PwC scandal: PwC effectively banned from government contracts

The firm’s ability to be trusted with any confidential information was repeatedly questioned during Senate estimates hearings on Thursday, and officials from the Australian Federal Police and Finance were forced to defend their dealings with PwC.

AFP representatives told senators an investigation had been launched into the tax leaks matter based on a Treasury referral, and that the matter had been designated a “sensitive investigation” by the force.

Senator Gallagher said it was now up to the firm to prove to Finance that it had reformed, but she also repeated earlier assertions that it was legally difficult for the government to ban PwC from bidding for work.

“I think there has been change [at PwC] . in the sense that the leadership that were involved in the response to the original letter are not the leadership that are now in there trying to respond to the ... full issues that we’ve now become aware of,” Senator Gallagher said.

“So I think that’s a start … the onus is now upon PwC to respond to the very strict and clear direction that’s been sent and satisfy finance that they are adhering to the direction.”

While PwC secured $537 million in federal government contracts during the past two years, the effective “shadow ban” on the firm has effectively become formal due to new rules brought in by finance.

Peter Collins, former international tax leader for PwC Australia. 

The scandal first became public in January when the Financial Review revealed the Tax Practitioners Board had terminated the registration of former PwC partner Peter Collins for sharing confidential information about the government’s tax plans with other staff at PwC.

The TPB also ordered the firm to run additional training about managing conflicts of interest.

In May, a cache of internal firm emails published by a Senate committee showed dozens of PwC partners and staff received emails relating to a plan to exploit, for profit, information Mr Collins had gleaned while advising the government on developing the multinational tax avoidance laws.

The emails, which had names redacted, also detailed how PwC’s personnel used the leaked intelligence from the former partner to advise 14 clients how to sidestep new multinational tax avoidance laws in 2016, charging fees worth $2.5 million in the process.

On Thursday morning, the Financial Review revealed that Finance had directed PwC to “stand down” any personnel who knew about the tax leaks from all government contracts.

Ms Wilkinson told senior executive staff in a Wednesday email that the government’s 413 contracts with major suppliers would be tightened, so that “existing and future contacts” could be cancelled for bad behaviour.

The moves were part of measures that also included new rules to require suppliers to notify federal public servants if their personnel were pinged for bad behaviour.

The changes were made to get around the fact the tax leaks were not directly related to a regular government contract, but had occurred as part of a Treasury confidential consultation on developing new tax laws.

Ms Wilkinson told estimates hearings that if the breach had occurred as part of a regular federal contract, “the panel agreement would have given Finance the ability to consider cancelling all existing contracts with PwC under this panel on the grounds of material breach of contract, and to suspend them from future procurements under this panel”.

She also said the firm had initially played down the seriousness of the breach.

“Recognising the seriousness of this matter, Finance immediately wrote to PwC on January 25 reminding it of the requirement to maintain confidentiality whilst working with the Commonwealth and sought assurances that PwC had implemented appropriate actions to prevent a future breach of confidentiality,” Ms Wilkinson told estimates hearings.

“PwC responded, advising that it was taking action in response to the event and that it had detailed policies and procedures in place to maintain confidentiality arrangements in relation to client engagements.

“Further, PwC advised that partners and staff with security clearances were undertaking additional training in relation to their security and confidentiality obligations; and that there would be ongoing training for PwC personnel.”

Ms Wilkinson said the firm gave no indication the breach was broader than what had been reported, but the email cache published in May showed PwC’s failures were “significantly broader than a single individual” and that the firm’s response had “insufficiently addressed the issues being raised”.

As a result, Finance told PwC to remove the relevant staff from finance-related work until an internal review by former Telstra CEO Ziggy Switkowski had been completed. The review has a September deadline.

Labor senator Deborah O’Neill was sceptical about the efficacy of Dr Switkowski’s review, and another internal review being done by law firm Linklaters: “[PwC are] paying the bill for that. How independent can that be?”

Labor senator Deborah O’Neill has questioned Department of Finance officials about their dealings with PwC during Senate estimates.  James Brickwood

The AFP also told estimates it was investigating whether PwC breached Sections 70 and/or Section 90 of the Crimes Act. The two sections, which were replaced in 2018, relate to the disclosure of information by Commonwealth officers and the disclosure of official secrets.

Both carry a maximum penalty of two years in prison, but the range of sentences varies widely – one case incurred a $2000 fine.

Greens senator David Shoebridge questioned AFP Commissioner Reece Kershaw whether the force had an “irremediable conflict of interest between having PwC as your [internal] auditor at the same time as you’re seeking to properly investigate them … for a criminal offence”.

Commissioner Kershaw denied there was a conflict and said the AFP had processes in place to prevent the “problematic intersection of those contracts” with the investigation.

“We’re very good at compartmentalising criminal investigations and in particular, the team that will be on this will be from our sensitive investigations area, they use a totally different process,” he said.

With Lois Maskiell, Campbell Kwan and AAP