Chapter 2The PwC breach of confidentiality obligations
Introduction
2.1This chapter provides:
a chronology of the PwC breach of confidentiality obligations, which triggered this inquiry; and
issues arising from PwC’s interactions with the committee.
Chronology of the PwC breach of confidentiality obligations and subsequent events
2.2The PwC breach of confidentiality obligations was revealed when it was identified in January 2023 by Neil Chenoweth in the Australian Financial Review that a former PwC partner, Mr Peter-John Collins, ‘had breached confidentiality obligations by sharing Treasury information to assist PwC clients to avoid Australian anti-avoidance tax laws’. This section identifies events leading up to January 2023, including regulators’ actions, and subsequent inquiries and reviews.
2.3From 2013 to 2016, the former partner ‘received confidential information from Treasury consultations and through his engagement with the Board of Taxation in relation to Australia’s forthcoming anti-avoidance tax laws’.
2.4The former partner ‘intentionally shared this confidential information with PwC partners and others both in Australia and overseas’ to help clients potentially avoid up to $180 million in annual tax to be paid in Australia under the Multinational Anti-Avoidance Law (MAAL), which commenced in January 2016.
2.5The ‘Australian Taxation Office (ATO) became aware of companies working to avoid the newly introduced MAAL’ in April 2016 and sent notices to the Big Four firms (PwC, Deloitte, EY and KPMG) in late 2016 to alert them to the companies’ actions.
2.6The ATO efforts to investigate PwC’s plans to monetise the confidential MAAL information were impeded by thousands of legal professional privilege claims over internal documents.
In late 2017, the ATO identified a potential breach by PwC of confidentiality for a Treasury consultation process.
2.8Secrecy provisions constrained the ATO’s ability to share its concerns with Treasury. However, the ATO was advised in 2018 that it could share some information with the Australian Federal Police (AFP), the Commonwealth Director of Public Prosecutions (CDPP), and the Tax Practitioners Board (TPB).
2.9The ATO explored the potential referral of the PwC breach of confidentiality obligations to the AFP in March 2018. The AFP indicated that:
In 2018, the ATO asked the AFP’s then-Fraud and Anti-Corruption Centre for advice about the matter. This was standard practice for complex tax matters.
Based on the documents provided to the AFP, and further engagement with the ATO, we advised the ATO there was not enough information for the AFP to make an assessment at that time. As such, a referral of a report of crime to the AFP was not progressed.
…the AFP did not receive a report of crime for investigation until 24 May, 2023, almost five years later.
2.10In July 2020, the ATO referred the PwC breach of confidentiality obligations to the TPB, which commenced separate investigations in January 2021 and March 2021.
2.11The TPB published the outcomes of its investigations in December 2022 and January 2023, which included:
finding that a PwC partner had breached confidentiality obligations on the MAAL and related topics;
sanctions on the PwC partner who broke the confidentiality obligations, including termination and a two-year ban on the partner’s tax agent registration;
finding that PwC had breached ‘the Code of Professional Conduct in that PwC had failed to have in place adequate arrangements to manage conflicts of interest that arose in relation to its activities as a registered tax agent’; and
requiring PwC to implement reforms to governance, reporting and management of conflicts of interests.
2.12Senate estimates committees (including Economics and Finance & Public Administration) considered the PwC breach of confidentiality obligations on multiple occasions from February 2023 onwards. The Senate Economics Legislation Committee published 144 pages of PwC emails (provided by the TPB), which revealed that others in PwC may have been involved.
2.13The Senate referred an inquiry into the management and assurance of integrity by consulting services to the Senate Finance and Public Administration References Committee (F&PA committee) in March 2023. That inquiry was extended three times and published substantive reports in June 2023, March 2024, and June 2024.
2.14PwC announced a review of PwC Australia's culture, governance, and accountability to be led by Dr Ziggy Switkowski AO in May 2023. DrSwitkowski completed his review in September 2023, and it is available on the PwC website. PwC issued a management response in September 2023, also published on the PwC website. PwC accepted the review’s recommendations and indicated that it intended to implement them.
2.15The Treasury referred the PwC breach of confidentiality obligations to the AFP in May 2023.
2.16In May 2023, the NSW Public Accountability and Works Committee began an inquiry into the NSW Government’s use and management of consulting services. In its report tabled in May 2024, the committee made 28 recommendations focused on improving transparency around the government’s use of consultants.
2.17PwC indicated in late May 2023 that it had stood down nine partners but did not name them or reveal the nature of their involvement. In early June 2023, PwC named four former partners who had left, but the nature of their involvement was not indicated. PwC and PwCIL have been unwilling to provide information on PwCIL’s involvement in the decisions on exits of the nine individuals involved in the PwC breach of confidentiality obligations.
2.18The committee commenced its inquiry in June 2022 to address ethics, professional accountability and structural challenges in the audit, assurance and consultancy industry.
2.19In July 2023, Allegro Funds announced that it was acquiring PwC Australia’s Public Sector advisory business to create an independent consulting company for government clients.
2.20In August 2023, the Treasurer announced legislation to address the barriers encountered by regulators investigating the breach of confidentiality obligations by PwC. The legislation was intended to increase penalties, give regulators stronger powers and enhance collaboration within government. A bill to implement those reforms was introduced into the Parliament in November 2023, supported by the Senate Economics References Committee and passed in May 2024.
2.21PwC Australia released a statement of facts in September 2023, called the Review of tax confidentiality breaches and related questions, which indicated that PWC had completed its internal investigations and identified the wrongdoing, the people involved and associated governance failings.
2.22In September 2023, PwC International Limited (PwCIL) made a one page statement on the completion of the investigation by Linklaters (the Linklaters report) into the movement of confidential information from PwC Australia to other countries.
2.23The Australian Securities and Investments Commission (ASIC) banned the PwC partner from ‘providing financial services or controlling an entity that carries on a financial services business for eight years’ in October 2023.
2.24In November 2023, Chartered Accountants Australia & New Zealand (CAANZ) censured and fined PwC $50,000 (the maximum fine possible at the time) for breaching CAANZ By-Laws. CAANZ also ordered PwC to comply with new reporting obligations. The effectiveness of CAANZ’s processes in dealing with the PwC breach of confidentiality obligations is discussed further at the beginning of Chapter 6.
2.25Further background information is available in the three substantive reports by the F&PA committee on its inquiry into the management and assurance of integrity by consulting services:
PwC: A calculated breach of trust (June 2023);
PwC: The cover up worsens the crime (March 2024); and
Final report (June 2024).
Issues arising from PwC interactions with the committee
2.26PwC has long represented itself as a leader in governance and advice in accounting, audit, law and other new branches of the consulting industry. There is a yawning chasm between the rhetoric of its public-facing promotional material and the reality the committee has encountered in its interactions with the various iterations of PwC and its leaders since 2012. The interactions that PwC and PwCIL have had with this committee have failed to meet the behaviours expected of a firm that has any respect for law and the parliament. This has greatly diminished the firm’s standing in the eyes of the committee and should be a warning to all potential customers for the services they offer. At every turn, PwC has sought to avoid scrutiny and played for time, seeming to hope that the committee’s interest would wane. Ultimately, the firm was forced through threat of summons to attend hearings and provide material—often with significant redactions— in a tardy manner. The firm’s collective behaviour over the time since the tax matters became public reveal a general contempt for the democratic process. The committee will in due course consider a referral of relevant matters to the Privileges Committees of the Australian parliament.
2.27The committee’s inquiry has been impeded by PwC’s unwillingness to provide information about the PwC breach of confidentiality obligations and subsequent events. PwC Australia and PwCIL have refused to comply with multiple requests from the committee and have been slow to provide incomplete and sometimes potentially inaccurate information. The committee identified these concerns publicly in its media release before the 2 August 2024 public hearing:
In approaching the hearing, the committee highlights the importance of witnesses providing complete and accurate evidence to parliamentary committees, and the specific responsibility of witnesses to give evidence that is not false, incomplete or misleading. In this regard, the committee notes recent discrepancies needing to be corrected in evidence given to parliamentary committees inquiring into the PwC breaches of confidentiality.
2.28This section addresses three issues of continuing concern to the committee:
the failure to provide the Linklaters report;
a lack of clarity on the involvement of PwCIL in the operations of PwC Australia; and
the withholding of information about Mr Kevin Burrowes’ services to and remuneration from PwCIL.
Failure to provide the Linklaters report
2.29The PwC network appointed Linklaters in May 2023 to ‘form an independent assessment of what happened in relation to the unacceptable sharing of confidential information by PwC Australia with PwC personnel outside of Australia’. In September 2023, PwCIL made a statement on the completion of the investigation by Linklaters into the movement of confidential information from PwC Australia to other countries. The release stated that:
With respect to those PwC people who did receive confidential information from PwC Australia, most did not know the information was confidential. However, the review found that six individuals should have raised questions as to whether the information was confidential. To the extent that they are still with PwC, their firms have taken appropriate action.
2.30This committee and many others interested in probity, ethics and professionalism do not consider these two short sentences to provide sufficient transparency and accountability for what happened to the confidential information and who was involved. Various bodies (including the ATO, the TPB, the F&PA committee and this committee) have unsuccessfully sought access to the Linklaters report.
2.31PwCIL provided some additional assertions to the F&PA committee, suggesting that the Linklaters report did not identify any breaches of professional standards and indicated that the confidential information had not been used for commercial gain by PwC firms or individuals outside Australia. Given the record of misrepresentation and obfuscation by PwC and direction to do so by PwC IL revealed in the supervised remediation correspondence, the committee is not at all persuaded by such assertions. Nothing short of the opportunity to directly interview relevant individuals and PwC related entities will satisfy the committee at this point, in addition to sighting the Linklaters report, the notes of the inquiry, and the terms of reference on which the report was commissioned.
2.32The committee made several requests to PwC and PwCIL for a copy of the Linklaters report. The committee provided PwCIL with an opportunity to provide the Linklaters report on a confidential basis in March 2024. PwCIL declined to provide the Linklaters report, claiming that it is legally privileged.
2.33The committee reiterated its request (including the option for confidential treatment by the committee) to PwCIL in April 2024, informing PwCIL that the committee did not accept legal professional privilege as an acceptable ground for refusing to provide the Linklaters report because ‘[i]t has never been accepted in the Senate, nor in any comparable representative assembly, that legal professional privilege provides grounds for a refusal of information in a parliamentary forum’. PwCIL again declined claiming legal professional privilege.
2.34The committee requested the Linklaters report again in September 2024, confirming for PwCIL that legal privilege vests in the client and, as such, a client is entitled to waive legal professional privilege to disclose confidential information or documents otherwise protected by legal professional privilege. PwCIL again declined without attempting to make a case for confidentiality by describing the harm that would arise from public release.
2.35Mr Kevin Burrowes, Chief Executive Officer, PwC Australia, asserted on 2August 2024 that he had never seen a copy of the Linklaters report, he further claimed he had had asked PwCIL for a copy of the Linklaters report on several occasions and PwCIL had declined to provide a copy. Mr Burrowes stated that ‘[i]t was a document prepared for PwC International Ltd to provide them with legal advice, and they have chosen not to waive their right not to provide it to us’.
2.36Given the jurisdictional boundaries that exist, as the document is held by PwC International Ltd in London, the committee then requested assistance in this matter from the United Kingdom Financial Reporting Council (UK FRC). The UK FRC pursued the matter in their jurisdiction and indicated in May 2024 that it had asked PwC Global for a copy of the Linklaters report and that the request was declined. The UK FRC noted that it did not have the power to compel any United Kingdom PwC entity to provide a copy. Given the challenges documented here, the committee asserts that without sighting and properly interrogating the Linklaters report, the committee has no confidence at all that PwC or PwCIL have in fact identified or sanctioned the relevant individuals in any jurisdiction in any way.
The involvement of PwCIL in PwC Australia’s operations
2.37Evidence received by the committee indicates a substantial level of involvement in PwC Australia by PwCIL in addressing the issues arising from the PwC breach of confidentiality obligations. For example, Ms Meredith Beattie, the former Chief Counsel of PwC, indicated that:
…direction was given to the Australian firm that effectively meant there had to be prior consultation with global in relation to matters. It was a supervisory role they had, or a direction to comply…They would be consulted, they would see draft letters, they would comment and they would drive strategy.
…it was a different way of operating, and PwC International had the power to come in, under the regulations, and give the direction that they gave as a way of looking into things and being satisfied as to network issues and the brand.
…Matters would all be run through Mr Oldfield concerning the media, the responses, how it might be dealt with—he was actively engaged. It certainly wasn’t Ms Weiss’s global general counsel running the Australian firm. There were many people who were involved. They were also there to work with the Australian firm.
2.38The committee also heard that there were a large number of visits by seven PwCIL staff between May 2023 and March 2024, including the Global Chair, at that time Mr Bob Moritz, and the Global General Counsel, Ms Diana Weiss.
2.39The committee issued several invitations to PwCIL staff to appear at a public hearing so that the committee could inquire further into their role in PwC Australia. None of those invitations have been accepted to date. The committee expects that should they travel to Australia, they will make themselves available for a public hearing.
2.40The committee sought to better understand the relationship between PwC Australia and PwCIL by requesting copies of the agreement between PwC and PwCIL and other documents associated with the remediation of the PwC breach of confidentiality obligations. Both PwC and PwCIL declined to provide those documents, citing commercial confidentiality.
2.41In September 2024, the committee informed PwC that it did not accept PwC's claim to avoid the provision of the remediation documents due to commercial confidentiality. The committee reiterated its request for the remediation documents and reminded PwC of the committee’s capacity to receive them on a confidential basis. PwC provided three remediation letters in October 2024 (with personal identifying information and direct quotes from the PwCIL Regulations redacted) and requested that the committee receive them confidentially. After further communications with PwC, unredacted copies of the remediation documents were provided in late October 2024. The committee made a determination that PwC’s claims of commercial confidentiality regarding the documents were insufficient to justify receiving them confidentially. After notifying PwC of this outcome, the documents were published on 1 November 2024.
2.42The remediation letters document the PwCIL assessment of the failures of PwC Australia and the rationale for the remediation determination, highlighting longstanding inadequacies. The 19 May 2023 document initiating supervised remediation processes, was addressed to PwC Australia Acting Senior Partner Kristin Stubbins and Tracey Kennair, as Chair of Board of Partners. It wassigned by PwCIL General CounselDiana Weiss and cc’d to Global CEO Bob Moritz, Global Chief Commercial Officer Carol Stubbings,then PwCIL Global Clients and Industries Leader Kevin Burrowes who following the subsequent June 2023 remediation determination was appointed by PwCIL as PwC Australia Interim Management to serve as Country Senior Partner (CEO), PwCIL Global Board Chair Lisa Sawicki. According to the 19 May correspondence the PwCIL Network Leadership Team (the “NLT”) based the determination on the extract of the information from the remediation letters identified in Box 2.1.
Box 2.1 Extract from PwC remediation letters Historical behavior across a number of matters has caused an erosion of trust and confidence in the Firm and damage to PwC’s reputation: Over the course of the past several years, the Firm has been responding to various inquiries and claims relating to certain of the activities and practices of its TLS business, including inquiries from the Australian Tax Office (ATO), promoter penalty proceedings, claims of false statements relating to assertions of attorney-client privilege, findings of confidentiality breaches and inadequate identification of conflicts of interest by the Tax Practitioners Board (the “TPB”) and other matters (collectively, the “Tax Matters”); In addition, a series of public hearings and disclosures have shed light on the Firm’s involvement in consulting engagements that have been beset by poor risk management practices, evidenced gaps in professional judgment and exposed the Firm to further public scrutiny and criticism (collectively, the “Consulting Matters”). These include, among others, a matter in which the Firm was engaged by a government agency to evaluate a tax recovery practice, determined that the agency had overstated the benefits of the practice and then allegedly acceded to the agency’s request not to produce a critical report (while still collecting its engagement fees); The Consulting Matters and Tax Matters, in particular the TPB matter, have now become the focus of the Senate Inquiry and intense public criticism of the Firm; The Firm made public statements that improperly downplayed the severity of the TPB matter and minimized the significance of the underlying behaviors, which have given rise to significant adverse media, both domestically and globally; Evidence produced to the TPB and publicly released in the Senate Inquiry indicates that members of the Firm’s leadership had information that should have caused them to question the conduct of the partners involved but that they did not do so. The publication of this evidence and the Firm’s public response have further eroded trust and confidence in the Firm; The Firm’s public response to recent disclosures also must be considered against the back-drop of earlier representations made by the Firm in response to notice of behavior and culture issues. In 2020, after a series of contentious reviews and a promoter penalty proceeding by the ATO, the Firm received findings from the ATO that the behaviors of its tax practice were concerning and that those behaviors indicated that “PwC was primarily concerned with expanding its market share and winning new work,” with “no contemplation to engaging with our office around contentious structures being proposed in response to the introduction of the MAAL provisions”. In response to these findings, the Firm commissioned a review and put in place a series of process changes. In connection with that review, (See March 2021 Quigley Report at 21), it was noted that the Firm would need to demonstrate that positive behavioral and cultural changes have been made. The Firm’s public statements about the TPB matter, which relates to the same underlying period and conduct, reflect a failure to demonstrate the cultural change that it committed to two years ago; and In addition, in responding to media and other inquiries relating to these matters, the Firm failed to work collaboratively with and keep Network leadership apprised of relevant facts and circumstances, thereby hampering the Network's ability to respond. Based on a review of the information available relating to these matters and the Firm’s response to them, it is apparent that: The Firm failed to undertake an appropriate root cause analysis to understand the reasons for the behaviors in these matters and identify meaningful remediation steps; The Firm did not conduct adequate investigation of the underlying behaviors in order to assess accountability, nor did its Ethics leader or others in leadership or governance of the Firm identify the need to address behaviors that did not live up to our Code of Conduct or values where those behaviors arose in connection with practice matters; As a result, there has been little to no accountability for the actions and inactions of those responsible for these matters, and the actions that have been taken were unduly delayed; There has been inadequate focus on identifying and addressing actual or apparent conflicts of interest and sensitive situations and inadequate attention to building and maintaining an ethical culture; and There has been inadequate disclosure to and consultation with the Network. We believe that these matters also have materially prejudiced or are likely to materially prejudice the objectives of the PwC Network in Australia. In addition, the Firm’s acts and omissions have exposed multiple member firms and clients across the network to potential risk and reputational harm. The Firm has taken certain steps to respond to the above failures, including requesting that Tom Seymour step down as Senior Partner, appointing a new Acting Senior Partner, removing two other senior leaders from the Executive Board and appointing Tony O’Malley to serve as Chief Risk and Ethics leader. The Firm also has taken or committed to take various other steps in responding to legal and regulatory proceedings relating to the Tax Matters and in response to the TPB matter and Senate Inquiry, and it recently appointed Ziggy Switkowski AO to lead an independent review of the Firm’s governance, accountability and culture and make recommendations. Given the ongoing reputational damage and the severity of the breakdown of trust and confidence in the Firm, as well as the acknowledged need for improvements in governance, accountability and culture, Network investigation, monitoring and supervision is deemed necessary. |
Withholding of information about Mr Burrowes’ services to and remuneration from PwCIL.
2.43Mr Kevin Burrowes was among the team within PwCIL engaged in the response to the unfolding events within PwC Australia over the Peter John Collins matter. His main role in 2023-24 was as a partner of PwC UK. He travelled to Australia and was part of the PwCIL response team including Mr Moritz, Ms Weiss and Mr Ryan Stanton. The Remediation Letters and Mr Burrowes’ contract reveal:
that PwC Australia was a defaulting firm under the PwCIL regulations;
the reasons for PwCIL’s decision;
remedial actions that PwC Australia must implement on governance, oversight, and cooperation;
that PwC Australia had failed to comply with some of the PwCIL remediation requirements;
the appointment of interim management selected by PwCIL; and
Mr Burrowes duties and remuneration.
2.44The committee has also been concerned about the inaccurate and incomplete evidence relating to Mr Burrowes’ services to and remuneration from PwCIL. In a media release before the 2 August public hearing, the committee noted that:
On 9 February 2024, at a hearing of the Senate Finance and Public Administration References Committee’s inquiry into the Management and Assurance of Integrity by Consulting Services, PwC Australia CEO, MrKevin Burrowes, provided evidence that his salary was $2.4 million. Aclarification to this evidence received on 13 February 2024 stated that ‘MrBurrowes incorrectly answered a question about his current remuneration. The correct answer is $2.8m’.
On 13 June 2024, the Chair of the committee, Senator Deborah O’Neill, submitted questions on notice to PwC seeking further clarification regarding Mr Burrowes’ salary package. On 1 July 2024, Mr Burrowes responded, stating that his remuneration package for the 2024 financial year would be $4 million in total, excluding a potential bonus.
2.45Subsequently, PwC continued to decline to provide information that may clarify what services Mr Burrowes provides to PwC Australia and PwCIL, how those are remunerated and whether there are conflicts of interest. In July 2024, PwC revealed a list of services provided by Mr Burrowes to PwCIL, but in August, it declined to provide a copy of Mr Burrowes’ services agreement. PwC subsequently provided a copy of Mr Burrowes’ services agreement on 27September 2024, requesting that it be received on a confidential basis. Given the level of public interest in these matters, the material impact that PwC has on the public verification of key information vital to the proper functioning of the markets, and the lack of good faith by leaders of PwC over a number of years, the committee considers that it is in the public interest and material benefit to PwC Australia partners not aware of these arrangements to release all of the material that the committee have been able to prise from this secretive enterprise.
2.46It boggles the mind that Mr Burrowes as CEO had not informed PwC Australia colleagues and staff about the remuneration from PwCIL. As leading partner, he is technically, severally and jointly liable with all of those hundreds of partner colleagues.
2.47 There was a small PwC Governance Board in place in June 2023. Those board members, including Australian partners, were advised of Mr Burrowes’ remuneration: a payment of $2.8 million per year, plus bonuses from PwC for his CEO role and the PwCIL contract and associated salary, $1.2 million per year plus bonuses. Members of the 2023 PwC Governance board did not disclose that important information to their partners, other governance entities within PwC or to members of the public. If anyone on the board had any insight to see the dual payments to Mr Burrowes for his dual roles, as the assigned Australian CEO PwC and simultaneously contractor to PwCIL, as a conflict of interest they did not advise or report that conflict for disclosure, further consideration and proper management. [in June 2023 there were 10 elected members, plus the interim CEO (Ms Kristin Stubbins), Ms Patricia Carney was a member, Mr Richard Oldfield was not a member but attended as a PwCIL representative. The current Governance Board members are John M. Green (Chair), Ewan Barron, Emma Hardy, Rosalie Wilkie, Marcus Laithwaite, Lisa Chung AM, Ian Hockings, Kevin Burrowes, Michael Fung, Carmel Mulhern. Mr Burrowes was not a member in June 2023. Recently, John M. Green replaced Justin Carroll as Chair and Lisa Chung AM and Carmel Mulhern joined the board as independent board members]
2.48Critically, PwC Australia’s Chief Risk and Ethics Leader, Mrs Jan McCahey, was not informed that Mr Burrowes was receiving separate remuneration from providing services to PwCIL. This is despite Mrs McCahey’s critical role in the public reporting on culture and governance change to comply with the remediation orders imposed on PwC by the TPB. In particular, Mrs McCahey carries the responsibility to prepare and sign off on reports to the TPB on matters relating to improved practices around conflicts of interest. She was unaware of the Burrowes conflict until the matter became public. That failure of ethical action at governance board level has compromised the capacity for accurate reporting by Ms McCahey regarding firm-wide conflicts of interest and demonstrates an inadequate effort on the part of Mr Burrowes to build and maintain a genuine culture of conflict-of-interest disclosure.
2.49The reports on management of conflicts of interest by PwC were intended to drive cultural change with respect to identified failures of the firm in adequately disclosing conflicts of interest. The reports seemingly failed to comply with the spirit and intention of this request through their failure to identify Mr Burrowes’ conflict in reports provided to the TPB in:
July 2023;
December 2023; and
June 2024.
2.50It is unclear whether the TPB intends to maintain these reporting requirements in the future, particularly considering PwC’s seeming failure to appropriately comply with these standards.
2.51Mrs McCahey only became aware of conflict of interest regarding Mr Burrowes’ additional payments from PwCIL on 20 June 2023 as PwC Australia was required to respond at that time to the committee’s questions. As a result of this deception by her own PwC CEO regarding payments from PwCIL, Mrs McCahey was not able to inform the TPB of Mr Burrowes’ potential conflict of interest, as required by the TPB under the increased supervision imposed in the wake of the PwC breach of confidentiality obligations. Her integrity was besmirched by this gross failure of ethics and professionalism by not only Mr Burrowes but by those on the Governance board who remained silent and failed to inform their colleagues in accordance with the most basic levels of professional accountability to one’s own partners.
2.52MrsMcCahey and Ms Patricia Carney (a partner of PwC Australia, director of PwCIL and a member of the PwC Australia Governance Board) indicated that they had not been given access to a copy of Mr Burrowes’ services agreement with PwCIL. Mrs McCahey acknowledged the potential for conflicts of interest with Mr Burrowes’ arrangements:
I see that there's a potential for conflict. I guess, being in the midst of it, I see it very much as an aligned set of interests.
2.53Mr Burrowes acknowledged that he had not informed the PwC Australia Board about what and to whom in the global PwC Network he was providing services and information to as part of his agreement with PwCIL. Although there were a small number of partners and the governance board at that time who were made aware of the existence of that contract and that Mr Burrowes was being remunerated for that contractual agreement.
2.54The committee wrote to Mr Burrowes indicating that the above omissions and discrepancies in his evidence concealed a significant potential conflict of interest between his role with PwC Australia and the services for which PwCIL remunerated him. The committee advised Mr Burrowes that it considered that the concealment of that potential conflict of interest substantially obstructed the committee’s ability to properly interrogate and weigh his evidence about PwC Australia’s past breaches of confidentiality obligations and the steps it has since taken to address and prevent such unethical behaviour.
2.55The committee further advised Mr Burrowes that in his evidence given at the hearing on 2 August 2024, the committee considered that he knowingly did not inform the committee of the remuneration derived from PwCIL, as he indicated that he understood the question to be restricted to his role with PwC Australia. The committee informed Mr Burrowes that considering the existence of the remuneration-based conflict of interest outlined above, the committee regards his apparent misunderstanding as revealing, at best, a profound lack of judgement and lack of appreciation of his obligations as a witness before a parliamentary committee.
Committee view
2.56PwCIL’s failure to provide the Linklaters report (even on a confidential basis) means that the committee remains concerned that PwC may be withholding information and is therefore not genuinely seeking to resolve all aspects of the PwC breach of confidentiality obligations.
2.57The committee does not feel adequate evidence has been provided, either publicly or confidentially to the committee, to conclude that the nine individuals exited were in fact those within PwC most culpable for the breach of confidentiality obligations. It appears that PwC undertook this decision as a means of addressing negative publicity, potentially not appropriately sanctioning those who had engaged in misconduct. The committee expresses concern that some of those publicly named and exited may have been ‘sacrificial offerings’ to create the appearance of having conducted and completed inquiries regarding the Peter John Collins matter. There is every chance that some of those nine people identified were not the actual ones involved in the Collins matter; they may have been dismissed for some other reason but were grouped together to create an impression that the matters were concluded.
2.58In this endeavour to media manage the Australian arm of PwC, PwC Intl were not just complicit but in fact directly responsible. The timing of the release of the supervised remediation documents and the timing of the publication of this report does not allow sufficient time for the committee to acquire or interrogate the documents referred to in Item 7, including talking points or documents prepared for Senate inquiries or significant decisions related to governance and leadership. We do consider them documents of public interest however.
2.59See Box 2.2, whether the remediation documents clearly state:
Box 2.2 Further extract from PwC remediation letters 5. Accountability decisions: Individuals for the matters under review in the Senate Inquiry and related matters, the Network investigation or the governance, accountability and culture review, and the related consequences to be imposed, must be reviewed by and agreed with me and the Network Representative. 6. Substantive Decisions Affecting Firm Leadership, Partners or Governance: The Firm shall consult with the Network Representative regarding any substantive decisions that affect firm leadership, personnel or governance, including but not limited to the appointment or removal of leaders or governance representatives and the hiring of external parties to partner-level roles relating to the TLS or public sector businesses. The Firm shall not implement any such decisions until agreed by the Network Representative. 7. Communications and Media Inquiries: The Firm shall cooperate with PwC’s Global Corporate Affairs and Communications group in preparing communications or talking points or conducting webcasts that relate or refer to the Tax Matters, the Consulting Matters, the Senate Inquiry and other related matters; the results of the independent review of governance, accountability and culture and resulting recommendations; and significant decisions relating to the leadership and governance of the Firm (the “Topics”). The Firm shall not issue or distribute any such communications until the Network Communications Leader and the Network Representative have reviewed and approved. |
2.60The committee notes that legal action taken by a number of those individuals named by PwC in May 2023, and legal matters settled with the use of non-disclosure agreements, further raise the committee’s concern that the sackings of PwC partners may well have lacked procedural fairness and integrity.
2.61The committee is concerned about the lack of willingness of PwCIL staff to appear before the committee to enable inquiry into the PwC breach of confidentiality obligations and the subsequent role of PwCIL. That adds to the committee's concerns that PwC continues to withhold important information about the breach and its resolution.
2.62The committee also remains concerned about the lack of transparency regarding MrBurrowes’ services to PwCIL and the associated remuneration. The committee considers that the lack of transparency within PwC Australia about this matter, including not informing partners and staff, fails to set a good example for everyone else in the firm at a time when leaders continue to assert that they are transforming PwC Australia, and must lead by example with the highest degree of integrity. The failure to inform PwC Australia’s Chief Risk and Ethics Leader is a significant failure of process that impedes that person’s role in monitoring risks associated with conflicts of interest.
2.63Sadly, the above three issues leave everybody wondering what else remains hidden in PwC Australia and PwCIL. The reforms being put in place at PwC Australia and PwCIL should resolve transparency and accountability without needing the continuing intervention of parliamentary committees. The committee’s concern remains that the articulation of changes to governance and culture in the marketplace is not at all matched by the internal processes of PwC, which remain under the direction and control of PwCIL and are compromised by the ethical and unprofessional failure of Mr Burrowes to disclose a $1.2 million per annum conflict of interest to the Australian Partners until this committee demanded that information.
2.64As set out in Chapters 3 to 6, issues associated with conflicts of interest appear to be a widespread problem for the Big Four firms and mechanisms to manage and resolve them are failing within the firms, in the professional bodies and in the regulators. Hence, the committee is making a range of recommendations to address those failings.
2.65The committee is not yet convinced that PwC and the other Big Four firms are on an effective path to learning from their mistakes. Hence, further work by parliamentary committees may be necessary. The committee, therefore, suggests that parliamentary committees should carefully monitor and review the effectiveness of the reforms proposed by this committee and the F&PA committee.
2.66The committee suggests that the government consider what sanctions it may impose on PwC and its leaders in the period 2012 – 2024 to address its ongoing lack of accountability. The committee notes that measures such as freezing government procurement contracts with PwC are unlikely to have a significant impact because, since the formation of Scyne, PwC no longer works under Commonwealth procurements.
2.67The committee recommends that the Australian Government not permit PwC or any of its related entities to tender for government work until the completion of all ongoing investigations including but not limited to those by the Tax Practitioners Board, Australian Federal Police and Australian Taxation Office. Prior to PwC being eligible to tender for government work, PwC must demonstrate it has taken all appropriate remedial action in response to the outcomes of the investigations.