Reversal of Fortune for PWC in Russia

Russian prosecutors have cleared PwC in Russia of any wrongdoing in auditing Yukos, the bankrupt Russian oil group, PwC said on Wednesday, in an apparent boost to the audit firm nearly four weeks after it said it was withdrawing a decade of Yukos audits.

PwC said on Wednesday it had received a letter from the prosecutors office saying they had found no wrongdoing in PwC’s audits of Yukos. “We are pleased … the general prosecutor … has decided not to take any action against PwC Russia, its partners or employees,” it said.

The letter, which it produced as evidence during court hearings in a law suit filed by the tax service, is likely to help the audit firm in its defence against claims it colluded with Yukos in producing false accounts between 2002 and 2004 – a potential threat to its licence. The prosecutors’ office declined to comment. The tax service is contining to pursue the case. PwC’s decision to withdraw all its Yukos audits from 1995 to 2004 came after months of government pressure including the tax service case, a police raid on its Moscow office and a criminal investigation into suspected tax evasion by the audit firm itself.

Its decision, over what it says was Yukos’s failure to disclose a number of related party transactions, will probably strengthen a new case against Mikhail Khodorkovsky, former Yukos chief executive, who has been jailed in a Siberian prison camp but now faces charges of embezzling more than $32bn in oil sales from Yukos.

The apparent show of support by prosecutors comes a week after Russia’s Higher Arbitration court overturned an earlier ruling that found PwC had itself underpaid Rbs243m ($9.6m) in taxes and sent the case back to a lower court.

PwC on Wednesday said the audit firm’s apparent reversal of fortune had nothing to do with its withdrawal of the audits. PwC has also said its decision to pull the audits had nothing to do with any attempt to reduce the legal pressure.
But Yukos’s majority shareholder GML says there may be a connection. “We have not seen any credible reason for withdrawing the audits,” said Tim Osborne, managing director of GML, formerly known as Menatep. “It seems to me they have some sort of deal with the prosecutors that will allow them to avoid the tax bill and keep their licence.”

PwC said in a letter to Yukos’s liquidator, Eduard Rebgun, it was withdrawing the audits because it received new information showing Yukos management misled the audit firm when it declared a number of oil trading firms, including Baltic Petroleum, South Petroleum and Behles, were not related parties. Mr Osborne and Yukos’s former management have denied this.

“They had complete and full disclosure with regard to these companies when they conducted the audits,” Mr Osborne said.