The false economy

The false economy

Big accountancy firms have a human rights problem

Hong Kong’s democracy movement: an accountant’s worst nightmare? EPA

Protest and dissent are the foundation stones of modern societies and have helped secure a measure of democracy and human rights. Against all the odds, ordinary people have struggled to secure universal suffrage, equal opportunities, rights for women, rights to education, healthcare, pensions, protection of minorities and much more. Eventually, these achievements paved the way for the Universal Declaration of Human Rights which is adopted by every nation. These rights include the “right to freedom of opinion and expression”.

People in Hong Kong have recently chosen to exercise their human rights by organising an referendum on democratic reform. China has said local residents will be able to select their leader in the 2017 elections. However, candidates will be chosen from a list approved by an autocratic politburo – campaigners instead want the public to directly elect the territory’s next leader.

The so-called “Big Four” accountancy firms aren’t pleased. In an unprecedented move KPMG, PricewaterhouseCoopers (PwC), Ernst & Young (EY) and Deloitte & Touche have jointly taken out press advertisements in Hong Kong newspapers to oppose the people’s referendum. They claim the protests will persuade multinational companies to leave Hong Kong.

Enemies of the people

These adverts show the length to which big accountancy firms go to cultivate profitable relationship with authoritarian regimes. Big accountancy firms were among the foremost supporters of the apartheid regime in South Africa and have been accused of appeasing Nazi Germany just before the outbreak of World War II, sending a special delegation to cultivate a profitable opportunity.

Without tax revenues, no government can meet its human rights obligations. These include the citizens’ right to education, healthcare, housing, pension and security. Yet accountancy firms have developed a vast organisational infrastructure designed to empty the public purse.

Last year the Big Four firms became the subject of a hearing by the UK public accounts committee. Just before the hearing the committee received evidence from a former senior PwC employee stating that within the firm the policy was that it would sell a tax avoidance scheme which had only a 25% chance of withstanding a legal challenge. As the committee chairperson put it “you are offering schemes to your clients – knowingly marketing these schemes – where you have judged there is a 75% risk of it then being deemed unlawful”. The other three firms happily admitted to “selling schemes that they consider only have a 50% chance of being upheld in court”.

Laws do not seem to deter the big firms. KPMG paid a fine of US$456m after admitting criminal wrongdoing and fraud which generated phony tax losses for its clients. It also collaborated with Barclays Bank to mass market a tax avoidance scheme to several corporations, including AIG, Microsoft and several major financial institutions. Last year, the scheme was declared unlawful and the presiding judge said that the conduct of those involved in this and other transactions was “nothing short of reprehensible”.

In May 2012, a BBC Panorama documentary showed how PwC devised schemes to enable multinational corporations, such as GlaxoSmithKline and Northern & Shell, to move profits to offshore tax havens via Luxembourg and avoid corporate taxes. A PwC inspired mass marketed tax scheme was struck out by the courts last year and HMRC said the scheme had “43 followers, with £87.7m of tax at stake”.

Ernst & Young was reportedly once described by the UK’s senior tax collector as “probably the most aggressive, creative, abusive provider” of tax avoidance schemes. In 2013, Ernst & Young paid a fine of US$123m to resolve tax fraud allegations by the US authorities. The firm admitted wrongful conduct by certain partners and employees. Google, a well known tax avoider, has been advised by the firm. When the Public Accounts Committee asked for details of the schemes, Ernst & Young refused to co-operate and hid behind its duty of confidentiality to the client.

Banks may have been bailed out by taxpayers, but bankers don’t like paying taxes. Deloitte & Touche designed a scheme to enable staff at the London office of Deutsche Bank to avoid income tax and National Insurance Contributions on bonuses adding up to £92m. The scheme was declared to be unlawful by courts and the judge said the scheme “as a whole, and each aspect of it, was created and coordinated purely for tax avoidance purposes”.

In 2013, Deloitte paid a fine of US$10m and was also suspended for 12 months by the New York regulators from undertaking consulting work at financial institutions. This arose out of regulatory action against Standard Chartered Bank for violating US sanctions on Iran, Burma, Libya and Sudan. Deloitte was asked to oversee the implementation of an anti-money laundering programme, but leaked confidential information to the bank.

The above is a tiny glimpse of mounting evidence showing that major accountancy firms prevent million of people from enjoying their human rights. The intervention in Hong Kong simply represents a particularly obvious example of a wider trend.

In many other organisations such subversion of the human rights would be considered to be a badge of shame. At major accountancy firms it is increasingly considered to be a sign of business acumen.

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