Business & Finance

Big firms, big blatant violations

With global revenues of USD 41.2bn in 2018, PwC is the second-largest audit/accounting firm in the world, with a presence in almost 180 countries


It was in January 2009 that Satyam lost its reputation in the giant corporate scam that rocked India and so did its auditor PwC, which certified those bogus financial statements of Satyam. Its partners were jailed for the crime, debarred from CA practice for life, the US authorities fined PwC USD 7.5mn for its negligence, the ICAI held it guilty of professional misconduct and SEBI banned PwC from undertaking any audit of a listed company for a period of two years, till the SAT recently reversed it, playing on technicalities, holding that PwC’s conduct was certainly negligent, but not fraudulent, providing little solace for the thousands of shareholders of Satyam, who lost thousands of crores in this fraud.

PwC is a giant multinational accounting firm, headquartered at London, with numerous cases of professional negligence and misconduct against it worldwide. With global revenues of USD 41.2bn in 2018, it is the second largest audit/accounting firm in the world, with a presence in almost 180 countries. Apart from providing audit services, it also provides management, accounting, financial, taxation, forensic and FEMA consultancy in India, which explains the blatant numerous violations committed by it and which are a matter of yet another prosecution of the firm and its partners.

It was in the aftermath of the collapse of the Global Trust Bank and the Satyam fraud, that the tainted PwC faced loss of its market share in India, due to its misconduct, prosecution and poor reputation. That is when, in order to protect its market share and expand its footprint in a lucrative Indian market that PwC BV, Netherlands, its parent controlling organisation, decided to invest in India, in open violation of the Indian laws, which as a consultant it of was certainly aware of. The foreign parent gave interest free loans of Rs. 41.42cr. to the individual partners of PwC India to acquire Dalal & Shah a prominent Indian homegrown audit firm of Mumbai.

As per the CBDT findings, it also gave ‘grants’ of Rs. 477 cr. to PwC India, between 2000 to 2013, by way of investment, for what it calls professional capacity building and business expansion in India. This was a foreign investment received by PwC India, which it concealed, by initially calling it as a reimbursement of expenses, then support charges and finally as grant received.

In doing so PwC and its foreign parent violated the regulations under FDI, FEMA, ICAI, Benami Act, income tax and the Companies Act and is being punished under them all. Foreign investment in an Indian partnership firm is not allowed without a prior RBI approval, which PwC deliberately did not seek, knowing that what it was doing was illegal. Such investment was brought into India under the name of grants and while the ICAI regulations do not permit a foreign firm to invest in and engage in the audit profession in India, PwC audaciously did so. And by acquiring Dalal & Shah by giving interest free loans to the partners of PwC India, there was a clear violation of FEMA and the benami law. And it is not that this huge sum of over Rs. 500 crores came from Netherlands to India through hawala or non banking routes.

It was received into the official bank accounts of PwC India and the receiving bankers raised no objection to this huge illegal remittance. This matter came to light in 2013, but all agencies involved went slow in the matter, whether it be the ICAI, ED, banks, CBDT etc. and thus to that extent silently colluded with PwC, a clear demonstration of its power and clout in the system.

This misconduct and malpractices of PwC reached the Supreme Court, via a PIL filed by an NGO, which was appalled by the fact that despite it being a prima facie violation of numerous laws by PwC all agencies remained inactive.

The SC noted with concern that despite the facts being clear to it, the ED did not finish its investigation in five years, on a serious matter involving national security. It was critical of the ICAI for failing to detect such a humongous inflow of foreign funds into PwC India and of the shameless violation of the benami law. It was prima facie clear that PwC had violated various laws and had also wrongly presented its accounts in as much as an investment was concealed as a grant. It was clear that PwC Netherlands was conducting its operations in India in a clandestine and illegal manner and the SC vide its order in February, 2018, directed the ED to complete its investigation within 3 months of time.

The ED has found PwC guilty of having violated FEMA, in as much as that it received huge investment from its overseas parent, but showed it as a grant, to avoid attracting FEMA under which such investment was not permitted and needed a prior approval of the RBI. What makes it even more serious is that while in a case like Aircel-Maxis the matter was reported to the authorities and an approval was taken, in the case of PwC, it was consciously concealed and no approval was over sought, since PwC knew that the ‘grants’ were inherently illegal and blatantly violated the laws of India.

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