Sooner or later – many hope sooner – people will decide that the scourging and self-flagellation of PriceWaterhouseCoopers and the big consultancies has gone far enough. A few penances – perhaps if the AFP are up to it, a few prosecutions – and government departments can resume the business of outsourcing most of its thinking to former colleagues at about 10 times the cost of doing it themselves.
Many departmental secretaries, SES officers and ADF officers – whose post-retirement career plans have been up in the air since the scandal broke early this year – will breathe a sigh of relief and get quickly back to old “relationships” by which one hand washes the other, to the mutual benefit of those letting contracts and those winning them. Politicians – many of whom have never worked other than in politics, or for their party or related entities such as trade unions and industry associations – will resume the business of forming the post-political connections by which they can prostitute their access to power and their imagined knowledge of how things work, generally to enemies of their old party.
Those who raise eyebrows will be assured that the impact of scandals and public disgrace now means that lobbying, advising and managing secret and difficult assignments for government has changed those games fundamentally – indeed perhaps changed them too much. The operations are now clean, they will insist, and men and women of honour can once again begin farming the government shilling after retirement.
If the government, or the parliamentary committee has not tired of the sport, perhaps some lobbyist will get a lucrative contract to put the case of the simple artisans left stranded by the deeds of a tiny few PWC tax lawyers. Some case histories of the suffering of the 3000 consultants, their families and their staff may serve well. Some befuddled policemen will proclaim that the guilty have been found, and everyone else is innocent. Themselves free over the years in awarding consultancy contracts to retired mates and cronies, they can resume planning their own entry, on retirement, into consultancies, expecting the same patronage from their successors that their predecessors received.
Weeping and wailing by mates and cronies should be ignored.
There will be piteous cases of former politicians and former ministerial staffers declaring themselves unemployable unless they can resume the business of gouging the taxpayer with advice and expertise once provided, at a fraction of the cost, by public servants. Usually, the gutting of public service expertise, experience and policy background was recommended and supervised by private consultants. As often as not, these reports were enthusiastically adopted by bureaucrats in the central departments, particularly Treasury and PM&C. Naturally, now that they have the feel for this sort of thing, many have become rather like retiring ADF officers, scarcely bothering to observe a token silence before going over to the other side. It’s not as if anyone has the appetite to enforce the rules that occasionally pretend to exist.
A few ministers, perhaps the prime minister himself, will tend to think that justice has been satisfied if the notoriously worst offenders have been punished. Even more so if the overall firms have engaged in a public examination of conscience, conducted by a hand-picked independent private consultant, and admitted a history of being too greedy.
The tax office, staffed at top levels by many people with a background in the major private consultancies, will pretend some reluctance to agree before they cave in. After all they purport to act on behalf of an outraged public dudded of hundreds of millions by this rort, and billions more over the years. But they have very little enthusiasm for dealing with players in the tax club, and a concern for the privacy of rorters which is quite touching.
The Tax Office, and a host of semi-independent agencies inside it, has proven quite inept in coping with the scandal. What the public now knows owes much more to the diligence of some reporters and a few back-benchers than to the bureaucracy, ministers or what has passed for checks and balances. Indeed, some of those whose investigations were all too leisurely, all too easily blocked, sometimes by false but untested claims of legal privilege, are now claiming that respect for the privacy of the rip-off artists prevented a concerted whole-of-government, or even whole-of-tax-office, response.
$1 billion in civil penalties would be a just and fair settlement.
In many other countries facing such scandals there are public bodies representing the public at large and the public interest. These are far less likely than comfy clubs to think that organised tax avoidance and evasion is not a game. One of the big problems of the PWC scandal, and the scandals within other major and minor consultancies that have been brought to light, is that there is no independent party representing the public interest. Ministers, with their own reasons for wanting to move on, cannot be called substitutes.
The major private sector consultancies are tax effective partnerships, organised in such a way that the hundreds of partners pay as little tax as they can get away with. Some partners make up to $10 million a year. Most make at least $800,000 a year. As the recent report on the partnership culture showed, the rotten culture has become more rotten over time because “rainmakers” – those who bring big money into the firm – have typically been able to operate under minimum supervision and controls. In many partnerships, including legal and accountancy ones, there has been much more focus on ever expending revenue and profit than on the morality and integrity with which the money has been made.
Many consultancies have been prompted to do their own examinations of conscience in advance of heavy cross-examination in committees. A good deal of the conduct brought to light has nothing to do with taking advantage of inside tax knowledge or having manifest conflicts of interest. They do not stand up to independent examination. ‘Fessing up in advance may be humiliating and damaging to reputations; it is nothing to the damage that can occur if the confession is dragged out involuntarily, perhaps at a royal commission.
In exchange for the many legal and financial advantages of being in partnerships, members of these groups face a serious risk. It is that each partner is jointly and severally liable for all the debts of the partnership, including fines and penalties levied against the firm for rorting the social licence. If, for example, some 60 or more tax partners in a firm of about 1000 partners are party to an abuse of power, all parties are liable for any penalties. Strictly they must share, or devise among themselves some way of allocating particular shares. In extremis – if some partners went bankrupt – those still in business owe the full amount between them.
Among the wails and the lamentations from consultants hit by the government’s big slow-down on fresh consultancies are many partners who had nothing at all to do with the rort. They do not work in the tax area; they advise government departments, often in very arcane and practical areas of administration. They have benefitted over the years from the partnership arrangements, including the revenue brought in by rainmakers. They know they are, at law, liable for any settlements. But they are hoping, and lobbying, that they will be treated nicely, preferably with no share of any penalties at all. The DPP has no jurisdiction to bargain civil penalties or findings of guilt. In some cases, such as price fixing or cartel behaviour, bodies like the ACCC can bargain over criminal or civil penalties, as, in effect, the aggrieved party.
In the United States, the mega top accountancy and consultancy firm Arthur Andersen went out of business because of the ethical and criminal misconduct of partners involved in the Enron collapse, and a string of other accountancy scandals. More recently, partners of McKinsey’s have had to find $1 billion to pay an agreed settlement for its role in fuelling an epidemic of opioid abuse with OxyContin.
If I was thinking of go-away money from PwC, I’d be thinking of something like $1 billion – given the revenue put at risk. And I’d be using some of the money to set up regulatory bodies monitoring the behaviour of other consultancies, including law firms and lobbyists in complying with agreed codes of practice and generally accepted standards of integrity, honesty and fair dealing with clients.
John Waterford AM, better known as Jack Waterford, is an Australian journalist and commentator.
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