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Friends of Big4 get big benefits
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Over the years, the so-called Big4 international accountancy and financial consultancy firms have made billions of forints ensuring their clients’ bookkeeping is legal and transparent. However, we have observed clear patterns of personal connections between the political sphere and the top management of these accountancy firms, raising concerns of foul play. Indeed, there have been more than a few examples over the last few years which lend support to such concerns.
Despite the current government’s proclaimed distrust of multinational companies, it seems keen on nurturing close and friendly ties with the Big4 accountancy firms; Deloitte, KPMG, PwC and Ernst+Young. It is no surprise then to see that many Big4 employees have gone on to take positions in the state, only to end up back on the payroll of their former employer.
Political scientists describe this phenomenon as the “revolving door” effect. A Transparency International study from 2012 notes that this exchange between the private and public sector is generally a positive phenomenon, though it can also serve as a basis for corruption. This does not necessarily have to culminate in bribes or criminal acts, but the personal relations could lead to instances of preferential treatment, or other cases when a private company enjoys favors in the eyes of the regulator.
When Atlatszo called on these companies to reveal the number and identities of those who had shuffled back and forth between public and commercial roles over the years we were given little to no information. The companies claimed they have clear standards to strictly regulate the issue and noted that in the past few decades the total number would amount to just a handful of individuals.
It is true that we are not talking about a mass exchange of personnel. So far, Atlatszo’s own estimate puts the figure at 10 individuals who, at some point in their career, have been (or currently are) employed both at a Big4 financial consultancy and in a senior government or central bank role.
Nonetheless, our sources, especially employees of the tax authority NAV, claim that the nexus between the two sides does lead to unfair advantages for certain businesses. One such channel is what is known as a preliminary tax decree. A company weighing a major transaction may approach the relevant ministry for a calculation of the taxes it will incur as a result of the deal. If the transaction proceeds under the terms originally laid out, the taxation figure determined by the ministry stands. If the company is represented by one of the Big4, our sources say that the ministry tends to be more lenient with the final tax calculation. The Economy Ministry dismissed our query about how many companies applied for preliminary tax summations citing data confidentiality.
When it comes to questionable practices, the world’s top accountancy firms have a establish a track record In recent times. In fact, the Big4 was actually a Big5 until Arthur Andersen helped cook the books in the Enron scandal of 2002. More recently, the remaining four accountancy giants have played a prominent role in global tax evasion, helping multinational firms exploit various loopholes to avoid their paying billions of euros in taxes around the world.
The official line is that prospective clients go through a rigorous screening process, and that they refuse to aid illicit acts, our sources tell us that for fear of losing potentially lucrative business the big financial firms are, unofficially, prepared to make compromises. A fairly recent example of this in Hungarian history is the Postabank story, when in the late 90s and early 2000s the bank was found to be involved in numerous questionable investments. Some of the firms invited to work with the bank refused because they were denied full access to the books, however others eventually took the job on these terms, despite indicators of foul play.