Josh Bornstein | How will the APS be held accountable for its role in the PwC scandal?

In an extraordinarily scathing report delivered last week, the Senate finance and public administration references committee found that PwC not only engaged in "calculated breach of trust" by breaching confidentiality obligations, it then engaged in a deliberate strategy over many years to cover up that breach and the plan by PwC personnel to monetise it.

While the partners of PwC are bearing the brunt of the fallout for their misuse of confidential information, there is a case to be made that those who hired the firm should also be held accountable. Instead of assisting in the fight against multinational corporate tax avoidance, PwC's involvement undermined that fight at great cost to us all.

Australia's public service is governed by a set of statutory "values" imposing obligations on all public servants to act ethically and with integrity in discharging their duties. Those values have been invoked to sack junior staff for anonymous tweets criticising government policy or to punish whistleblowers who embarrass senior bureaucrats. The Australian Public Service Commission states that "The Ethical Value provides for an APS that demonstrates leadership, is trustworthy, and acts with integrity in all it does". The PwC scandal squarely raises the legality and ethics of hiring a contractor operating a business that is notorious for being riddled with conflicts of interest.

That the big four consultancies have been "working on both sides of the street" for decades is not exactly a state secret. They have generated billions of dollars in fees in both consulting to governments and then using the information gleaned from doing so to sell even more expensive advice to big business - with a particular focus on avoiding corporate tax.

As academics Maria Mazzucatto and Rosie Collington have documented in their recent book, The Big Con, "when consultancies serve 'both sides of the street' ... there is also a risk that consultancies use government knowledge and information in ways that benefit business clients and undermine legislation."

And so when decision-makers at the ATO retained PwC, did they act ethically and with integrity?

In 2013, the the British Parliament's public accounts committee began investigating the role of the big four in developing new tax rules for governments and then selling their knowledge to corporate clients to defeat those new rules. The British Treasury had seconded large numbers of staff from the big four to "provide tax technical input and commercial experience" about corporate profit shifting - also known as transfer pricing.

The public accounts committee began investigating the "way that the four firms appear to use their insider knowledge of legislation to sell clients advice on how to use those rules to pay less tax". The committee singled out KPMG staff who had returned from their secondments to KPMG and prepared marketing brochures for corporate clients disclosing their government work.

The marketing brochures promoted advice on "defendable expense allocation" - otherwise known as tax avoidance strategy.

The following year, a US Senate committee published a report that accused major manufacturer, Caterpillar Inc. of shifting US$8 billion in profits to Switzerland under a tax-avoidance strategy devised by PwC.

In February 2015, the UK parliamentary public accounts committee published its damning report entitled Tax avoidance: the role of large accountancy firms. That report stated: "We believe that PricewaterhouseCoopers's activities represent nothing short of the promotion of tax avoidance on an industrial scale ... Contrary to its denials, the tax arrangements PwC promotes, based on artificially diverting profits to Luxembourg through intra-company loans, bear all the characteristics of a mass-marketed tax avoidance scheme".

The committee also found that PwC provided misleading evidence to it when it asserted that "we are not in the business of selling schemes" and "we do not mass-market tax products, we do not produce tax products, we do not promote tax products".

All of this made no difference to Australian bureaucrats who continued to use PwC . In 2016 PWC partner, Peter Collins was appointed to the Board of Taxation, an advisory body charged with "contributing a business and broader community perspective to improving the design of taxation laws". In that same year, an International Consortium of Investigative Journalists published the Panama Papers detailing the scale of multinational corporate tax avoidance across the globe. That report and those that followed it have highlighted the role of the big four, who have have offices in most global tax havens, in assisting multinational corporations to avoid corporate tax.

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The robodebt royal commission highlighted that senior public servants can be rewarded, notwithstanding their unethical and illegal conduct. Given the widespread use made by PwC and other big consulting companies by senior public servants, it is highly unlikely that disciplinary action will be taken. Where there is an entrenched culture of contravening legal obligations by those at the top, relevant laws and standards are not deployed.

There is also a practical issue. Retaining consultants to perform core government functions has become an enduring feature of public administration; so much so that the whole system now resembles one enormous public-private partnership. The evidence of the addiction is so overwhelming that it infects the institutions and agencies that should be working to remedy the current crisis. The ATO, the Treasury and the AFP have at various points seemed paralysed by the shock of having to pursue an organisation that is so integral to their own operations.

Other arms of government including the Departments of Health and Defence have continued to hire PwC since news of the scandal broke.

If there is any upside to this scandal, it is the critical role played by two other institutions in unearthing the truth of the matter: the media and the Senate.

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