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RUBY:

From Schwartz Media I’m Ruby Jones, this is 7am.

The Australian Tax Office suspected that PwC used confidential information to help their big corporate clients get richer – seven years ago.

But they did shockingly little about it. They didn’t even share that information with government ministers.

The reason, they say, is that their hands were tied – that bureaucratic rules kept them from exposing one of the biggest scandals in the history of our tax system.

Today, chief political correspondent for The Saturday Paper, Karen Middleton on why the Tax Office say they had to keep quiet about their suspicions.

It’s Wednesday, June 7.

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RUBY:

Karen, last week, Senate estimates uncovered a number of allegations about Australia's largest accounting firm, PwC. This is all of course building on the scandal around the PwC - the way it used confidential government information to benefit corporate clients. Tell me about what we heard last week.

KAREN:

Well, we just heard more really expanding on what we knew about PwC and some of its partners and the roles that they had played in accessing government information and then using that information for corporate gain. And this was confidential information that some PwC staff had access to after signing confidentiality agreements. So it was a breach of those confidentiality agreements and a breach of faith with the government that was at the heart of this whole issue.

We heard from the Tax Office and the Tax Practitioners Board in a bit more detail about how they managed this issue when it first emerged, and it goes back really to 2013. The only executive who had been named in relation to these allegations when they emerged earlier this year was Peter-John Collins, a partner at PwC, and he had access to information. We heard through three different streams of consultations with government dating from about 2013 to 2016. Now it was the Tax Practitioners Board that came out and said that he had done the wrong thing and they published a finding against him late last year which found its way into the public domain in January. And both of those organisations were being questioned about the timeline and the way they handled things.

Archival tape -- Chris Jordan:

“We’re seen as maybe defending unpopular tax payers or matters but we’re not wanting to breach a law.”

KAREN:

The Tax Office revealed that it first detected that something was going wrong in relation to potential leak of information in about 2016.

Archival tape -- Senator:

“What’s your view about that delay? And your reflection on that history?”

Archival tape -- Chris Jordan:

“I don’t offer views here….”

KAREN:

And what had occurred was that the information that Peter-John Collins and some of his colleagues had access to related to proposed changes to Australian law to crack down on multinational tax avoidance. And the allegation is that Peter-John Collins and unnamed others took that information, went to their existing clients and offered to help them design workarounds to the new Australian laws and also used that information and access to solicit new clients.

Now the Tax Office says it found this out in 2016 when all of a sudden, as the new laws took effect, a number of companies had almost instant workarounds that would enable them to sidestep the laws and not have to pay tax. It says it cracked down on that immediately and it managed to head off those workaround arrangements and recoup $180 million in what would have been lost tax revenue to the Commonwealth.

The tax Commissioner, Chris Jordan, was asked to explain what the Tax Office did about this, who it spoke to and the sequence of events that had followed. And we'd already heard from the Treasury Secretary, Stephen Kennedy, that the Treasury had not been formally notified and given details of these concerns for some years after the incident first occurred. And the Tax Office was really asked to explain why that was.

RUBY:

And so, what did they say, Karen, about that discrepancy between when it was first detected back in 2016, so seven years ago?

KAREN:

Well, Chris Jordan, the commissioner, said it was because of secrecy provisions in Australian law that the Tax office was not allowed to communicate the details of the concerns that information might have leaked to even its portfolio parent department, the Treasury.

Archival tape -- Chris Jordan:

“We got advice from our general counsel and from AGS that we could not provide that information to the treasurer or assistant treasurer, and in fact we could not provide it to treasury.”

KAREN:

Now, he said these laws explicitly prevented the passing of information and the only agency that it was ultimately able to pass information to was the Australian Federal Police. And then later on the Tax Practitioners Board, which polices the activities of tax agents. And it was in the end the organisation that issued the penalty against Peter-John Collins and deregistered him for two years and also rebuked his company PwC.

Archival tape -- Senator:

“I think we need to understand the shape of this, when one part of the government can't talk to another apart of the government, when you assert that the treasurer or assistant treasurer was not advised, and you were sitting on this information of exploitation of the Australian people… it doesn’t sound like things were working too well.”

KAREN:

We heard in earlier evidence from the Federal Police that they received a referral just recently from the Treasury asking them to consider the possibility of criminal charges against Collins. What we heard this week from the Tax Commissioner was that he had contacted the Federal Police back in 2018 and he said he did that and he used the word refer. He did that to refer to the police this whole issue and to see whether it could be investigated. And it was portrayed as a referral to the federal police. So there was a question suddenly about why was there a referral in 2018 that nobody had mentioned prior to this, and why was it only this year that it seemed to be being examined for criminal charges? The Federal Police issued a clarifying statement and said, Well, actually. Wasn't really a referral. It was a request to us to see whether there was enough information to investigate it. And the police said that what was provided from the tax office was just a representative sample of some information. On that basis, the police said we don't have enough information. The tax commissioner told the Senate Estimates committee that the deliberations went on for a year between the two agencies and ultimately nothing happened because they decided nothing could be done. And that was when it was forwarded to the Tax Practitioners Board for a more administrative penalty to be considered. So there are some questions being raised now about why it did take so long and what exactly happened in all these interactions. And there are also questions now being raised about whether the Tax Office could have actually done more to pass information to other agencies and red flagged what was going on across the rest of government.

RUBY:

Yeah can we talk a little bit about that? Because it does seem, I guess, strange that the Tax Office is saying that these secrecy provisions stopped it from really being able to do anything to refer this conduct elsewhere. What exactly is the Tax office saying about why that is?

KAREN:

Well, that's right. It did seem strange. And Chris Jordan, in his evidence and his colleague Jeremy Hirschhorn, who is the second commissioner, said that these secrecy provisions prevailed and they couldn't do anything. They didn't specify exactly what those provisions were or which legislation they came from. So I asked the tax office to explain that. And they pointed me to the Tax Administration Act in Division 355, which is the part of the act that does govern when information needs to be protected. But the interesting thing here is that part of the act has a lot of exceptions. There's a lot of carve outs, if you like, in the legislation that does provide potentially on my reading of it and the reading of others, the opportunity for the Tax Office to argue that it could pass on information. And it's not clear whether it tried to find an opportunity to justify under the law that it should be able to pass information to the Treasury and to the ministers involved because they say they didn't pass information to ministers either. But what Chris Jordan did say was that he had sought legal advice from both the Tax office, his own general counsel and from the Australian government solicitor, and he told the estimates committee hearing that the advice was that they could not do this.

RUBY:

Okay. So how was this all received in the Senate? What did the estimates committee hearing make of all of this evidence?

KAREN:

Well, it wasn't received particularly well.

Archival tape -- Deb O’Neil:

“We can't allow PwC, with all its governance failures and its cultural values and its confidentiality failures, to actually be the arbiter of what information should go into the public.”

KAREN:

Now, there are two senators who've been taking the lead on exposing this whole problem and asking questions about it, ongoing. Labour Senator Deborah O'Neill really was the one that drove this in the first place. She managed to extract a whole lot of emails from the Tax Practitioners Board that they in turn had extracted from PwC that was published by the Senate in early May this year, and that really indicated that this was a much wider and bigger issue than just one individual within PwC.

Archival tape -- Deb O’Neil:

“If this company paid PwC Australia and also PwC global is to be taken seriously, the very first thing they need to do is release the 53 names that are redacted in 144 pages of emails that are now a matter of public record.”

KAREN:

So Deborah O'Neill, she was saying to the committee, you know, I think we need to understand how it is that one part of government can't talk to another part of government. She and her colleague from the Greens, Barbara Pocock, were also wanting more detailed explanations for this whole timeline.

Archival tape -- Barbara Pocock:

“Well, PwC has had five years to come clean about the particular individuals involved and what they did. I think it's very important that we know exactly what people did. We have a list. It's been made available to me and I attempt to table it in our parliament.”

KAREN:

Barbara Pocock told me later that she found it implausible that agencies couldn't speak to each other about such a serious breach of confidentiality and what she called the blatant profiteering that had resulted from it. And she said it suggests that they weren't trying very hard to expose and deal with corrupt behaviour. And she said, and I quote, Are we looking at a go slow, don't ask, don't tell culture at the highest level of these agencies?

Archival tape -- Barbara Pocock:

“But PwC continues to conceal and to fail to really come clean. We need transparency and honesty, and a proper clean up really depends on that and so far pretty disappointing outcome.”

KAREN:

She suggested then that may have worked to help protect PwC. So these questions are certainly still being asked and will continue to be asked, particularly by these two senators. And I think we will see a number of these agencies required to give further explanation.

RUBY:

We'll be back after this.

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RUBY:

Karen, we know that PwC made money from using the information that it accessed and and also continued at the same time to secure hundreds of millions of dollars in government contracts. So if we’re to take it a step back and look at the sorts of contracts that the PwC had and the sort of money they were making, I mean, what sorts of numbers are we talking about here? What level of access does PwC have to government information with these contracts and what is their estimated value?

KAREN:

Well, it's enormous access.

Archival tape -- David Shoebridge:

“Secretary, how many current contracts does defence have with PwC?”

Archival tape -- Secretary:

“54.”

Archival tape -- David Shoebridge:

“54 contracts.”

KAREN:

And what this really underlines is the huge access that these giant professional services companies, particularly the ones we call the Big Four, PwC, EY, KPMG and Deloitte have right across government.

Archival tape -- David Shoebridge:

“And what's the current contract value of the 54?”

Archival tape -- Secretary:

“Current contract value is $223,299,943.56.”

KAREN:

They are deeply entrenched. We saw the heads of department after department and all sorts of other agencies explained to the budget estimates hearings through the past couple of weeks how many contracts they had with PwC and the value of them. Defence, for example, had $200 million plus worth of contracts. Finance talked about $200 million worth of contracts across a number of agencies.

Archival tape -- Senator:

“And who's contracted to undertake the Treasury's internal audit.”

Archival tape -- Treasury:

“Our current internal audit function is provided by PricewaterhouseCoopers.”

Archival tape -- Senator:

“PricewaterhouseCoopers.”

KAREN:

We heard from the Federal Police and from Treasury that both of those agencies have PwC as their internal auditor.

Archival tape -- Senator:

“So a company embroiled in a governance scandal is providing advice to Treasury on governance. And we are through the looking glass here, aren't we Dr. Kennedy?”

KAREN:

So this company has been embedded, if you like, into agencies across government at the highest levels. And those kinds of arrangements give them potentially access to a lot of information.

So it has caused a ripple of concern and it should be a very great ripple of concern across government about what the company may have been doing in their agencies and departments.

RUBY:

And so how is PwC responding as more information comes to light? Because the more we hear, the more complex this web seems. And as you're saying, it's become clear that PwC is deeply embedded in government agencies and has at times acted improperly. So what are they saying?

KAREN:

Well, their response has been gradual, shall we say. I mean, they are insisting that this was a one off, that there's no evidence that this occurred in any other circumstance or any other occasion. And they initially took their time, I think, to respond to the government's questions about all of this. And in fact, the Tax Office explicitly criticised the time that it was taking for PwC to respond to their inquiries in over a number of years and initially, and suggested that the company had basically obstructed what they were trying to find out and not been very helpful. Their helpfulness has increased dramatically in the last couple of weeks and we've seen in the last week or so a statement issued from the acting chief executive, Christine Stubbins, Having seen the previous chief executive, Tom Seymour, step down, as the publicity around this issue grew. Christine Stubbins statement was a public apology for what PwC had been engaged in and promised to do better. And she was seeking very much to reassure the public that it understood the gravity of the allegations against it and that it was doing its best to address them. Now, it had stopped short in that statement of revealing the names of anybody that was involved beyond Tom Seymour. What she did disclose was that nine partners from PwC had been sent on leave. She did not detail what level of involvement they may have had in this issue. And the company has now confirmed that there are 63 people whose names appear on that email trail that have been redacted, all except Peter Collins.

And it really it's not clear why it was that it was only he who suffered a penalty. So I think that has a way to run in terms of questions as well.

RUBY:

And so, Karen, if as it seems the AFP were aware of what was going on for some five years, and it's not clear exactly whether the ATO tried all the avenues that they could or should have to to bring this to light. Is there a question here around what authorities have been doing all this time since they were first sort of tipped off about what was going on? Does it seem like these agencies perhaps didn't take the allegations against PwC as seriously as they should have?

KAREN:

Well, they insist they did take it seriously and they were hamstrung by the structure of the law. Now, that is something that needs to be interrogated to the point about whether they took every avenue they could have to use the law as it stands to transmit concerns. And you can understand why other agencies might be concerned to know that PwC executives had passed secret information to their corporate clients because they've all got these contracts and they wanted to be sure this wasn't happening anywhere else.

So I think these questions are definitely still being asked. And if it turns out that they really could not have done anything more under the current law, then there's obviously an issue with the structure of the law, because it doesn't really seem to make sense that an agency like the Tax Office can't communicate concerns about such a serious potential breach of confidentiality even to Treasury or ministers in the government. I think any average person would look at that and say it doesn't seem to stack up logically. And if that's the case, then changes need to be made to ensure that you don't get this situation recurring where something can happen in a corner of government that potentially affects a whole lot of other areas, but nobody's allowed to know about it.

RUBY:

Karen, thank you for your time.

KAREN:

Thanks, Ruby.

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RUBY:

Also in the news today…

The Reserve Bank has increased interest rates yet again, to their highest levels since April 2012.

In his reasoning, RBA governor Phillip Lowe singled out rising wages in the hospitality sector, saying wage rises were persisting and adding to inflation.

Meanwhile, corporate profits are the highest share of national income in Australian history.

And

A man accused of stealing Nick Kyrgios’s Tesla fronted court in Canberra yesterday, pleading not guilty.

The man is alleged to have confronted the tennis star’s mother with a rifle and demanded the keys to Kyrgios’ lime green Tesla, before driving off.

I’m Ruby Jones, this is 7am. See you tomorrow.

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