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A journey into the dark heart of corporate Australia. Join corporate governance expert Dr Andrew Schmulow and award winning investigative journalist Anthony Klan as they lay bare the systemic cronyism and corruption that is modern professional Australia.
Anthony (00:03)
Hello, this is Corporate Grime, where we dissect all things corporate governance and corporate crime related. I'm investigative journalist, Anthony Klan, founder and editor of online news site, Klaxon. That's theklaxon .com .au. And with me is Professor Andy Shmulo. Dr. Shmulo is a top governance expert and we're to have a chat this week about PWC. One of the most explosive Senate inquiries occurred this Friday. Andy, how are you going?
Andy (00:31)
Good thanks, Anthony. to talk to you. And hello to our listeners. It's been a very significant end to the week with the whole PWC scandal.
Anthony (00:43)
It has indeed. just for our listeners, as you'll be aware with the PwC has been in a lot of strife for the past over a year since the scandal broke involving it sharing confidential tax policy data, Australian government tax policy data. Since the scandal broke early last year, there's been rolling Senate hearings and PwC has again turned up on Friday. We had the former CEOs, two former CEOs, Luke Sayers,
was CEO from 2012 to 2022. And then we've had the former current CEO, Kevin Burrows and a host of other people. Andy, what were some of the standouts for
Andy (01:25)
So straight out of the gate, first thing that happened on Friday morning is the senators led by Senator O 'Neill got stuck into the CEO of PWC, Kevin Burrows, about his salary. So just to circle back to our last podcast, listeners will recall that we spoke about how in February of this year, Kevin Burrows was asked how much he earns and he said 2 .4 million.
And then a few days later, he said 2 .8 million. And I made the comment that it's a bit of an odd look for the CEO of an accounting firm to not be able to get his numbers right. And then four and a half months later, after being pressed with a question on notice about his total remuneration, he revealed that it isn't 2 .4 or 2 .8 million. It's actually 4 million. And the extra 42 %
which he hadn't declared to anybody, he hadn't let anybody know. The extra 42 % of his salary he gets from PwC International in London. And the reason why that's so significant is because PwC International in London hold this report done by Linklators that the Senate demanded PwC handover, that the Parliamentary Joint Inquiry has demanded that they hand over. This is a link, a report done by
law firm link laters into what other partners elsewhere in the world conspired with their partners in Australia to commit the crime of tax evasion and undermine the authority of the Australian tax office and the Australian government. So.
Anthony (03:03)
And now we have, we have 100, this is the 144 pages of emails and there are partners all around the world. They're all blacked out, but it shows partners all around the world discussing, discussing these issues. Ireland, UK, US, Singapore, many, at least 10 countries are in
Andy (03:21)
So it took Barrows four and a half months to give a full account of what his salary is. And when he was questioned on Friday about whether he had misled Parliament, his response was no, because he was asked how much he earns in his current role. And he interpreted that to mean only Australia. Now, originally I made the point,
find that very difficult to understand unless he does his work for PwC Australia until five o 'clock in the afternoon. Then five o 'clock in the afternoon, he clocks off and he goes and does a completely different job for PwC International, which is a different role. Anyway, his response was, it's all the same role, but some of it is at the behest of PwC Australia, where I'm now a partner, and some of it is at the
of PwC International. Again, I'm not seeing how the distinction is sufficient to not answer what you're earning in total. But okay, let's take him at his word that it's somehow two separate roles because he's got two separate masters. And so he wasn't misleading Parliament. Sitting next to him is a woman by the name of Jane McKay. She's their chief risk and ethics officer.
She gets asked when Kevin Burroughs disclosed to her that he's getting another 1 .2 million from PwC International. And she says, in about June of this year. So that's more than a year after he started, or about a year since he started in the role. So for a year, he's been in a role where he's been parachuted into this country because PwC Australia has turned into a dumpster fire because they didn't, amongst other things, manage conflicts of interest.
and because they didn't keep confidential information confidential. his role as chief fire warden to put out the dumpster fire, he's asked about why he didn't declare his full salary and he at that stage reveals he's been paid by two masters. Conflict of interest much?
Anthony (05:44)
It's worth it's worth pointing out the senators were not were not having it. ALP Senator Deborah O 'Neill, who's done a really solid job on this for quite some time now. She said Burroughs being paid by two masters presented a very high level conflict of interest and was also deceptive. And she asked Burroughs, you have not provided transparency to your own board. Burroughs responded, I am happy to do so, Senator. Now, this is this is a year after
Burrows was appointed to the Australian arm in July of last year, 1 .2 million. said, yeah, that's $100 ,000 a month is paid by them. And so sitting next to him in February when he was asked about his salary and he responded 2 .2 was actually 2 .4. It didn't mention that the other 1 .2. He was sitting next to him was the ethics officer at that stage also. So the senator asked the ethics officer, Mrs. McKay, about this. And she said, she said, this is Friday, she said,
I was surprised to learn of the 1 .2 million from PwC International. I wasn't aware of it, as you say. I was surprised to learn of it at the time. She said, how did you become aware of it? And it was in discussions with Mr. Burroughs on the 20th of June this year. And as the Senator pointed out, that was as PwC was preparing its third set of responses to questions on notice from the inquiry regarding Mr. Burroughs' payment. So it only came out to the ethics officer and to the broader firm in response to this probing by the Senate inquiry.
Andy (07:12)
So they've treated their chief risk and ethics officer whilst they're in the midst of an ethics scandal, they've treated her like a mushroom, kept her in the dark and fed her bullshit. And I have to say, think that, I mean, apart from the fact that they've made a complete fool of her, I have to say part of it is her responsibility. She should have turned around and said, well, you've made a fool of me. You haven't respected my position.
You haven't made disclosure to me. You are not including me in vital information, which means I can't do my job as risk and ethics officer, especially in the middle of an ethics crisis. So I'm afraid I'm going to have to resign. I think if she had any self -respect, she'd do that. But she seated next to Burroughs and she gets asked, don't you see this as a conflict of interest that Mr. Burroughs should have declared to you? And because she seated next to
She has to say, what else is she going to say? No, no, no, I don't see it as a conflict of interest. I think the two firms are well aligned. What does that tell you? First thing it tells you is that all the criticism that's been made in the Switowski report about how people at PWC are too scared to speak up. Here's an example. Here's an example of the chief risk and ethics officer has been made a complete fool of, who hasn't been given information that she needed to be given about conflict of interest.
And she's too scared because she's sitting next to the CEO to say, yeah, of course he should have told me. And we're going to have a very hard conversation about it. And let me just say something to our listeners. Anthony, I've done consulting work in other countries where I have seen instances of independent people inside firms that have a very high degree of independence and where
I've actually seen examples where people in such situations would have been able to turn around and say, yeah, I think it was a mistake he made. He should have declared it to me. And it's an oversight on his part. We've had a hard conversation with it. He sees the error of his ways and he's contrite and I accept that. At that point, I would have gone, okay, there's movement at PWC. Things are actually changing. There's a chief risk and ethics officer who feels comfortable
in conceding the absolute bleeding bloody undeniable obvious, which is that there was a conflict of interest. She feels confident to say that and she feels confident in being able to say, I had a word with the CEO and I put him back in his box and he was a man about it and he accepted that he was wrong and we can move on. Then I would have said, okay, wow, that's real change. But instead she's too shit scared to say anything. So she tries to spin this bullshit about how it's not a conflict of interest because the two firms are well
Let me unpack that. First of all, the two firms are not well aligned. They are already misaligned. PwC International says they won't release the link laders report. That is putting PwC Australia under pressure. And I'm sure that the vast majority of partners at PwC Australia would turn around and say, get them to release the bloody link laders report. in Australia, we had to release a report where we had to name and shame our own colleagues.
So why shouldn't PwC International have to do the same thing? Bugger them, they should release the report. So they are already misaligned. But even if you don't accept that they're misaligned, as Chief Risk and Ethics Officer, Jan McKay should at least have the intelligence to say that we may not be misaligned now, but it is certainly theoretically possible we will become misaligned in the future. And for that reason, I should have been given this information. We have an expression in law, you must not just avoid bias, you must avoid the mere apprehension of bias.
So you must avoid the mere apprehension of a conflict of interest, which means if she was independent and was able to be confident in doing her job, she would have turned around to Kevin Burrows and said, you should have given me that information. And I'm going to say so to Parliament. And you're just going to have to cop it and it'll show everybody we're actually making some progress. Instead, she spun this bullshit about how there's no problem because they're not misaligned. After she appeared, Tom Seymour and
and Luke Sayers, the former CEO, has appeared and they both said, of course he should have declared that he was getting 1 .2 million from PwC International.
Anthony (11:42)
It's really just common sense. And if it was all fine, it was all kosher, then why didn't he disclose it at the time? Why didn't he disclose it when he was asked in February before the Senate inquiry? It just is one of these ongoing things that raises more and more questions. And I mean, this claim that they're looking to change is to me, it seems quite ridiculous. I guess we also had coming up now last year after this scandal
PWC was on the ropes. finally came out in the public arena. was January, late January of last year in about, in the subsequent months it grew and grew. Now, PWC, when they had no other choice, it looked like, or they really didn't, they had to respond. So they appointed what they called an independent review into the matter. So they appointed a businessman, senior businessman, Ziggy Switzkowski. He was many years ago, the CEO of Telstra.
to conduct this review. Now, Ziggy Switzkowski took the stand on Friday. Andy, what was your takeaway there?
Andy (12:45)
You know, one of the things that he acknowledged very early on in his testimony is something that you reported in the klaxon. When PWC got Ziggy Switowski to do his review, they refused to release or disclose his terms of reference. The terms of reference that you give to a reviewer are absolutely crucial.
Otherwise, you'll have audit firms doing reviews, for example, the reviews they did of Comm Insure and the reviews they did of IWRF, reviews that were discussed at the Banking Royal Commission. They do reviews where they don't find anything wrong, despite the fact that they've had to do a review because there's been a scandal about things going wrong. Why don't they find anything wrong? Because reviewers are given terms of reference that are specifically designed to prevent them from finding
anything negative. So PwC refused to release the terms of reference that they've given that they've given Swetovsky. There's only one reason why you'd refuse to release the terms of reference, because you're trying to hide something. Those terms of reference were extracted from PwC because of a question on notice that, as Anthony pointed out to me, was actually posed in the New South Wales government inquiry, New South Wales Parliament inquiry into PwC.
So they tried to keep the terms of reference secret. Those terms of reference were eventually extracted. And what did the terms of reference find? That Switowski had been asked to do a review of PwC's culture, but only forward -looking from the day he was appointed.
Anthony (14:30)
So the entire tax leaks affair happened beforehand. So it sort of just brushed over the entire thing, making it a complete, essentially a nonsense of the entire escapade.
Andy (14:40)
It's like a murderer who's murdered 20 people saying to somebody doing a review on his conduct, but you're only allowed to do, only allowed to review my conduct from this day forward. so miracle of miracles when the person does, who's doing the review files their report, there's no evidence of this person ever committing murder. Well, of course not. Cause it all happened before they were appointed. And if it's not somebody doing a review on the conduct of a murder, in this case, it's somebody doing a review on the conduct of a firm that's been engaging in
facilitating the crime of tax evasion by selling Australian government secrets and they've said to the reviewer that you can't look at anything before the day you were appointed. As you'd seen, hoodies would say WTF man. Like what the actual fuck? What's the point?
Anthony (15:26)
And exactly. the fact that PwC, we went to them many times and they refused to hand over the terms of reference they were eventually forced to. I don't know what they were thinking, whether they were going to try and hide it in the final report or whether they never going to admit it. But originally, they weren't even going to release Switzkowski's report. They were just going to give a summarized version that they were pressured into releasing it. But even though they've released it, even though there's been this report, is the aim of it, a lot of it would be to take
pressure or take the heat out of the scandal. You've got to remember at all times that why on earth is PWC paying for its own investigation? mean, that's at the heart of it. I mean, no matter what it says, PWC has paid for it. It's provided that the terms of reference, the instructions, it's held onto it for several months, then submitted it or made it public. So look, mean, it's quite remarkable. But I think one thing that jumped out at me covering this
on Friday and we've got a piece in the Klaxon, you can check it out, the Klaxon, K -L -A -X -O -N .com .au. Zicky actually said, now he interviewed, he was asked, so remembering from 2012 to 2022, the CEO of PW Australia was Luke Sayers. Now Luke Sayers, said, well, and this is for all relevant times for the tax leaks affair when the tax information was shared, confidential tax information was shared. Now, Siskowski was asked, did
interview, did you interview Sayers and Swisowski says, yes, I met with him at a hotel, I had coffee, but I subsequently shredded all my notes. And that largely went has gone missed by all the rest of the media, but we picked up on that. I guess there was just so much going on so much jaw dropping material. But that's quite, quite interesting indeed. And he just sort of he just sort of dropped it there. He also mentioned for the first
There were eight, said he had eight foot soldiers, termed them, from a Sydney consultancy that were helping him, Sydney management consultancy called Ben Delta, that he'd engaged to assist with the review. But he said in this case, none of them were present with the say his interview, it was just himself. They were present on some other occasions, but not this one. So hang on, you've got this so -called independent review that's actually been paid for by PWC, has its hand picked.
investigator or reviewer meets with the CEO for all relevant times of the tax scandal, doesn't and then shreds all these notes. And I think it's also important to note, Deborah O 'Neill, Senator O 'Neill, she said, she said to Switkowski, you've used the term CEO in the report 71 times, but you haven't named either Sayers or Seymour. And now Seymour was the CEO from 2022 until he was forced to resign last year over the scandal. He originally
said that it was just a perception issue. And when it came out that his name was actually in those emails, as we've previously discussed. So Senator O 'Neill says about the 71 times why have you just used CEO you haven't actually named anyone. And she said, it strikes me as passing strange that you use the term 71 times in your document, including in response to particular actions or failures. Now, Switzkowski responds, I did that deliberately, because casual reference to any
anybody by name might have amplified consequences and that wouldn't be fair. So that I think that screams volumes. Now it's also also worth pointing is this really struck stuck out to me, multiple occasions when asked to give evidence now in his report, even though all the issues we've discussed previously, many of the findings regarding PWC is then current behavior, which is, you know, after the tax scandal, this is last year.
and what have been referred to as quite damning, et cetera, et cetera. Now he seemed to me to sort of be walking, being quite sympathetic almost to PWC in a number of occasions, sort of almost walking back a little from some of the thrust of what he was saying.
What struck out at me particularly was this issue of Switzkowski sort of talking almost favorably towards PWC. Now what did strike out at me was he's actually said on three, around about three occasions, perhaps even more, he didn't want to seem to be effectively in the pocket of PWC. Now it strikes me as odd that someone would even need to say that, let alone multiple times.
Andy (19:44)
Yep, and here are something that might be of some interest to our listeners.
So the last time I appeared, I think I appeared in May of this year before the same inquiry and I gave evidence. And at the end of my appearance, I was asked questions on notice and I have filed my responses to those questions on notice. Those have to go before the committee before they released into the public domain, which I think will be at the end of August is the next time the committee will meet. when,
My answers to questions on notice have been approved by the committee and they put into the public domain. I would encourage people to have a look at my submission because on page 12 of my submission, I introduce a report done by a firm in United Kingdom called Truth Unlocked. And they have commercialized the use of techniques to analyze statements, techniques using linguistic markers.
that have been used by the FBI and the CIA for the last 40 years. And this firm, Truth Unlocked, has been using this technique of linguistic markers to analyze company and corporate statements and to advise investors. And in fact, they issued a report where they analyzed the linguistic markers in a statement that Boeing made after the door plug blew out on the Alaskan Airlines 737.
about four or five months ago, I think it was. And they conducted this linguistic marker analysis of Boeing's statement and unpicked all of the places where Boeing was lying, hedging their bets, trying to obfuscate. In other words, what they do is they see markers in language that give you an insight into the kind of thought process and
tricks that people are trying to come up with in their head when they try and make a statement about something that isn't technically false, but gives a different impression from what they're actually thinking. And their analysis of Boeing's statement was so devastating that it contributed to that huge slump in Boeing's share price after the Alaskan Airlines near disaster.
They've done a linguistic analysis of PwC statement about the link laders report, which I think you'll find very interesting. I think if you did a linguistic analysis survey of what Switowski has said, it becomes a bit of a red flag when somebody says, look, I'm not trying to advocate for them, but.
Because what's actually going on in his head is, I want to advocate a bit for them, but I don't want it to be that obvious. I'll turn around and I'll say, well, I'm not advocating for them, but it's kind of a little bit of a giveaway. if we know who the CEOs were and we know the time periods that they
there and Switowski is using the term CEO instead of a person's name, but there's any ability to link it to the dates when either Seymour or Sayers was CEO, what have you achieved anyway? They haven't achieved anything anyway. You can identify which CEO you're talking about. It's just that what it does give away is this guy.
Anthony (23:17)
Percent.
Andy (23:26)
He doesn't want to people who are also kind of in the director's class.
Anthony (23:32)
And this goes down to the issue, right? If you're paid considerable amounts of money, large figures or anything to do reviews into companies, if you come out and actually slam the company and can be completely open, then well, you're going to keep getting business from other companies, which is why you have governments do this sort of thing, not companies, private companies and not private companies that are paid by the company that's engaged in the wrongdoing. I
Andy (23:55)
Yep, and I should also mention Professor Graham Samuel, who was chair of the ACCC, he has gone on the public record as saying that in terms of the terms of reference that govern the Switowski review, that you can only be forward looking, Samuel said, I would never have accepted those terms of reference.
Anthony (24:18)
And Samuel is one of the most highly respected government figures, a former officials in the country. He is extremely highly regarded. So those words carry a lot of weight. I think it's interesting here. A couple of the things that Switzkowski said regarding his review, he said what he was looking at or what he saw. says, I'm quoting him here, a lot of things that would be of interest to this committee, but they fell well outside my period of activity. And by activity, he means he was only instructed to view
the state of affairs after his appointment, which was mid last year after all the the tax affair issues. He says, I'm relatively disciplined in having agreed to undertake a review, I would do it and deliver it according to agreed terms. And he says, so I resisted the temptations which were quite severe to go down avenues that were not material to what I was supposed to do in that period of time. So he says,
Andy (25:10)
Now, you see this is very interesting. Sretovsky's view is, I'm such a good boy. I'm such a good boy because if you give me the terms of reference, I will stick religiously to those terms of reference and I won't go outside of them and therefore I'm such a good boy. My response is, you're not a good boy. What you've done is you've actively colluded in providing a review framework that will give us everything
but the truth. And if you want to do really genuine, purposeful reports and investigations of this kind, then you only do it for a client that is aligned with you and is aligned with your desire to ensure that your report produces the truth. I did a report for a bank in South Africa. I won't mention which bank because they're entitled to that level of confidentiality.
I did a report for them where they wanted to conduct a transaction and they were being blocked by the South African Reserve Bank. And they asked me to come and do a report into whether the transaction would fall foul of some of what the Reserve Bank was trying to achieve. And I made it absolutely clear to them and I put this in the terms of reference. And I signed off on those terms of reference and my very esteemed colleague who's a professor at the Melbourne Law School, we signed off on these terms of reference.
and the terms of reference specifically said. We will conduct this review and we will not be limited in terms of what we can look into because our ultimate goal is to uncover the truth and to submit that to the South African Reserve Bank. And in doing so, we hold ourselves accountable not to you, the commercial bank that's employed us. We hold ourselves accountable to the South African Reserve Bank.
and our accountability is to uphold the South African Reserve Bank's mandate. And if you're not happy with that, we won't do the review for you. So it's all or nothing, And I was able to put that review in front of the South African Reserve Bank and I was able to say to them, hand on heart, I've done this review with absolutely every ounce of my willpower as a view to serving the mandate of the South African Reserve Bank, which is the correct mandate, which is to uplift
the economic well -being of all the people of South Africa. I have not put the client first. And we have precedent for that in law. If you're a barrister or a solicitor, your first priority is not to the client. Your first priority is to uphold the law. So this is not a foreign concept. And it was a very important point to make because the deputy governor of the South African Reserve Bank, fellow by the name of Kuba Naidu, has said to me
in conversations I've had with him. I am sick and tired. He has said to me, I'm sick and tired of seeing the way in which big consultancy firms collude to have their terms of reference, terms of references manipulated so that the reports they send us are bullshit.
Anthony (28:25)
Well, there you go, hits the nail on the head. So.
What was your take, Eddie, regarding we had Mr. Luke Sayers and Mr. Tom Seymour. Now Seymour for the first time fronting the inquiry. Now this is a bit of background. So Luke Sayers, as I mentioned, was the PWC CEO for 2012 to 2022. So for all relevant times of the confidential tax information sharing. Before he was appointed to that role, he was at PWC Australia as its head of tax. So this is someone who's extremely across the tax affairs of tax issues with PWC.
Now, under him as CEO, we had Tom Seymour, who was the head of tax. Sayers leaves in 2022 when his term's up and Tom Seymour is appointed PWC Australia CEO. So they're both extremely across the tax issues and both appeared on Friday afternoon at the inquiry.
Andy (29:19)
So one of the biggest things that has come out of this scandal is that PWC has established an internal law firm so that they could route all of their advice to tax evading multinationals, advice on how to continue and accelerate the rate at which they evade tax. They could conceal...
advice that they were giving, advice that was designed to facilitate the crime of tax evasion. They could facilitate concealing that by sending the advice through an internal PO box, which is a law firm, because then it's legal advice and it's covered by attorney -client confidentiality. And it's been a running saw between the ATO and PWC that PWC has been misusing attorney -client
slapping it on documents when it doesn't belong so that they can conceal advice that has been aimed at encouraging the crime of tax evasion. they interview, before they interview Seymour, they interviewed the former general counsel of PWC, woman by the name of Meredith Beatty. Cut a long story short, her argument was, we knew that we were misusing legal professional privilege.
I was very upset about it. I took it very seriously. I demanded that we stop misusing legal professional privilege. I demanded it of Tom Seymour and he basically got in my way and stopped me from fixing the problem. Tom Seymour has his turn in evidence and he says the opposite. He says, I wanted to stop misusing legal professional privilege. I was very worried about it, but it was Meredith Beattie.
who was the problem. She was the one who wanted to continue misusing legal professional privilege. So it reminds me of a line from a song by Daya Straits, two men say they're Jesus, one of them must be wrong.
Anthony (31:22)
I think there was there was a good line. Let's jump in there. There was a new channel worth investigative reporter at the Australian Financial Review. I think he summed it up pretty well. He said the respondents came in and each of them says, I'm very sorry. take full responsibility, but it was someone else's
Andy (31:37)
Yep, yep, he says the whole strategy is I took full responsibility, but it was someone else's fault. He said, this is the defense pioneered by Luke Sayers. so Seymour says, no, it was Meredith Beattie who is misusing legal professional privilege. So this is what Neil Chenoweth wrote about this whole issue. And I'm quoting Neil Chenoweth from the Australian Financial Review. He says as follows, Seymour didn't see it that way. But he agreed that after the alarm was raised in early 2018, that's
to early 2018, protocols were changed as well as the whole way PWC responded to ATO notices. From then on, it was back to the straight and narrow. But curiously, PWC $642 ,000 settlement of the tax office last year for false claims of misuse of legal professional privilege refers to relevant responses dated up to August 2019. Well, hang on, that's long after Mr. Seymour said he got on top of the problem and stopped it happening.
That's a year and a half after he said he'd done that. And he also goes on to say that while those dates may be ambiguous, clearer picture of PWC's misuse of legal professional privilege comes from federal court judge Mark Machinsky's 2022 judgment that more than half of 440 ,000 documents over which a PWC client, the huge Brazilian JBS meat group, had claimed legal professional privilege and did not.
in fact, enjoy that privilege. The judge even quoted a 2015 email from Mr. Seymour that a PwC legal partner was in a support role with GBS to, quote unquote, ensure legal professional privilege is maintained. And he goes on to say, so PwC and this meatpacking company, this Brazilian meatpacking company, JBS, made these legal professional privilege claims for the meatpacking company almost two years after.
PWC senior leadership resolved to ensure no further false claims of privilege were made. And then he says, hey, it's easy to forget this stuff. So the point here is, I think Seymour and Sayers did exceptionally well on Friday. I think they gave a very strong impression that they were very good boys, very concerned, doing their best. It was somebody else's fault.
They were trying as hard as they could. When they heard about the problem, they put their foot down and said it must stop. But then as Neil Chenoweth points out, but it didn't stop. And one of the pieces of evidence that I put before the committee when I appeared in May is a case that goes back to 2013 in the United Kingdom, the Prudential Life case. Listeners can look it up if they like. R for Rex.
are then in brackets on the application of Prudential PLC and another appellants versus Special Commissioner of Income Tax and another 2013 UK Supreme Court. And in that case, the judges said there's a whole heap of legal advice, quote on so -called legal advice that PwC has provided to the Prudential Life Company. Legal advice
devised as a marketed tax avoidance scheme. And PWC tried to keep all of the secret by saying it was covered by legal professional privilege because it was legal advice and the court said, nonsense, none of it's covered. So the point is, when they say, we try to stop it and actually they didn't stop it and that's within the context of, know, we were so shocked and so horrified and these are not our values and this is not how we do business.
This is their business model. They've used it all over the world, at least as far back as 2013. And they learned from that Prudential Life judgment where the judge said, none of it's covered by legal advice, because it might be legal advice, but it's given by accountants, it's not given by lawyers. So what did they do? They went and bought a little phone. These guys are like rats. They are incredibly agile. No, you can't have legal professional privilege because you're a bloody accountant, not a bloody lawyer. Okay, quick.
going by law firm. Every problem, just throw money at it and then we can carry on helping our clients with a tax.
Anthony (36:09)
It's remarkable.
Andy (36:12)
Last thing we might be worth chatting about is the case of Patty Carney and how she was recused.
Anthony (36:23)
Yes. we had Patty Carney appeared earlier in the day as well as later in the day alongside Kevin Burroughs, the CEO. Now, this is an extremely important point. As we spoke about earlier, this Linklater's report, it's commissioned by PwC International, which is why they're claiming they're not handing it over because it was legal professional privilege. That thing again, they're totally entitled to hand it over. They're just refusing to. There's nothing legally preventing them from doing so.
Now, the point was you had Kevin Burrow saying, he said repeatedly to the inquiry, look, I've asked for it and asked for it. They won't hand it over. Meanwhile, of course, as we found out subsequently that he was actually he's actually on the payroll for PwC International. Aside from that, as we've written about in the Klaxon before it has been known, Ms. Patricia Carney is a PwC Australia partner. Now, she is also a partner of PwC International.
the governing body that oversees the brand and all the PwC outlets worldwide. So the point is, well, okay, the arguments say they won't hand it to Mr. Burroughs. Well, Ms. Carney is a director, she's entitled as director to all the reports and information regarding PwC International. So she could quite easily ask for it and have it handed over. Now, what we heard on Friday, which was inevitable, she would be asked about this. Now, Ms. Carney said that she had been recused. So on one hand,
You've got Miss Carney recused from the board over the Australian dealings, which is apparently a conflict. On the other hand, you've got actually Mr. Burroughs being paid by PwC International, which apparently isn't. So there you go. What's your take there?
Andy (38:06)
So on May 29th, 2023, the Australian FIN Review reported, PwC Australia has directed nine partners to go on leave, apologize for betraying the trust of the public and vowed to ring fence its federal government work in an attempt to show it's taking decisive action over the tax leak scandal.
Chairman Tracy Kinnear and Governance Board Risk Chairman Patty Kearney would step down from their roles and two independent non -executive directors would be appointed in their stead.
Anthony (38:38)
Now this is of PWC Australia,
Andy (38:40)
Yeah, so there's obviously there's obviously something
implicates her, maybe if not directly implicates her in the tax leaks, then certainly implicates her in terms of her role as chairman of the risk committee and the risk committee has clearly not done a very good job of identifying these risks and managing them. So she has to step down from that role. She's now she's still on the board of PwC International. PwC International commissions the Linklater's report.
It's their report, their hold over it and their client confidentiality, as Senator Deborah O 'Neill said, is their gift. So it's their gift. can waive that confidentiality any time they like. And as has been reported in the Klaxon and has been reported elsewhere, Patty Carney, as a director of PwC International, would either have seen that report or would have access to that report.
And this is the report that we can't get released in Australia. She would have seen it or been entitled to see it. And she's a director of PwC International. When she's questioned about this on Friday, she says, well, she didn't see it because she was recused. So in other words, her entitlement to see it, her ordinary entitlement as a director has been rescinded and she's been recused. one must, if you take her words literally,
someone else recused her and did not allow her to see this report. Now, my question is, why would you recuse somebody because they're an Australian partner? Like, for example, if you were a director of a division of BHP Billiton and you were also on the main board of directors of BHP Billiton and the main board of directors
wanted to discuss that there were allegations of corruption in that division, not involving the director, but that some other people in that division had committed corruption. Would they say to that director, well, you must be recused and you can't be part of these discussions? Or would they say, you being part of these discussions is the most important person here? Because the main board wants an explanation from you and you must take this back to your division and you must fix this.
It makes absolutely no sense whatsoever to say to her, you must be recused unless there's one circumstance where it does make sense. There's one circumstance when telling Paddy Carney, yes, Paddy, you're a board member of PWC International Limited. And yes, you would be entitled to see that report, but no, we're not going to let you see it because we're going to recuse you from any of these matters and discussions. The one time that makes sense.
is if you want to give her plausible deniability.
Anthony (41:40)
Because surely she's the director that's based in Australia. She's the one you'd want to have there talking about what's going on, looking into what's going on. And even if it were the case that they didn't want an Australian director who was there having influence over what the decisions were regarding how it was going to respond. OK, that's one thing. But that doesn't mean that she should be prevented from getting this report. mean, she could I mean, just having the report and seeing its contents is one thing. I mean, not providing.
directions, how to proceed another. it's, it's, it is really, I mean, and this is the thing we come down to over and over and over again with this PWC. This is exactly the same issue that comes up. There's sort of one running the, running the needle through how they can sort of get around, get around these issues. And they come out before the Senate inquiries and come out with these responses. It's just, it's just the same thing over and over. it's been, PWC has been criticized very heavily by the Senate inquiry into consultancies, which is similar to this current inquiry Friday,
but it was a different set of inquiry. And they've been completely admonished over the issue and said they're continuing to run a cover up. Now that remains.
Andy (42:46)
the first two recommendations of the Senate inquiry was that PwC must release the Linklater's report. And Ziggy Sretovsky in his review, his review that was a canned hunt, that was kind of a, you know, only review us going forward. Even the Sretovsky review said PwC must adhere to all of the recommendations handed down by parliament. Well, that means releasing the Linklater's report. You know, another thing that occurs to
in Patty Carney being recused, another reason why it makes no sense unless it's to give her plausible deniability is she would need to be able to say to the board of PwC Global, I've got to be involved in these discussions because I've got to have an idea of to what extent other firms in the network were kind of encouraging the Australian firm to break the law.
Because we know that the secrets were shared with PwC partners in firms elsewhere in the world. Well, I need to know what that dynamic is. I need to know to what extent other firms are softly corrupting the Australian firm that's got us into all this shit. you know, which way the bad stuff's moving? Well, let me think of, let me quote that philosopher and modern day man of letters, Homer J. Simpson.
who once said, takes two people to lie, one person to lie and one person to listen. Well, it takes two people to leak the information, one person to leak and one person to receive the leaked information. And if the people in New York or London or California or Singapore are receiving leaked information and they're not turning around and going, what are you doing, man? Why are you sending me this? Isn't this committing a crime in your country?
This isn't just going to be bad for your firm, it's going to be bad for my part of the network as well. And it's going to implicate me as an individual. Don't send me, fucking don't send me this stuff, If you don't have that kind of response, if you have people instead responding by going, goodie, yummy, this is delicious. You're giving us secret tax information from Australia that we can sell to our clients in California. Beauty, mate. You've got to understand, you need to be in a position where you understand that dynamic, that pushing and that pulling dynamic.
which is another reason why if Patty Kearney was, if there was any legitimacy to her being recused, she would turn around and say, recuse me, have you lost your minds? Recuse me. This is about the Australian firm, you idiots. I'm the Australian director. And it occurs to me, like you said, Anthony, there's this common thread of kind of misleading statements and misinformation and beguiling bullshit and using euphemisms and
same things that mean one thing, but in point of fact, the truth is a different thing. Luke Sayers got quite exercised in front of the inquiry and he said, I've had a belting for the last 15 months. And he said, you know, he was very contemptuous and arrogant and disrespectful towards the conversations he had with the deputy commissioner, Jeremy Herschhorn. He described them as pontificating and he basically described Jeremy Herschhorn as a gossip and a gas bag.
And he said, if he's got so many problems with what we're doing, why didn't he hand it over to the regulators? Well, I'll give you a couple of reasons why I didn't hand over to the regulators. Number one, due to tax secrecy laws, Jeremy Herschorn was not allowed to take information about how you were cheating the tax system and give it to the TPB. That's come out. Also with Treasury, Treasury couldn't share the information because of tax secrecy laws. So when you Luke Sayers says, if if gas bagging, pontificating, gossipy,
Jeremy Herschorn would stop his scuttle back for five minutes and tell me something that was interesting and relevant. It would have involved telling me about which regulators he's handed us over to, knowing full well he can't be handed over to any bloody regulators.
Anthony (46:51)
Because of these tax secrecy laws, which in itself is a completely remarkable situation that you've got government agencies, departments or agencies, you've got the ATO and the Tax Practitioners Board claiming they can't share information with one another because it's confidential. mean, why on earth is information about taxpayers so confidential that government prosecuting agencies, government agencies can't share it between each other?
Now, I think Green Senator Barbara Pocock hit the nail on the head at the previous hearing saying it looks as though these laws have all been introduced to protect the big end of town. And that's exactly what it looks like to me. Now, they said they're looking to change the laws and improve transparency and whatnot between departments. But I
Nothing seems to have happened much in that regard yet, but we'll wait and see, I suppose.
Andy (47:35)
Yeah, look, I think that probably those tax secrecy laws are designed around being able to firms that have engaged in tax evasion and have been caught, allow them to reach a confidential settlement that no one will ever hear about. And there's evidence that those confidential settlements that the ATO has engaged in are much for much smaller amounts of money.
than they would have been pursuing the firm for had they gone to court, which creates a perverse incentive. We'll evade tax for $200 million. And if we get caught, worst case scenario, we'll be fined $10 million. Well, let's go ahead and evade the tax.
Anthony (48:17)
And it's a cost of doing business and also no one's ever going to know it all happens behind closed doors. so that's an enormous problem. I think it's also worth pointing out here that after Luke Sayers departed from PwC, he set up his own mini PwC called Sayers Group. Now it's been given millions of dollars in government, federal government contracts since then. So he's still in the business and they're still, he's still getting contracts. PwC has got
temporary ban on getting contracts. But as we've discussed before, the government behind the scenes is looking to of lift that December 1. So we'll see what happens there. But you've got Luke Sayers, the Sayers Group, continuing out there, continuing getting millions from the government. It's quite remarkable. It just sort of looks as though it's of business as usual.
Andy (49:03)
Yeah. And I've got to say the Senate inquiry report that was handed down, it was only the minority report that I think really hit the nail on the head. But what has been encouraging is that Senator Paul Scar, who is usually very, is not usually very aggressive in his questioning, was pretty aggressive with PWC, which I thought was a good development. And so was Alex Hawke. And I think, I think what all of this comes down
is that what PwC has been doing is they've been trying to pursue form over function. They've been trying to window dress instead of make real changes. And I think this is probably fairly typical in corporate environments that are going through tremendous reputational crises. They get crisis managers in and the crisis managers tell them what to say and what not to say.
and what words to use and what words not to use. And in fact, the crisis managers that went into PWC said to them, don't say anything. you couldn't get any, nobody could get an interview with the acting CEO, Kristen Stubbins, and virtually nobody's been able to get an interview or maybe nobody has got an interview with Kevin Burrows. So the crisis managers move in and they go batten down the hatches, shut up, don't say anything. Worst case scenario, you get pulled before the Senate, say
Don't say that. what all of this effort is all about is about the saying, not the doing. It's all about the appearance, not the form. And this is starting to come out. This is starting to emerge. They've been in this crisis for now almost 18 months. And you're starting to see real evidence of a lack of change in fundamental respects. Kevin Burrows.
Anthony (50:42)
Exactly.
Andy (50:58)
appointed chief fire warden for a massive dumpster fire. What started the fire? Selling tax secrets and not managing conflicts of interest. A year and a bit later, what's exposed? He's not declaring conflicts of interest. This is not surprising to
Anthony (51:18)
Just one final point on that. We've got the Ziggy Switzkowski report. Now, Switzkowski said on Friday, he said that he actually interviewed sayers and then shredded the notes regarding Tom Seymour. He said he tried to get in touch with him. He could only discuss things with his lawyers and it just didn't happen. They didn't end up getting around to it. They couldn't align their schedules, essentially, which is quite remarkable. So there you go. Look, I just wanted to touch on one thing. Seems we're talking about all things PWC.
Now, the Klaxon had an exclusive story on Thursday regarding PwC Indigenous. Now, some of our readers, our readers will know they've got this firm called PwC Indigenous Consulting. came into the spotlight. We revealed its existence and its operations around the time of The Voice. I know this group claims to be, you know, represent a voice to government for Indigenous, et cetera. Now, it claims to be a small Indigenous business when in fact it's 49 % owned by PwC.
The other 51%, as we previously reported, was owned by just two businessmen, Gavin Brown, a former Sydney financial advisor, and a Selwood and Button, a former public servant. Now what's happened recently is PwC has looked to sell off this entity. Obviously its brand's quite toxic, and the word is that it wasn't getting nearly as many government contracts because of its name. So what happened was late last month, or mid last month, it was announced by Deloitte, another giant that it had owned.
it had bought the 49 % stake. So now you've got this PwC Indigenous Consulting, the deal hasn't transferred yet, so it's still PwC Indigenous. Now it's now going to be half owned or nearly half owned by Deloitte. Now what we found was it only has one business owner because Gavin Brown has now taken over the 51 % from Selwyn Button. you've got Mr. Brown now owns 51 % of this consultancy that's received $45 million in federal contracts just in federal contracts over in recent years.
including that 13 million just in 2022. So that's quite remarkable. It just sort of goes to this idea that it's sort of business as usual. We'll shuffle things around a bit. We'll hive off our government arm to sign advisory. But all those same partners in sign advisory were partners as in owners of the entity. They are partners as in owners of the entity getting access or getting the cash flows from government. it's much, it's just on every front almost it seems to be business as usual.
So thank you so much for our listeners for tuning in. Andy, over to you.
Andy (53:44)
Yeah, thank you very much for your time and your attention. And I think that it's going to be interesting to see how this plays out. And it's going to be interesting to see what structural changes we'll see in this industry. you know, we I don't think we're going to run out of things to say, because as I like to tell people, there are people in the financial industry and people in the consulting industry who go to work every day and work their asses off to keep me relevant in my field.
Anthony (54:13)
Exactly. Thank you so much. Just a note from the Klaxon here. you'll see a support button there, just click the support button, We rely exclusively on entirely on our readers or listeners to keep the Klaxon afloat. So just click on donate for as little as $10 a month. You can support us or put in a one -off donation. Thank you so