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Jun 3, 2022
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Sanctions War: Have the “Big Four” Auditors Left Russia?

Mimic in order to continue sucking economic information out of our country like a parasite

People who are more or less versed in economics know about the existence of the “Big Four” audit companies. It:Deloitte, PricewaterhouseCoopers (PwC), Ernst & Young (EY) I KPMG. The first three of them are considered Anglo-American, the fourth is Dutch. The total number of their employees around the world is about 1.1 million people. Total revenues (revenues) at the end of 2020 – 157 billion dollars, including (billion dollars): Deloitte – 47.60; PwC – 43.03; EY – 37.20; KPMG – 29.22.

It is noteworthy that these companies are engaged not only in auditing, but also in consulting. Of total revenues of $157 billion, only $57 billion came from the provision of audit services. Almost all of the remaining $100 billion is the result of consulting activities. Particular emphasis is placed on tax consulting. In the 1990s, all four auditing giants entered the Russian market. And their clients are the largest Russian companies and banks. Moreover, Russian ministries and other state departments. Also the Central Bank.

The “Big Four” has clear signs of a global cartel, monopolized their positions in the market of audit services. For example, in Russia, according to the Ministry of Finance, there are a total of 3,800 audit companies. At the same time, the Big Four account for almost half of all industry revenues in Russia.

Around the “Big Four” there are constant scandals. Here are collusions of auditors with clients, when excellent audit reports are “drawn” for additional money to clients. Here and the concealment of those crimes that are revealed during the audit. It is important that the Big Four companies combine audit services with consulting. Such consulting often pushes clients to break the law. For example, there have been many scandals related to the fact that clients, on the advice of the Big Four, evaded taxes. As a result, constant litigation, in which the Big Four companies are the defendants, fines, compensation payments to the victims.

And all this is just the tip of the iceberg. The Big Four are not just a business of making money by providing audit services. This is a much larger business based on the fact that auditors transfer confidential information obtained during the audit to third parties. And “third parties” are competitors of audited clients or business structures that can make money with the help of classified information. Another category of “third parties” is state structures. First of all, these are law enforcement agencies. When investigating certain cases, they may require information that only auditors have. And if these cases concern large corporations and banks, then surely the necessary information can be obtained from the “Big Four”, which works with the “big”. Finally, the last on the list, but probably the first in importance, are the connections of the Big Four with the special services.

The network of branches and subsidiaries that the “Big Four” has created in Russia is reminiscent of intelligence networks of intelligence residencies. Local auditors collect classified information and pass it on to their headquarters in England and Holland. And from there, such information is transmitted to the intelligence services of Great Britain, the United States and their closest allies. Russia has been under the hood of the audit and intelligence community of the collective West for almost three decades.

A year ago there were the first signs of Russia’s emancipation from the dominance of the Big Four. On April 19, 2021, the government of the Russian Federation adopted Decree No. 622 entitled “On restrictions on the provision of information and documentation to an audit organization, an individual auditor“. It defines a list of information and documents that should not be provided by the audited entity to auditors if the latter are under direct or indirect foreign control.

However, the Big Four were ready for such a development. Its parent companies have previously created a bunch of firms designed to provide audit and consulting services on the territory of the Russian Federation. At the same time, the firms are registered in Russian jurisdiction, and its employees and managers are citizens of the Russian Federation. The owners of such companies, called “managing partners”, are also Russians. That is, formally, such “remakes” are not subject to the restrictions of Decree No. 622.

True, the names of these newly minted firms contain the names of the Big Four companies. Franchise agreements have been concluded between these firms and the Big Four companies, giving rights to local firms to use famous brands. For example, at the beginning of last year, the following “purely Russian” audit companies were registered in our country, the names of which featured the brand “Ernst & Young” (EY): Ernst & Young (CIS) BV; Ernst & Young Business Advisory Services LLC; 6) Ernst & Young IT Limited Liability Company; 7) Ernst & Young LLC; Ernst & Young Valuation and Advisory Services LLC; EY Academy of Business Limited Liability Company. And despite such defiant signs, these firms, even after the entry into force of Decree No. 622, could provide audit and consulting services to companies in the military-industrial complex of Russia.

At the same time, the so-called Russian firms remained part of the Big Four empires. I will not talk about the mechanism of control of foreign audit giants over local audit firms now, I refer to my book: “Gang of four. Financial and economic espionage in the Russian Federation(M.: Knizhny Mir, 2021). A year ago, I wrote that half-measures like government decree No. 622 of April 19 would not be able to expel economic intelligence officers who cover up their true goals with an audit from the country. We need radical solutions. At the beginning of 2022, the network of firms under the influence of the Big Four and operating in the Russian Federation consisted of 15,000 employees. They are, according to the British Financial Timescontinued to “spud” all the leading public and private companies and banks of the country

And so the sanctions war began against Russia. Already in early March, we heard about radical audit decisions, and they did not come from the Russian authorities, but from the Big Four companies. All of them announced that they were ceasing their activities in Russia, hinting clearly that they condemned the military operation in Ukraine. It is noteworthy that the leaders of the Big Four companies have demonstrated the ability to run ahead of the locomotive. Only on June 3, Brussels announced the entry into force of the sixth package of sanctions. It, among other things, contains a ban on the provision of consulting and audit services. That is, exactly three months after the Big Four statement.

However, after the loud statement about leaving Russia, there was no loud slam on the door. From the leadership of the “Big Four” went “clarifications” and “clarifications”. It turned out that in order to “pack things up”, companies will need several months. Maybe the final withdrawal will happen even next year. In particular, EY said that it would take up to 12 months for her to leave.

There seems to be intense discussions in London since the beginning of March over how the accounting giants should handle the sanctions war. And there are already arguments justifying the impossibility of a complete withdrawal. We hear from the Russian media that almost every day some foreign company registered in countries from the list of “unfriendly states” leaves Russia. But many, for some reason, do not leave and even swear that they will not leave. Among the latter, there are many such companies that are “daughters” or “granddaughters” of global corporations. And global corporations are clients of the Big Four auditing giants. A complete (consolidated) audit report on a global corporation must necessarily include private audits of subsidiaries and granddaughters. Who and how will close the Russian audit “holes” of global corporations? The final answer to this question in London has not yet been formulated.

It is obvious that the collective West needs information about the Russian economy in order to conduct a sanctions war. Firstly, he would like to know about the “painful” points of the economy, which should be hit by sanctions. Secondly, he needs information about how effective these strikes are. Better than audit companies, no one is capable of fulfilling such a role of “pickers” of sanctions strikes.

Based on the information available at the beginning of the summer, it can be assumed that the “Big Four” plans to stay in Russia, but with maximum conspiracy. Those so-called Russian accounting firms, which the Big Four companies have made in large numbers, must completely hide their connection with their founders. To do this, they were given the command to change their signboards.

Ernst & Young residency firms were the first to do this. Ernst & Young LLC was renamed in early April into Center for Audit Technologies and Solutions – Audit Services LLC, according to the Unified State Register of Legal Entities. For the Russian office of EY, the name “Center for Audit Technologies and Solutions” is not new: in May 2019, Ernst & Young Vneshaudit LLC was renamed into CATR LLC. Interfax was told by the press service of the Russian practice of EY: “The restructuring involves a number of processes, including the renaming of legal entities. LLC “CATR – audit services” is the temporary name of the legal entity. The renaming of all firms in Russian practice is planned after the announcement of the new brand.”

At the end of April, the media reported that the local divisions of PwC and KPMG were excluded from the international networks of firms that are leaving Russia. Domestic companies have become independent units. In particular, it became known that the Russian part of PwC will be called Trust Technologies.

In May, a message came that the auditing company Deloitte & Touche CIS, which until the spring of this year was part of the international Deloitte network, was changing its name. One of the company’s major clients, MTS PJSC, said that from now on the auditor is called Business Solutions and Technologies JSC. Somewhat later in the release of the renamed company it was said: “We will continue to provide our clients with full-scale audit and consulting services with a consistently high level of quality, as it has been for 30 years of our work in the market”.

The “Big Four” in Russia are mimicking in order to continue sucking economic information out of our country like a parasite. We should think about how much Russia today needs the audit services that the Big Four brought to us in the early 1990s. We need audits of business entities, but not to the extent and not for the purposes for which audits have been carried out over the past three decades. They were held so that Russian business could try their luck in the global financial market and get money there. Today, access to this market for Russian business is completely closed. Isn’t it time to replace obscure audit services with state control and inspection of enterprises? Experience in this area in the Soviet Union was accumulated the richest.

Photo: beincrypto.com

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