Why regulators need more power to investigate large firms
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The Mandarin / TOM RAVLIC |
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Do regulators such as the Australian Taxation
Office, Tax Practitioners Board and the Australian Securities and Investments
Commission have sufficient power to seek information from and properly
investigate large, complex organisations such as Big Four accounting firms?
This question has opened up partly due to the
opacity of aspects of the PwC tax leaks scandal. It’s also relevant because
complex organisations, such as accounting firms, do essential work in the
public interest regulated by law and enforced by regulatory agencies.
The PwC case study highlights areas that merit
further exploration by a parliamentary committee to determine what, if
anything, can be done to shine a brighter light on economically and politically
significant entities that provide regulated services and consult to government.
Opacity of global structures
One of the issues that emerged throughout multiple
inquiries and routine Senate estimates committee interrogation is the inability
of public servants working within regulatory agencies to pierce the corporate
or institutional veil of a firm such as PwC Australia.
Consider
for a moment that the firm in Australia has insisted it can’t provide what
is known as the Linklaters report to committees that have been poking
and prodding the practice. They want more details on the six mysterious figures
apparently involved in handling Australian policy information.
The firm has told Parliament it is not
getting the Linklaters report. The Australian chief executive
officer Kevin Burrowes has been told he’s not getting it from PwC Global either.
PwC Australia has an Australian partner, Paddy
Carney, on the global board. But Carney has been recused from considerations of
the Australian tax leak circus.
This means even the Australian partner is
incapable of telling Parliament what is in the Linklaters report because she was not involved in its
considerations.
One thing must be stated before this goes on: the firm is entitled to
claim the report or advice from Linklaters as its own material over which
it can claim legal professional privilege. But this isn’t necessarily the
optimal situation for a class of curious politicians and bureaucrats who want
to understand what went on outside Australian borders.
The other matter pointed out by former PwC Australia CEO Tom Seymour during
last Friday’s Big Day Out for PwC scandal tragics is that the local firm threw
its domestic partners under the bus, but the six overseas partners or staff
remain anonymous.
Seymour noted it was difficult to accept the difference in treatment between
the global and Australian firm.
That anonymity is only possible because the report on which the firm’s
announcement in September last year about the six folks who were disciplined is
being withheld. Their identities are being kept quiet.
The information gap that exists for staff working for parliamentary
committees, parliamentarians and regulatory or enforcement agency raises a
question: What more can be done to provide greater transparency?
Complex structures have hidey holes
What makes this little gem of a case study more complex is that the Linklaters report is a document (or
documents) that doesn’t exist within the Australian firm.
The global network has the document in an entity called PwC International
Limited -- an organisation that is a non-trading private company registered in
the United Kingdom.
This turns the issue of getting a more complete
understanding of what went on across the PwC network into mission impossible
for some politicians and bureaucrats. These are the people charged with
developing law, shaping policy and regulating practitioners in a firm that is
influenced by domestic management and global control.
People need to better understand how these global
structures work and what limitations parliamentarians and regulators have in
seeing the inside of a calculator-driving beast.
PwC is not the only firm that has a complex global
structure. But it is the firm that has opened the door to a series of questions
about whether investigators working for various agencies have sufficient powers
to investigate misconduct.
A question that could be asked by a parliamentary
committee is whether the scope of information-sharing treaties or agreements is
sufficient to open the door of large organisations and discuss things they don’t
particularly want to talk about.
Professional firm networks as foreign influencers
An observation made by the TPB’s chief executive
officer Michael O’Neill about the tax leaks saga during an estimates committee
hearing earlier this year about the sharing of policy information across
networks raises another question.
O’Neill said that some of the information shared
across the global network by PwC partners may have been part of the accounting
firm’s efforts to coordinate a response to global tax rule changes being
considered by the OECD.
Should the larger practices engaged in government
procurement and lobbying across jurisdictions entities be listed as lobbyists?
Are there grounds for complex entities, such as accounting firms, to be
registered as entities that have a foreign influence?
The ultimate purpose of such a requirement is to
ensure that there is a greater deal of transparency about what these entities
do.
What should another inquiry look at?
PwC Australia is not the only global professional
services firm operating in Australia. Neither is the accounting profession the
only one with global networks.
A separate parliamentary inquiry needs to examine
the nature and structure of global professional services firms. It also needs
to look at what challenges Australian regulators face when they are dealing
with accounting, law and other consulting firms with a global reach.
It is also necessary to examine the kinds of
network arrangements that exist and the extent to which each type of network
controls network firms.
The PwC Australia case study makes clear the global
firm can keep a local practice on a short leash. This is the price paid by a
domestic firm to have access to a global brand.
What are the arrangements with other professional
services firms, such as law firms and entities like Accenture and the Boston
Consulting Group?
These structures need to be understood. They also
need to be looked at in the context of what Australia’s parliamentary and
regulatory institutions observe when the conduct of a firm (or part of one)
heads southwards.
What steps will ensure the power of a global
network is more visible to the community?
One measure, for example, could be a requirement
for a local firm that has a global entity controlling its operations to provide
detailed disclosures when it (or its partners) registers to do company audits.
This could also apply when firms as organisations
register to be tax agents as an entity.
Why shouldn’t people know more about the
organisations that have the capacity to override a local firm’s operations in
the manner the PwC global network has done in Australia’s case?
It should not just be a product of media
revelations nor something that drops out of the mouths of witnesses when
politicians ask questions at parliamentary hearings.
Knowledge about what global organisational rules
impact on the way a firm is regulated under Australian law.
The ability of a global accounting firm to
influence the way a local firm operates should be noted upfront in registration
documents as a disclosure so there is some clarity on how the firm is governed.
A committee would, however, need to conclude on the
best way to facilitate such disclosures as well as review what treaties and
information-sharing agreements exist for regulators to get their hands on the
good oil they need to properly investigate alleged misconduct of professional services
firms.
The PwC case study opens the door for people to
observe the power of a global network. But what is required is a broader
examination of how the global structures can be made more transparent so that
regulators acting in the interests of the Australian community can do their job
more effectively.
READ MORE:
Conflicts of interest aplenty
revealed in PwC-only hearing