VARIANT 36 | WINTER 2009 | 25 Sticky Fingers KPMG and the Accountancy Oligopoly John Barker

Capitalism is a mode of production, not a though they are global issues. This is intertwined them as administrators. system. True, it has its own internal patterns of with regulatory systems which, despite Sarbanes- • In March 2008, redundancies were made without circulation, dynamics and crises, but it has always Oxley, are industry-dominated, and raises the any consultation at Texol Technical Solutions, depended on external kick-starts like the looting question of whether, given that it is a global mode Dundee.5 KPMG’s Blair Nimmo said they took their of South American gold and silver; colonial real of production, it is possible to talk of an “Anglo- position as administrators “extremely seriously”, politik; state infrastructure – both material and Saxon” capitalism with distinctive neo-liberal and advised the workers involved that they could as protectorate; war; and a variety of nominally characteristics. This is outside the purpose of talk to “their local Citizens’ Advice Bureau”. neutral intermediaries. These intermediaries this investigation, but it’s hard not to notice how Nothing could show how aloof the partners of mainly consist of corporate lawyers, credit-ratings Gordon Brown talks big about global financial KPMG are from the realities of poor people on the agencies, and accountants/auditors. They are and reform, and then cries foul at all attempts to receiving end. If, and that’s an if, there is a local profit-making in their own right but take their seriously regulate financial capital based office of the Citizens’ Advice Bureau, 1 share by increasing the totality of privatized in London. Given that it is an ad there are likely to be queues around surplus value. In the ongoing crisis of this mode of hoc, Big Four-dominated institution the block for those times in the production however, this has also taken the form that determines international week when it is open to give advice. of realising – or attempting to realise – potential accounting standards, it suggests Instead, from this other planet, future surplus value in the present, as if it had that these characteristics are KPMG offer up what they call a already been created. functional to global capital as a Downsizing Service: “The provision of At its simplest, this has involved an over- whole. independent and professional advice to valuation of capitalist assets. One of the The present crisis is making for staff in redundancy situations can assist intermediaries that has connived with or been all kinds of anger as its impact on a company in negotiating, implementing instrumental in this over-valuation have been the not-bankers and not-auditors is felt, and delivering on an efficient and credit-ratings agencies, an oligopoly of three. For a and will be felt for years to come. The non-confrontational severance package.” Non- brief period there was talk of limiting their power intention of this investigation is to help put the confrontational? The Visteon workers would have – and perhaps there will be regulations – but spotlight on the outrageous and shameless actions been screwed had they not either occupied or then almost immediately on the back of the Crunch- of this auditor/tax avoidance oligopoly. It aims to picketed the company’s plant with the company’s and-Squeeze they resumed their god-like role in show how the oligopoly in general, and KPMG, machinery inside. Independent? Who pays for deciding the interest rate at which debtors, both in particular – a worldwide organisation with a Downsizing Service? Efficient? Efficient for public and private, should pay. offices in 24 tax havens – has their sticky fingers whom? The accountancy/auditing companies/ in so many areas of economic and political life, Fact is, KPMG likes having it all ways. On partnerships are a global oligopoly of in which everything it does is to the benefit of the one hand in a briefing on redundancies it 2 four, all with histories of merger. They are: capital and the individual rich. It also brings argues that they are not necessarily the best PricewaterhouseCoopers (PwC), Deloitte to light the elitism that rationalizes both its way for companies to react to the “experience Touche, Ernst & Young, and KPMG. In their case highly lucrative government consultancy, and its of downturn”. Why? Because, as KPMG’s Human there is little talk of post-Crunch independent resistance to formal regulation which it does not Resources director, Dave Condor, pointed out regulation, even though it is valuation which control. It is that form of anti-democratic elitism (in commenting on a survey by the company should be their expertise. They have not been which says that only the few who are in the know itself) making redundancies will cost employers subject to even temporary blame though they can understand the complexities of finance and on average £10,000 per head – which could take were both consultants and auditors for Northern contracts, even when those in the know are self- several months to recoup. In the cases above Rock (PwC), HBOS (KPMG), and Royal Bank interested. it would seem KPMG are doing their best to of Scotland (Deloitte Touche). This particular lower that average. While talking of taking the ‘conflict of interest’ was addressed in the USA by Flexible Futures advantages of retaining staff into consideration, the Sarbanes-Oxley Act of 2002, but the Act did KPMG produced another report on the virtues of not prevent the over-valuations that precipitated A prominent characteristic of KPMG is their virtuosity in self-aggrandisement, as they outsourcing, in which it identifies 31 cities “which the Crunch. It helps the oligopoly’s freedom of are rapidly emerging as leading pretenders to action that they control the regulatory agencies persistently advertise their supposed virtues in their own publications. Investigative reporting the traditional powerhouses such as Bangalore, of the accountancy sphere, and, in the UK, that Chennai or Shanghai”, and tips Buenos Aires, they are integrated into government. This involves back in 2002 revealed they would take a £500 fee 3 Winnipeg and Belfast. Perhaps in the latter case profitable consultancy contracts with government for an hour of advice on personal tax avoidance. It’s the case that the role of administrator, one it has in mind those redundant Visteon workers? and a revolving-door between government and None of this has stopped the pats-on-the- oligopoly personnel. At the same time, they of several that it plays, is not a major source of its revenues.4 In 2009 they acted for Ford Motor back KPMG has received for instituting undermine the financing of this very same sabbaticals and other forms of temporary protectorate government via a proactive role in tax Company and its spin-off Visteon, in attempting to deny redundancy money to workers in Belfast, lay-offs for its own staff at the beginning of evasion. 2009 under the title “Flexible Futures”. Auditing has a necessarily captive clientele, Enfield and Basildon. and these four audit 99 of the FTSE 100 top When Visteon was spun-off from Ford in UK companies. They are, all in all, an especially 2000, workers were given contracts mirroring Oversight(s) privileged group. In addition, by lobbying those of Ford car workers. This would mean that It is as auditors that the “Big Four”, who receptive governments, especially New Labour, they would get 12-18 months’ wages as audit 97% of the FTSE 350, which by law they have all the tax advantages of being redundancy money. When Visteon must be audited, are most legally privileged. partnerships, while now enjoying a in the UK was liquidated, KPMG The other privilege being that they operate as large degree of the limited liability as its administrators started from partnerships with the tax perks this entails, but accorded to non-partnership the position that the workers were which in theory make them liable for unlimited companies. Now, in the wake of not entitled to anything other than losses of companies they have audited and are the Crunch-and-Squeeze, they are, a cash payment equal to 16 weeks’ subject to legal redress by investors. In recent according to Prem Sikka, lobbying pay, whether you had worked there years the Big Four have gained a considerable for yet more protection from claims 15 years or not. Its argument; that measure of limited liability with their duty being against them by investors in their Visteon was a separate entity from defined as to the company, and the principle that role as auditors. Ford, and had been so since 2000. only the individual partner concerned is liable.6 This investigation focuses on KPMG which had Media slimeballs joined in, saying things were In theory, auditors have comprehensive powers. worldwide profits of $20 billion (roughly £11bn), different from how they were in 2000, and that The recent House of Commons Treasury Select of which £1.6bn came from its UK operation. The they couldn’t expect contracts from then to be Committee on the Banking Crisis refers to their investigation was prompted by KPMG’s role, as applicable. But in this case KPMG backed down in privileged position: “Apart from the regulator, administrators, in attempting to deny the UK the face of successful occupation and picketing of nobody else has the right to delve into a company’s workers of Visteon their rightful redundancy Visteon plants. records, speak to their staff about decisions made money. Most of the evidence about KPMG’s many • In June 2007, 1100 workers at KwikSave were and strategies being pursued.”7 KPMG has the legal scrapes comes from the UK and the USA made redundant with no promise of payment from biggest client list in the UK, and this function, as 26 | VARIANT 36 | WINTER 2009 for all the oligopoly, “gives them easy access to one of the British banks caught by the Crunch their published accounts are opaque. Accounting senior management and helps them to sell bolt-on before the Squeeze. KPMG were and are BAE’s rules and auditors have allowed banks to show services,” like consultancy and tax avoidance. The auditors. New Labour has made BAE untouchable toxic assets at inflated values”.15 This was done by concept of auditing is for the public interest but by the Serious Fraud Office in relation to bribes allowing an accounting practice called ‘mark-to- the client is not the public. The dangers of wishing to secure the company’s biggest Saudi contract. model’ which allowed banks to estimate values for to please the client (as has been the case with Some detail did however emerge in The Guardian10 financial instruments. the ratings agencies) exist even without the bolt- in 2004 when BAE’s Novolyte dirty-washing vault None of this prevented KPMG from sponsoring ons, but these augment the dangers. As with the in Switzerland was brought to light, and the fact this year’s British banker’s annual international credit-ratings agencies, there is a built-in conflict that it had set up secret subsidiaries in the British conference, the theme of which was that of interest: they are being paid to give a true Virgin Islands (BVI), a tax haven where KPMG has lawmakers and regulators needed to take care financial picture by those who employ them to do what is in effect a subsidiary but over which the not to “over-regulate”. Nor from KPMG producing so. SFO has no investigative power. In response to the an ‘Integrity Survey’, the latest of which is for With such powers as they have, auditors, article a spokesman for the auditors said: “We do 2008-9. It has tables measuring how employees especially the Big Four, have no excuses when not consider the matters raised by The Guardian believe “policies and procedures are easy to they are shown to have gone along with untruthful as representing a failure on the part of KPMG. bypass or override”, and “rewards are based on financial reporting whether through laziness or UK company law requires only that principal results not the means used to achieve them”. a self-interested disinclination to challenge the subsidiaries are listed in a group’s accounts.” All this as if such questions had nothing to do senior managements of clients. On the This is a typical resort to letter-of-the-law with KPMG itself. As if the firm itself had never other hand, there is a fault in current rationalisation and is, besides, a moot overridden policies in the interest of profit.16 A reporting standards themselves, like point. Prem Sikka pointed out at similar spurious objectivity is presented in the mark-to-market asset valuation. the time that these subsidiaries ‘Looking Back’ section of its own 2008 Corporate Compliance with the standards should have been disclosed as BAE Social Responsibility (CSR) survey. “The first part did not produce transparent formed and appointed directors of the decade,” it reads, “was marred by corporate accounts, but then it is the partly Big to them. More important, the scandals with companies coming under scrutiny Four-controlled International Accountancy letter-of-the-law argument did for dubious accountancy practices and corporate Standards Board which makes the standards. not say whether KPMG was government approaches. This caused regulators, In 2002 KPMG “settled” charges with the aware of these BVI undisclosed shareholders, employees and consumers to demand US Securities and Exchange commission (SEC) subsidiaries. The presumption can better ways of tracking the health and value for “improper professional conduct” as auditors only be at best that the auditors turned a blind of a company – ways that included a departure for Gemstar-TV Guide International Inc, which eye, as is also what appears to be the case of from the traditional financial report.” Dubious had overstated its revenues by $250 million. This Siemens; a bribery scandal that is still out in the accountancy practices? Besides which, the problem settling meant neither admission nor denial, but open and has become a cinematic political drama was not with the “traditional”, but in the black in the wake of Enron’s collapse such not-proven in Greece. holes of what does not have to be reported. deals are worth a lot to the oligopoly. KPMG Neither has any of this prevented them from repeatedly relied on what Gemstar management playing the objective wise-after-the-event-guy in told it, despite the powers KPMG has and even HBOS a glossy KPMG publication entitled ‘Rethinking when what they were told contradicted their own There is an in-built conflict of interest in auditing Banks’ Approach to Risk Management’. It is as audit work. The SEC’s regional director, Randall per se since the auditor is paid by those they are if the HBOS events had never occurred; as if R. Lee, talked, however, only of the “dangers of making a financial check on. This is amplified KPMG were not being sued as auditors in the auditors who rely excessively on the honesty of when they are consultants to those whose accounts case of New Century for the kind of inappropriate management”. they are checking. Such consultancy work now accounting that contributed to the Crunch-and- In 2003 the SEC this time filed charges in an forms a major part of oligopoly revenues and is a Squeeze. The glossy instead talks of “streamlining” 11 alleged accounting fraud involving KPMG and normal progression in the UK. risk management responsibilities, of “better Xerox; again, for improperly booked revenues. Prem Sikka and John Dunn note “...the information for decision-making”, the need for KPMG LLP’s chairman and chief executive Eugene importance of audit as a vehicle for securing other, “robust data”, and changing the “prevailing O’Kelly described this as a “great injustice”. more lucrative business. Audit provides an opening organisational culture”. This culture is what KPMG He went to say that, “At the very worst this for accountancy firms to impress their potential itself is integral to. Meanwhile the good ship is a disagreement over complex professional industrial or commercial employers with zeal KPMG sails on, the past is the past, and havens judgements.” Nevertheless, despite this ‘too- about punctuality, meeting deadlines, attention ahoy! 12 complex-for-anyone-not-in-the-game’ line, KPMG to detail, the value of surveillance...” To which paid out $80m in compensation in 2006.8 we might add, ‘turning a blind eye’; as is clear The largest case brought against KPMG is from looking at the auditing record and failures of Trojan Horse one that comes out of the Crunch-and-Squeeze. KPMG and others of the Big Four. In the case of KPMG, it is its relationship with At the end of March 2009 it was announced that With HBOS, so Crunched as to require a forced governments – an across-the-range involvement the liquidators of New Century, the collapsed US Lloyds Bank takeover, no legal wrongdoing is with public private partnerships, consultancy gigs, subprime mortgage lender, were suing the auditors suggested. Neither is it exceptional – Deloitte and privatizations of all sorts – that stands out; a for $1bn, claiming that it “assisted in the Touche’s role in the Royal Bank of Scotland (RBS) relationship that flourishes despite the auditing 13 misstatements and certified the materially fiasco being another spectacular case. But it is failures described. Their sponsored City of London misleading financial statements” filed by revealing both as to the nature of regulation and KPMG Academy had Gordon Brown and Ed Balls the lender. The accusation being that KPMG supervision in this world, and is a stark example there for its opening in September 2009. KPMG was responsible for the collapse because, of KPMG’s ability to pontificate in areas where it claim themselves to have advised on over 1700 PPP as the FT put it, “it allowed the lender has shown itself incompetent. The relationship was projects and to be the pre-eminent PPP adviser 17 to use inappropriate accounting that not new. KPMG had been auditor/consultants/tax in the USA. In the UK, Prem Sikka talks of how led it to underestimate the provisions advisers to HBOS since 2000, in which time it has “government departments have been colonised it needed to cover bad loans. This been paid £55.8m in audit fees and £45.1m in other by accountants and accounting technology with made its position look better and gave fees. These other fees included its provision of 30 little evidence of any improvement in government it access to more funds.” The case is “integration experts” during HBOS’s Northern accountability or performance. Accounting firms as yet unresolved but the liquidator’s Rock-style ambitious phase for a takeover of are major beneficiaries of the state feeding of complaint is that KPMG silenced questions raised Abbey. Allegations were made by consultants.” KPMG were appointed as by its own experts for fear of upsetting its client. HBOS’s former head of risk, Paul consultants to the Ministry of Defence in In response to such a question the auditor leader’s Moore, that an aggressive sales the development of the RAF’s air-to- email reads: “As far as I’m concerned we are done. culture was undermining its risk air refuelling fleet in 1999, and were The client thinks we are done. All we are going to policy changes which were approved still taking their whack from this project 14 do is piss everyone off.” by KPMG. According to the FSA, the (The Future Strategic And they are still at it: This year the US audit changes were “fully investigated by Tanker Aircraft) in 2008. watchdog PCAOB – created by the Sarbanes-Oxley KPMG which concluded that the At the time, it was the Act – has accused KPMG of failing to “test some changes made by HBOS were largest Private Finance clients’ assumptions and internal controls in appropriate.” What was odd Initiative (PFI) made several cases.”9 was the very fact of Moore’s in the UK. These are the best- In the UK “serious negligence” was admitted complaints being referred to known, or most notorious, forms of public in June 2008 in the matter of KPMG auditing KPMG for further investigation private partnerships. John Heartfield estimates Independent Insurance, with 500,000 policy- when KPMG themselves were the auditors. If that the major consultancy firms, the Big Four plus holders including London Fire Brigade, which had any of Moore’s allegations had been shown to McKinsey and Capita, had taken £70bn from this 18 collapsed in 2001. Purposeful negligence would be true, “it would have reflected badly on the work by 2006. From Craif and Brooks he quotes be more apt: not checking contracts (stop-loss auditor’s own assessment of internal controls and the estimate that NHS PFI deals of £5bn would reinsurance) that they knew to be suspicious and such like.” Something similar may happen if the earn a straight £2bn for the advisers that brokered 19 thereby a loss of £105m became a profit of £22m. FSA’s belated investigation into the actions of them. They are a pre-Crunch-and-Squeeze form The admission and the pay-outs involved took RBS executives takes place, given that Deloitte of Private Profit / Public Risk. There is also strong seven years. The time-lag is not unusual in such Touche, the bank’s expensive auditors, and the anecdotal evidence of single line invoices from the cases, and, as with many British enquiries, the heat rest of the Big Four, have been invited to bid for biggest consultants to government, invoices for 20 was long gone. work linked to the investigation. In fact, as Prem millions of pounds. The most revealing cases however involve the Sikka has pointed out: “All banks claim to have Not content with being simply one more outfit arms manufacturer BAE Systems, and HBOS, complied with extant accounting standards, but profiting from privatisation arrangements and the VARIANT 36 | WINTER 2009 | 27 political connections involved, KPMG’s Corporate without risk. And for another, it is hardly was worth £15m. The good ship KPMG, however, Finance department talks of having provided coincidental that in a period of surplus capital, sails on, oblivious to the existence of real events. “cutting edge” and “industry-leading” advice for companies and corporations have been so keen to “KPMG member firms make a critical contribution Public Private Partnerships, and as procurement pile into the education and health sectors where, to the world every day.”32 consultants.21 In reality with PPP, as in its auditing previously, their role had been limited. In fact they play a double role in privatisation work, KPMG is unconcerned about conflicts of KPMG has recently produced its own evidence mania. The World Bank has made a pincer interest whereby it advises that public contracts be that “performance” in PFI-built schools movement whereby governments are less able carried out by one of its own clients.22 is higher than the average. In its own to finance health and education It also benefits from what has become publication, ‘Effectiveness of operational responsibilities as a result of acceptable, the revolving door of personnel to and contracts in PFI’, they talk of 45% pressure to get rid of import from government to specific profit-making entities: of education contracts reporting taxes, a previously major source • It has been allowed to place secondees in “very good” performance; and of revenue. But on an even sensitive departments in the Inland Revenue, 58% happiness both in education larger scale ‘developing world’ Department of Trade and Industry, and the Serious and health with “operational governments are denied revenue Fraud Office; allowed when its record in tax- relationships”. The biggest problem by that form of tax avoidance by avoidance schemes was well-known. experienced in both sectors, it says, were multinational companies known • It loaned KPMG-man Rees Aronson to serve as cutbacks in public funding. This is its own as ‘transfer pricing’. the Labour Party’s finance director for a year. account of things. Whereas, Partnership for Schools • In September 2009, it emerged that the (yet one more of New Labour’s unelected bodies Department of Health – from whom KPMG with power) a quango in which the consultancy Soak the Bloody Poor receives consultancy fees – former commissioning firms have influence, has been accused of bullying There has been a sustained campaign over the 33 chief Mark Britnell, a prime mover in health local authorities, who risk being cut out of last year from Christian Aid and the Tax Justice privatization, is to join KPMG. Building Schools for the Future if they don’t accept Network (TJN) on the tax losses caused by transfer • It sponsored and had a KPMG partner on an new schools and costly ITC systems.26 (mis)pricing, with an emphasis on the impact on ‘independent’ commission set up by a Labour the ‘less-developed’ world. More recently there think-tank to promote PFI deals. has been a burst of interest and political rhetoric This latter instance is hardly exceptional in an Privatization Bagmen on the matter of tax avoidance generally; a era of think-tank reality, when it is hard to know Where things get really seedy is in the conjuncture of in-the-know whistleblowers; money what research in almost any field is not financed ‘developing world’ in which KPMG acts as a laundering-for-terrorism talk, and the Crunch-and- by self-interested parties. In this respect, it is hard privatization consultant-enabler. To state the Squeeze with its consequential crisis of national to match KPMG in its brazenness. Thus they have obvious, privatization is based on the ideological deficits. A common factor has been the existence produced their own ‘Effectiveness of Operational assumption that “efficiency” can only be achieved of tax havens, a large number of which are British Contracts in PFI’ survey (2007). It praises by those pursuing private profit, whether as dependencies. The 24 tax haven offices and “innovation” and calls for “flexibility”, so that the individuals, corporations or partnerships. Once ‘projects’ of KPMG is a far higher number than “current style of rigorous competitive tendering again the UK Government, via its Department others of the oligopoly. These havens are found in for contracts under narrowly-defined PFI” is for International Aid has been prominent in the Bahamas, the Cayman Islands, the Turks and not the norm. It does this even though there is giving out such consultancy contracts, especially Caicos, Channel Islands, and the British Virgin no evidence of “narrowly defined” contracts in under Clare Short. It sold the UK as a leader in Islands. Britain’s direct takeover of the scandal- this, their own survey. The message appears to worldwide privatisation with briefings sponsored hit Turks and Caicos, and now the bankruptcy-hit be, ‘Nothing too rigorous please!’ And then, the by members of the oligopoly. Contracts went to Cayman Islands, has increased public focus on Foreword, with a cheek that takes the breath away, the free market fundamentalists of the Adam the havens. This is not incidental – the OECD has says: “We hope this survey will help to inform Smith Institute, but it is the oligopoly that has estimated that $5 trillion lies in tax havens, and the debate – all too easily hijacked by politically done best, as has been documented by John Hilary a partner from KPMG (Ginish Vanvari) estimates 27 28 motivated and emotive sound bites – about how of War on Want and again by Action Aid. The $225bn in tax is lost worldwide – but necessary to 34 to deliver the best value for money public World Bank, with its own ideological capital accumulation in the present period. services.”23 This when the debate has commitment to privatisation, which Transfer (mis)pricing between, but mostly in fact been hijacked by self-interest has the added benefit to international within, trans-national corporations is possible while KPMG talks of the benefits to capital of increasing the dependency because they are required only to produce innovation from PFI, and that most of basic services consumers, is annual “global consolidated accounts” rather contracts are performing well. another contractor. A key role of than country-by-country accounts which is the KPMG presents itself as friend the contracted consultancies is demand being made by Christian Aid and TJN to that innocent abroad, the to “bypass the democratic process, for G20 implementation. Without it the price public sector, saying: “We share a with debate restricted to a small coterie of components, intellectual property rights, 29 vision of a world in which public within favoured government ministries.” To management services, and so on, can be priced at services requiring capital assets can be provided ensure this role, specific project aid is frequently will according to their tax avoidance potential. The efficiently and effectively for the lowest cost dependent on recipient acceptance of such estimate is that between $160bn and $190bn compatible with the quality of service demanded.” consultants. per annum is being lost as a consequence 35 This friendship is necessary, apparently, because, Citing Privatisation International for their of capital flight and other means. It is “PPPs are complex transactions and project teams relative placing in 1999, Hilary notes that KPMG the other fork of the pincer movement may lack specialist experience. This can put the took second place to PricewaterhouseCoopers for privatizations described above. The public sector at a disadvantage in negotiations in the number of privatisation mandates it held. country-by-country policy aim is no with potential partners with considerable global Second place reflects their relative size, but for guarantee that such (mis)pricing will experience.”24 At which point in come KPMG’s KPMG it still amounted to 153 such contracts, disappear, but then policy is never seasoned professionals. They would appear not to and in 2003 it was the chief beneficiary of DFID enough. have been of much use in their self-proclaimed contracts. In one instance cited by Hilary, both It is also – or should be – well 36 role as protectors of the innocents. Edward Leigh KPMG and PwC were consultants on a World Bank- known in the ‘developed world’. In 2003 MP, Chairman of the Commons Public Accounts backed electricity privatisation in Orissa. It is a a set of illegal US tax shelter varieties (Blips, Committee, also noted the insufficient commercial reform programme described as “a fiasco” by The Flips, Opis and SOS) set up by KPMG in the USA experience of public sector contract managers, Hindu reporting on the findings of the Kanungo were discovered with the help of a whistleblower. 30 but his take was rather different, saying: “The Committee’s report on what had happened. It These shelters helped wealthy clients avoid paying public sector has allowed itself to be taken for a had resulted in retail power tariffs being increased $2.5bn which they should have rightfully paid. ride ... changes during a 25-30 year contract are while peak shortages continued. Electricity has This is a criminal offence, and in 2005 the US inevitable, but they should not be costing the been a favourite area for contracts and KPMG, member firm of KPMG International (KPMG LLP) taxpayer an arm and a leg.” This is especially so was appointed to provide advisory services in both was accused of fraud. In 2007, by paying a fine of given how vehicles have been created by British Africa and India. $456m and agreeing to some minor conditions, companies with PFI contracts that can be switched The privatization push has not been matched the criminal charges were dropped. Its instigators into offshore funds: “Effectively companies avoid by the development of agencies to regulate the were not however low-level employees who could tax on most capital gains from refinancing the new basic services contractors. In many countries be given the rotten apple treatment, but senior contract, or on extra cash squeezed out of the where there has been such development, John partners. The US justice system is strong on the government to pay for additional services.”25 Hilary notes “privatization consultants have been pragmatism of plea bargaining, but once again KPMG also qualifies this protection of the appointed to advise on the reform of existing it was crucial to KPMG that it avoided criminal innocent role – at which it would seem to have regulatory institutions or the creation of new ones conviction. With the help of Judge Lewis Kaplan 31 been so ineffective – just in case this might imply in order to regulate the privatised service.” He and the selective application of constitutional that the private sector is predatory. So it goes cites such a role played by PwC in the Bahamas, rights, it was not convicted. Two individuals, only, on to talk of how beneficial is “private sector Jamaica, and Panama. Meanwhile, in 2002, KPMG were finally convicted in December 2008. The business insight.” And then, talking of the need was contracted for a similar role in Bangladesh to response of KPMG CEO Timothy Flynn echoes the to sell the whole business to the public, it talks increase transparency and raise public standards narrative provided by every official wrongdoer of the necessity of the “political will to drive in its finance ministry. This when finance minister in recent years, whether it be failed bank or through PPPs over the long term ... Without it, Rahman was the very same person who had criticized prison governor. He said: “KPMG is a private sector operators may divert key resources founded and headed KPMG’s own local operation. better and stronger firm today, having learned elsewhere.” This is very dark farce. DFID’s line was that this much from the experience.” This, to put it mildly, is a moot point. For one was a part of an effort to ensure that UK aid This was not, however, an isolated case to thing, such projects are, relatively speaking, money was being properly spent. The contract learn from. The collapse of WorldCom as well as 28 | VARIANT 36 | WINTER 2009 Enron revealed a set of tax avoidance schemes, one of the most dangerous rationalisations of self- the Committee by Brendan Nelson, KPMG’s Vice and prompted Sarbanes-Oxley. Citing the US regulation is that only the self-interested have Chairman, who said that the Board “was looking at Bankruptcy Court in 2004, Prem Sikka describes the expertise to regulate. Tax schemes are “highly the complexity in financial statements and seeing how WorldCom, advised by KPMG, “used a variety technical” and cynical revenue overvaluation, as whether they needed to be restructured to make of strategies to avoid taxes at home and abroad. in the case of Xerox, are “complex professional them easier to understand”. But this Board is itself Transfer pricing techniques alone enabled it to judgements”. At this year’s KPMG-sponsored compromised as it is partly funded by the Big Four amass $20bn of revenues on which it paid little or British Banker’s Association annual, its Financial (through a foundation registered in a tax haven) no corporate taxes.”37 In the same paper Sikka, Services partner, Bill Michael, made a pre-emptive who also appoint their own representatives to its citing US Senate Committee on Permanent strike against regulation in his keynote committees and impose standards internationally. Investigations in 2003, describes how speaking slot saying, “Complexity is here This form of modern neo-colonialism not only KPMG created a ‘Tax Innovation to stay”. facilitated the Crunch, but, as Prem Sikka puts it, Centre’, which was treated as a profits This rationalisation has been used has almost no reference to “principles of honesty centre.38 Significantly, the Committee repeatedly in response to demands for of social responsibility.” concluded that “the penalties for serious regulation, one of which has non-compliance are much less than been directly aimed at the oligopoly’s the potential profits from selling compromising disciplinary action and The Ethics Business the tax product.” In 2005 KPMG regulatory independence by Peter KPMG is a significant, worldwide, profit-driven was condemned again by the same Montagnon.40 The regulatory institution, servicer of capital. In some sectors, like the committee. the Financial Reporting Council (FRC), supermarket oligopoly, the tactic of naming and Meanwhile, KPMG’s new UK boss at the time, is full of senior figures from the oligopoly, and shaming has had some impact in the matter of John Griffiths-Jones, complained that they had responded to Montagnon’s criticism that there super-exploited workers in the sub-contracted come in for some of the blame heaped on the might be conflicts of interest by saying that chains of food production. Shamed because of US branch. “It is not something that happened though this might be the case more independent their ethical pretensions. KPMG has no such here and we should acknowledge that,” he said. regulation could leave it looking “out of touch.” direct chains, though there are those who clean He went on to say that they had no need of such Out of touch from whom? its offices. KPMG is seemingly shameless in what things. “From our perspective our success is mostly An attack on the predominance of the Big Four it does and yet is thin-skinned. Its grotesque a London story. There is lots of money flowing as a “dangerous time bomb” by Alexander Shaub company song was ridiculed on a web site, through the City and it’s our transactions service (Director General of internal markets at the EC) prompting a complaint in pompous legalese by a business [their role with HBOS, for example] that before another self-interested group, the European senior manager for global brand and regulatory is benefiting from it.” There is, though, plenty Federation of Chartered Accountants, was rejected compliance of an absence of agreed contract. At of evidence to suggest that this disinterest in on the grounds that “it could discourage auditors the same time it can switch from letter-of-the- tax avoidance is not true. An internal study by from developing genuine expert knowledge of a law rationalisations of its shameful behaviour to Her Majesty’s Revenue and Customs (HMRC) company’s affairs.”41 Here they’ve upped the ante grandiose ethical and green claims at will. concluded that 50% of the Big Four’s tax fees came – it’s not just expert knowledge they alone have, Sometimes it is sheer front, as with its Integrity from “commercial tax planning” and “artificial but genuine expert knowledge. Survey and its marketing of a programme called avoidance schemes.”39 New Labour, with its fetishizing of self- ‘The Ethical Compass’ to business schools The Guardian has often given opinion space to interested professionalism, has embraced this with nationwide. This consists of videos, case studies Prem Sikka and his revelations about the Big Four. enthusiasm. So much so that, despite its presence and role plays designed to get students engaged in In February 2009, catching the recent conjunction in so many tax havens, KPMG was selling advice a thought process about the kind of ethical choices 48 of factors that have highlighted tax avoidance and to the government on tax havens like Belize. Now, they will have to make. OK, tax havens, the newspaper went further with “a KPMG’s Sue Bonney talks of working with so they’re marketing it. OK, it tax gap debate”. It highlighted some KPMG tax the Treasury on key tax policy dilemmas. is obviously a recruiting tool, avoidance schemes, two of which were designed by This doesn’t come from nowhere; of the but according to audit partner one of KPMG’s prominent “wealth advisors”. These 18 or more people KPMG has placed in Scott Szabo it will help young for once were outlawed at tribunal but are being government departments over the years, accountants to be “prepared appealed, with a KPMG spokesman saying: “This three were loaned to the Inland Revenue. to recognize ethical issues and type of highly technical tax planning was widely An Inland Revenue internal report of take action before an ethical available in the tax marketplace at the time.” 2000 talked of these placements helping to violation takes place”. The language is extraordinary: “highly technical” “modernise” itself with outsiders while feeling More significant in its own eyes – so easily misunderstood then by non-specialists; that “one of our difficulties is that people often is its role in Corporate Social Responsibility. CSR “planning” – the common-sense planning of any perceive a potential conflict of interest.” This is is yet anther slice of ‘self-regulation’ in which sensible person; “widely available” – ie, that’s OK classic New Labour: it’s not that there is a conflict the corporate world decides what is socially then, it was normal; “the tax marketplace” – which of interest, it’s that people might perceive it to be responsible. KPMG produces the CSR survey, suggests a commodity like any other, susceptible to so. cited above, and, being KPMG, there has to be a the bargain hunter. In practice, regulation remains in the hands of large dollop of self-praise: “KPMG member firms The Guardian followed up its series by revealing the self-interested. At the Parliamentary Select make a critical contribution to the world every an internal KPMG memo from head of tax, Sue Committee inquiry into the banking crisis42 some day”. A survey of its own staff in all member firms Bonney, on how to avoid answering questions serious issues were raised as to the Big Four’s “indicated that 79% wanted to use their skills about tax, but also providing template answers record: to directly support an NGO or charity”. And, in just in case they could not be avoided. “Tax is a • The payment to auditors for non-audit case you haven’t had enough: ‘KPMG Values’ business cost to be managed like any other,” she (consultancy) work43 state that each member firm is “Committed says. And that, “tax avoidance is legal. KPMG • The failure to seriously question the ability of to Our Communities... Using the Millennium is compliant with the disclosure regime and borrowers to repay loans Development Goals as our blueprint we have accordingly transparent.” This hardly renounces • The non-disclosure of off-balance sheet vehicles’ embarked on an initiative entitled the ‘KPMG 49 tax avoidance, and tells us once again that liabilities (which the USA’s Sarbanes-Oxley Act Global Project’.” nominal ‘transparency’ is no guarantee of does aim to deal with) For itself, its claim to Brownie points centres 50 accountability. Instead she says: “We • The committee went so far as to “be concerned around its green/sustainability credentials. work ourselves to a set of principles about the issue of auditor independence”, and However, KPMG has had to take second place which govern what we will and will even “the concentration of audit work in so few to PricewaterhouseCoopers in the profitable 51 not undertake.” Self-regulation as major firms.”44 and murky world of carbon trading, despite usual, but, in addition, it turns out, it Yet each time, these concerns were referred a KPMG Carbon Management Systems which is working with government on key back to the Financial Reporting Council as if this supports a Carbon Disclosures Board, formed to tax “policy dilemmas which face the had a monopoly on expertise and was neutral.45 get climate change information into mainstream Treasury at the moment and where we In reality, it is an ad hoc institution full of Big reports. But at the same time there is also a KPMG are actively engaged with them as they Four-associated personnel, including chairman Carbon Advisory Group with “a dedicated team work out their response to those challenges.” But Peter Boyle who trained and worked for Coopers of 200 professionals’’ with “vast experience and if tax avoidance is legal, how is the challenge of & Lybrand, precursor of PwC.46 On the auditor/ understanding of the carbon market”. So what making sure all tax is paid to be realised so that, consultant conflict of interest issue he said it do they do? It works on the basis that “climate say, public services do not need to be cut? would “take note” of the concern and would be change is an economic issue, which, like other publishing a review of “ethical standards for strategic business concerns, should be addressed auditors”, but pre-empted this by saying that the at board level in order to maximize the potential 52 Who Guards The Guards? FRC did not judge such situations to be impairing business benefit.” In addition, it offers itself as It’s a reasonable rule of thumb that the use of an auditor independence. The FRC’s Audit Inspection a leader in the “field of sustainability”. With its anachronistic image to describe present-day reality Unit and the Institute of Chartered Accountants own KPMG Global Sustainability Services it is, it is going to be dodgy. As the same old banality is of England and Wales (ICAEW) chimed in to says, a “market leader in offering assurance and 53 wheeled out to oppose enforceable regulation, say that the “quality of auditing in the UK verification services for sustainability reports.” we’re entitled to ask: ‘Red tape – in the computer remained fundamentally sound with no systemic age?’ What is actually meant are things like health weakness.”47 What Then? and safety regulations for workers. Regulations If this is the case, then it can only mean, in light The gap between what KPMG does in the services of this type have been hollowed out over the of the Crunch, that accountancy standards are not it offers capital, and the flim-flam with which years and replaced by self-regulation. This is one up to scratch, and yet these standards are imposed it advertises itself, opens it up to naming and characteristic which has encouraged the notion by the International Accounting Standards Board. shaming, just as the Crunch has revealed its self- of an Anglo-Saxon capitalism. With the oligopoly, On this the usual rationalisation was presented to VARIANT 36 | WINTER 2009 | 29 interested incompetence and the suffering this is Notes Gate Property plc for £311 million for the Home Office causing. This is not an unimportant possibility, but 1. It is perhaps with the UK in mind that the ultra- Headquarters. When the building was ready to be neoliberals who opposed the Sarbanes-Oxley Act and occupied, 80% of the shell company’s ownership was it has never been enough in itself to change much. transferred to the Guernsey-based HSBC Infrastructure What this investigation has tried to show is not just the demands it makes on tighter financial reporting by corporations and companies themselves complained Company. this gap, but the comprehensive nature of the profit- that it reduced the USA’s international competitive edge 26. The Observer, 12th July 2009 making services KPMG offers as representative of against foreign service providers, introducing an overly 27. ‘Profiting from Poverty’, 2004 the Big Four. It is this comprehensive nature which complex regulatory environment. This familiar argument 28. Action Aid, ‘How aid conditions continue to drive utility was made by familiar names like Newt Gingrich, offers the possibility of anti-capitalist alliances privatization in poor countries’ against this oligopoly that is integral to the present Michael Bloomberg and the Wall Street Journal. The British version is non-statutory. 29. ‘Profiting from Poverty’, 2004, p11 phase of the capitalist mode of production, and 2. The self-interest in the role it plays in the collective 30. The Hindu, issue 10, May 11th-12th 2002 which connived at the crisis which capital is using self-interest of capital is shown by the earnings of its 31. ‘Profiting from Poverty’ 2004, p11 to its own benefit. partners. In 2006 the average income of some 500 plus 32. ‘How KPMG Ensures Active Participation in Cross partners was £680,000. In 2008 it had risen to £806,000. The most effective anti-capitalist actions are at Border CRS Programmes’ the point of production and defensive struggles Back in 2006, its retiring head of the UK operation Mike, now Sir Michael, Rake earned £3.6 million plus a 33. In three well-researched pamphlets: ‘The Morning After against new enclosures. It is those actions that are knighthood for “services to accountancy”. the Day Before’; ‘Death and Taxes, The True Toll of Tax self-organised and self-empowering which are the Dodging’; ‘False Profits: Robbing the Poor to Keep the 3. The Guardian 1st July 2002: The journalist Liz McGregor Rich Tax Free’. most profound. This does not however preclude and KPMG advisor Caroline Keene. 34. Their importance was indicated when Alan the possibility of wider alliances. It’s hardly news 4. Though PwC is doing very well out of ‘unwinding’ Greenspan rationalized not regulating them that sectarian comfort zones have weakened ‘anti- Lehman Brothers. In the present Crunch-and- by saying such regulation would drive them Squeeze, redundancies may also be a growing capitalism’ in Britain for a very long time. Partly further underground. He did nor specify where area of work. this is because of a paralyzing fear of ‘reformism’. the further undergrounds might be. 5. Those made redundant argued that KPMG Measures that shift wealth and confidence away 35. With Nigeria, Pakistan, Vietnam and had not just fired people arbitrarily, but had from the rich are only reformist when they define Bangladesh the biggest losers. failed to give them the full facts about what the limits of the how-and-what can be achieved. redundancy entailed. The lifeaftertexol 36. There is also ‘legal’ avoidance as factored in by At the present moment when, predictably, web site described how they were given private equity buy-outs where profits are offset global financial regulation rhetoric is just that “government statutory redundancy forms against the repayment of leveraged debt. and nothing more, and it is capital that is profiting which were part pre-filled by KPMG. Most 37. Prem Sikka, ‘Enterprise Culture and from its own crisis – by further oligopolisation, people will have filled the form in very quickly Accountancy Forms’, New Masters of the Universe but it has only been latterly – after seeking legal 38. The Committee found that it used “aggressive marketing downward pressure on wages and further advice – that we have discovered it [receiving statutory tactics to sell its generic tax products, turning tax concentration of land ownership – there are still redundancy payments] conflicts with going down the professionals into tax product salesmen.” None of the unfair dismissal route. None of this was explained to us.” counter-opportunities which have the potential to innovative tax ‘products’ were disclosed to the IRS. unite disparate groups against its regime. The most 6. The Limited Liability Partnership Act of 2000 kept the Using reverse Trojan Horse tactics KPMG claimed that immediate is that of tax avoidance and tax havens perks but gave audit firm partnerships limited liability, “many of the [KPMG] specialists are ex-IRS [US Inland which, as I’ve argued, are not extraneous to the in that the main liability was placed on the individual Revenue Service] employees.” auditor; this, according to Accountancy Age (29/03/2001), 39. Richard Murphy of TJN has described a standard power of capital. Popular anger on this has been after threats from Ernst & Young and Price Waterhouse way in which this is done. To get a series of artificial to shift their partnerships offshore to Jersey. Prem understood by governments, and on this issue they steps past the HMRC and the courts, the argument is Sikka also alleges that the architect of the policy was – often prompted by whistleblowers – are taking that tax avoidance is not the purpose of convoluted Stuart Bell MP who went on to become a consultant for the reformist route of very partial restrictions on arrangements, but is rather for pressing commercial Ernst & Young; a fairly typical case of ‘revolving doors’ reasons and that any tax benefit is simply a welcome the activities of tax havens. within the power elite. In the 2006 Companies Act it was incidental effect. This is especially true in Britain when over established that their duty is to the company as a legal half the world’s havens are in British dominions. person and not to any other stakeholders. It permitted 40. Montagnon is the head of investment for the Association auditors and directors to negotiate limits to auditor of British Insurers which controls 20% of shares on the Gordon Brown talks of “an international British Stock Exchange. Significantly, his complaint was agreement for the exchange of information liability. Now, according to Prem Sikka, in the wake of the Crunch-and-Squeeze, they are lobbying for yet made in August 2006 before the Crunch. in relation to taxes.” What is required are real greater protection. The same steady dilution of auditor 41. The Guardian, 17th December 2004 consequences from such information exchange, liability laws has followed a similar path in the USA, 42. www.publications.parliament.uk/pa/cm/200809/cmselect/ and this will only happen by outside pressure. though there at least a Public Company Accounting cmtreaury/519/51909.ht An alliance to make this pressure will include Oversight Board (PCAOB) was created by the Sarbanes- Oxley legislation, and has been critical of KPMG on 43. This was raised by the Pensions Investment Research those groups pushing both for country-by-country several occasions. Company. accounts to prevent transfer (mis)pricing, and 7. See paragraph 223: www.publications.parliament.uk/pa/ 44. An attack on the predominance of the Big Four as a for “automatic information exchange” with cm/200809/cmselect/cmtrasury/519/51909.htm “dangerous time bomb” by Alexander Shaub (Director compulsion on British-controlled tax havens. General of internal markets at the EC) to another 8. Other pay-outs in the face of shareholder lawsuits were self-interested grouping, the European Federation of As it stands, none of the Big Four are willing to in the cases of Rite Out 2003, $125m; Lernout and Chartered Accountants four years ago, was rejected support country-based reporting of profits; and Hauspie 2004, $120m. An ongoing case with Fannie Mae on the grounds that “it could discourage auditors from the “automatic” exchange proposal is rejected involves that hybrid company suing KPMG for wrong developing genuine expert knowledge of a company’s advice, and KPMG counter-suing on the grounds affairs.” Here they’ve upped the ante, it’s not just on the grounds that it impinges on “privacy of being given wrong information. At the same and confidentiality”. These are people who expert knowledge they alone have but genuine expert time both are trying to blame shareholders. knowledge. have many times calculated that the In October 2008, Australian regulators began legal action against KPMG for negligence 45. Others include Sir Michael Rakes, chairman of KPMG gains from tax avoidance outweigh any until 2007; Ian Mackintosh, another Coopers & Lybrand- penalties from nation states which over its auditing of collapsed property developer Westpoint. man, as chair of the Accountancy Standards Board; and buy into the myth that the ‘free’ Eric Anstie, former partner at Ernst & Young. 9. Accountancy Age, 23rd June 2009 market is cost-free. 46. Peter Montagnan, another pension fund representative As the severe cuts in public 10. http://www.guardian.co.uk/world/2007/ had, in pre-Crunch 2006, raised the matter of regulatory may/14/bae.armstrade spending take effect, tax avoidance non-independence and was told that though there 11. It is on this relationship that Title II of might be a conflict of interest in this, more independent will provoke more anger. What is Sarbanes-Oxley places restrictions. regulation could leave it looking “out of touch”. required for this to produce more than 12. ‘Auditors: Keeping the Public in the Dark’, 47. CFO.com 29th November 2007 reformism? Association for Accountancy and Business Affairs, 1999 48. http://www.cseurope.org/csolutions.php?action=show_ • Tactical picketing, as witnessed with Visteon. 13. They doubled their fees from state-financed RBS from solution&solution_id=529 • As surveillance of the incomes of the poor is £31.4 million to £58.8 million while signing off its 2008 49. It is especially keen to boast of its ‘International Green accounts as a “true and fair view”. increased, the question to be asked: ‘Privacy and Initiative’ which aims to reduce its own carbon footprint, confidentiality’ for whom? 14. Nicholas Paler, Citywire 11th February 2009 based on its recycling of old technology equipment. 15. The Guardian 22nd December 2008 On the strength of its Montvale (New Jersey) campus • Being persistent in highlighting $5trn of black it was added to a list of Top Green-IT organizations by 16. In this recent ‘Integrity Survey’ it has a section on how money functional to the capitalist mode of Computerworld. production in its present phase. organisations respond to misconduct whistleblowing (and therefore the likelihood of whistleblowing), as 50. See, Y. Schreuder: ‘The Corporate Greenhouse’, Zed • Being persistent in challenging the pro-profit if it hadn’t been called in to investigate just such Books pps 169-71 bias, incompetence and elitism of self-interested misconduct in HBOS with which it had been so involved 51. KPMG, ‘Your Business Ready for the Low carbon consultants who have infiltrated government. – this section reports that the lowest rates of reported Economy?’ • Challenging not just the free market’s claim misconduct were in the “highly regulated industries 52. KPMG, ‘Global Sustainability Services’ such as banking and finance”. to efficiency in the optimum use of resources 17. KPMG, ‘Global Infrastructure and Projects’. by the ‘free’ market, but the sheer cost of its infrastructure; all those analysts, auditors, 18. John Heartfield, ‘State Capitalism in Britain’, Mute magazine 24th June 2009 financial ‘advisers’, financial traders, and 19. Craif and Brooks, ‘Plundering the Public Sector’, consultants. Constable p133 • Never forgetting that the same KPMG that 20. This author will attempt to pursue this through FOI sponsors the City of London Academy, and talking channels. green, is bleeding you dry with the same smiling 21. KPMG, ‘Global Infrastructure and Projects” self-righteousness. 22. Jeevan Vasagar and Rob Evans, The Guardian, 1st July 2002 23. KPMG, ‘Effectiveness of Operational Contracts in PFI’, 2007 24. KPMG, ‘Public Private Partnerships’, 2009 25. David Hencke, The Guardian 4th March 2008. In which he describes HSBC setting up a shell called Anne’s