The Russians Are Coming!

Moscow raids PwC over Yukos back tax
“Russian investigators raided the Moscow office of PwC on Friday, stepping up pressure on the “big four” audit firm ahead of a crucial court case over allegations that it signed off on false accounts by Yukos, the bankrupt oil company.

About 20 law enforcement officials from the prosecutors’ office and interior ministry combed PwC’s offices for documents relating to Yukos, and questioned senior managers including Mike Kubena, head of PwC in Moscow, the company said.

Interior ministry officials also announced they were launching a criminal probe into alleged tax avoidance by PwC in Russia.

The search came as PwC prepared for a court hearing on Monday in a lawsuit filed by Russia’s Federal Tax Service alleging PwC concealed tax evasion by Yukos in 2002-04. PwC denies all the accusations. The pressure against the audit group is seen as a key element in the state campaign against Yukos …Much is at stake for PwC. If found in violation of accounting procedures, it could lose its Russian licence and valuable clients including big state-controlled companies such as Gazprom, the natural gas giant, Sberbank, the savings bank, Russia’s central bank, and Unified Energy System, the electricity monopoly.

PwC said on Friday it did not understand why the raids had been launched.

The tax case against the company itself is an extension of an ongoing lawsuit that PwC lost in court last year. The firm said it had already paid charges for non-payment of taxes worth Rbs243m ($9.2m) in full, and was appealing against the ruling. The tax service last December brought further legal action claiming PwC had issued two different audits of Yukos in 2002. PwC refutes the charges.”

Isn’t it sort of difficult to keep refuting charges and denying allegations when you’re losing lawsuits and paying back taxes and penalties? I am sure PwC also feels a little bit fatigued and on the defensive, now that their struggle to repair their quality and integrity issues in Japan has failed.

One of my former colleagues from PwC Chicago was elevated to Partner status this past summer. He is non-Anglo, but not of the non-Anglo background that is underrepresented in the accounting, finance and technical professions. He has lived and worked all over the world and his area of focus is public utilities. He had been the de-facto lead Director on a large utility client here and that experience and revenue stream is what made the business case for his promotion. That, and the fact that there are emerging market locations in the PwC network all over the world that have a significant need for his utilities expertise if they are to grow. He had the promotion locked, but he also had the “choice” of serving his first few years as a partner in one of various emerging markets that are not traditionally very hospitable to either Anglo (non-Muslim) professionals (Jakarta and Saudi Arabia) or require a certain international savvy and, maybe, ruthlessness that the average white guy from Ohio (and his trailing spouse, especially) just doesn’t possess. (Moscow and Bucharest)

My colleague went to Moscow, where he is now. It will be interesting to see what happens to him if PwC loses its license or ability to effectively serve clients. I wonder how his Russian language skills are coming along?

Я ничего не знаю. Я ничего не видели. Я сделал ничего плохого.