax, legal reports concluded.
- Opinion
- Chanticleer
Haughty PwC made the same mistakes it preached about
Ziggy Switkowski’s review of PwC reads like a description of everything that went on inside the big banks before the royal commission – with one crucial difference.
Profit-first ‘shadow’ culture blamed for PwC scandal
A scathing report into the big four consultancy laid bare the brutal, uncompromising culture at the top that led to the firm’s tax leaks scandal.
An open letter from PwC Australia CEO Kevin Burrowes
“We are deeply sorry for that behaviour and the culture that allowed it to go unchecked for many years.”
Haughty PwC made the same mistakes it preached about
Ziggy Switkowski’s review of PwC reads like a description of everything that went on inside the big banks before the royal commission – with one crucial difference.
One of the great ironies of the tax leaks scandal that has engulfed PwC is that it occurred at a firm that loved nothing more than to lecture the rest of the Australian market about the need to safeguard culture and accountability.
Take this pearl from a March 2019 document on the themes from the banking royal commission’s final report. PwC said directors should learn the lesson from the prudential regulator’s probe into the inner workings of the Commonwealth Bank board, where directors were invited to “consider ‘should we?’ and not just ‘can we?’ when proposing a course of action”.
The scathing review of PwC by former Telstra chief executive Ziggy Switkowski suggests it fell into many of the same traps as CBA did. David Rowe
“These observations highlight that boards need to bring a moral and ethical compass to the work they do in the boardroom and ensure this approach is cascaded through the organisation.”
If only PwC’s management and board had taken their own haughty advice. The scathing review of the firm by former Telstra chief executive Ziggy Switkowski suggests it fell into many of the same traps as CBA did.
These include the absence of independent and external voices at the board level, leading to an overly collegiate culture, a lack of constructive challenge, and no clear lines of accountability, which created gaps and risks.
Add to that complexity that reduced the effectiveness of management structures and processes, and a siloed business model that meant the overall picture of the organisation was lost.
And, perhaps most tellingly, a focus on revenue and profit growth above all else.
“The focus on ‘whatever it takes’ seems, at times, to have contributed to integrity failures – some partners did the wrong thing, while others failed to do the right thing by overlooking or minimising the significance of questionable behaviours,” Switkowski says.
This created a “shadow” side to the firm’s culture, where behaviours were tolerated – even as PwC preached to the market about moral and ethical compasses.
If the leaders at PwC – including successive CEOs, who Switkowski says came to hold too much power – were smart, they may have even figured out that the risks of their culture going bad were enhanced by the firm’s partnership model, where advancement and wealth depended, at least in part, on a partner’s willingness not to rock the boat.
Or, as Switkowski more politely says: “Historically at PwC Australia, partners have built and relied upon a high degree of trust in each other, with a preference for maintaining harmony. In practice there is not a lot of constructive dissent, with relationships and loyalty being key to career progression.”
Switkowski’s 23 recommendations suggest a wide range of structural and cultural changes; more independence at the top of the organisation, more transparency around board and CEO appointments, simpler systems, a greater focus on risk, and a recommitment to the firm’s purpose and values.
It’s all sensible stuff. And again, it all calls to mind the cultural and governance changes that the banks made. PwC’s new CEO, Kevin Burrowes, has released an action plan in response, promising to make the changes Switkowski has recommended.
But the fifth and final point in that action plan is fascinating. It says PwC will “embed a culture and practice of constructive challenge” that will enable it to “further empower our people and partners to ask questions and challenge the decisions and behaviours of others within the firm”.
Again, it sounds good. But changing a partnership model and a culture where your career depends on playing nice, to one that values real challenge, will surely not be easy.
Read more about the PwC tax leaks scandal
How PwC failed to identify or deal with tax leaks scandal
Legal inquiries ordered by PwC Australia into its tax leaks scandal found a “combination of multiple failings” by individuals and the firm’s governance, culture and accountability systems.
A summary of reviews by law firms King &Wood Mallesons, Allens and Linklaters concluded that the scandal – which has rocked PwC’s local operation and heightened scrutiny of the multibillion-dollar consulting sector – was due to a litany of shortcomings and missed opportunities to address problems earlier.
Tom Seymour at the Financial Review Business Summit in March. Michael Quelch
It also partially blames the “failure to assess appropriate accountability” on former chief executive Tom Seymour.
The legal summary report, released on Wednesday along with former Telstra chief executive Ziggy Switkowski’s investigation that found widespread governance and cultural problems at the firm, amounts to the fullest mea culpa by PwC over the tax leaks affair.
The report notes that Mr Seymour “had leadership responsibility for the tax group at the relevant times, was directly involved in decision-making regarding the handling of the [tax leaks] matter and did not take steps to remove himself from the process nor to ensure that the underlying facts were fully reported to those charged with governance”.
Mr Seymour has not responded to requests for comment on the report.
The report also highlights how the firm had a broader issue about repeatedly breaching confidences across at least five different sets of government consultations, and a misunderstanding of its obligations as a tax adviser and how legal professional privilege should apply.
Aggressive tax advice
The tax leaks issues date back to 2013, when former international tax partner Peter Collins triggered the scandal. Mr Collins shared confidential tax information with PwC personnel who used it to help clients sidestep Multinational Anti Avoidance Laws he was helping Treasury develop.
The report outlines how in 2016 tax partners at the firm proposing tax structures relating to the then-new MAAL for two clients that were so aggressive that the Tax Office forced the companies involved to unwind the arrangements and replace them “with a structure acceptable to the ATO”.
The legal firms concluded “the conduct of the PwC Australia partners responsible for proposing and implementing the [advice] was inconsistent with PwC’s Global Tax Code of Conduct”. The document notes that PwC Australia took “a series of steps” to stop this type of advice being offered at the time.
The report also takes aim at PwC’s loose understanding of legal professional privilege when it tried to apply the principle to stop the ATO getting hold of certain documents related to its MAAL advice in 2016.
At the time, the firm argued that the respective projects were being “directed by legal practitioners in PwC’s engagement letters, which would have permitted clients to claim LPP over their communications”.
LPP is an established legal principle that keeps confidential documents and communications between lawyers and their clients that were created for providing legal advice.
“The ATO challenged many of [PwC’s] LPP claims” and a subsequent review of the firm’s actions found that conduct “was contrary to PwC Australia’s values and policies concerning the assertion of LPP”.
The report says PwC took steps to resolve this issue as well at the time. The law firms say PwC failed to publicly “acknowledged the findings and its failings” over its tax leaks scandal.
‘Perception issue’
The findings of the Tax Practitioner Board against Mr Collins were first reported in January by The Australian Financial Review.
“Faced with subsequent media questioning and public scrutiny, however, former senior leadership downplayed the significance of the matter and severity of the findings and did not adequately represent the key issues,” the report says.
It also criticised Mr Seymour’s decision to tell the audience at The Australian Financial Review Business Summit in March that the tax leaks matter was merely a “perception issue”.
“Further, in March 2023, it was reported in the media that Mr Seymour characterised the matter as a ‘perception issue’ that the firm did not have in place effective systems to manage confidentiality agreements.”
Weaknesses in PwC’s internal processes meant it took four years before the firm’s top leadership was properly briefed that Mr Collins was being investigated for sharing confidential information, the report says.
“There is no single answer to the question of why the breaches of confidentiality and conflicts occurred and were not discovered and addressed earlier. Rather, it appears to be the result of a combination of multiple failings as well as missed opportunities to address the issues at an earlier point in time,” it says.
There was a “failure of individuals to identify and mitigate potential conflicts of interest” inherent in the firm providing advice on how to create tax laws while also providing advice to clients on how to respond to the same laws.
“Fundamentally, the confidentiality breaches occurred due to PwC
Australia’s failure to recognise and take steps to mitigate the inherent conflict of interest that existed from PwC Australia advising Treasury on the implementation of tax legislation while, at the same time, assisting clients to structure their business operations to comply with the new laws,” it states.
Other failures
Macquarie Business School Emeritus Professor James Guthrie said the report released did not take into account information that was not publicly available. “It has taken a decade for PwC Australia to admit its internal failings concerning governance structure and risk management in public,” he said.
Professor James Guthrie says the firm has taken too long to respond to criticisms about the way it is run. Peter Braig
The document outlines how PwC failed to track who had signed confidentiality agreements or to investigate the tax leaks properly, and took too long to identify and punish those responsible.
Partners were also criticised for failing to speak up about the issues.
“Those professionals should have spoken up when they received the information and brought the issue to the attention of PwC Australia’s [office of the general counsel] and risk teams so that it could be appropriately investigated and addressed in a timely manner,” the report said.
The firm has since updated its confidentiality tracking system and has vowed to implement all 27 of Dr Switkowski’s recommendations to plug holes in the firm’s governance, culture and accountability.
