Big Four ‘Over-Represented’ in Tax Havens, Says Secrecy Study

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By Ben Stupples

The big four accounting firms—Deloitte, Ernst & Young, KPMG, and PwC—are “over-represented” in tax havens, according to a study that marks the latest push in financial transparency.

Jurisdictions including the British Virgin Islands, Monaco, and Bermuda have office numbers from the big four accounting firms that are disproportionate to their local populations, said the July 5 study, funded in part by the European United Left/Nordic Green Left group of European parliamentarians. From the 53 locations categorized as tax havens, the four firms are active in 43 of them, it added.

“Having offices in these tax havens is clearly not serving the needs of the local community,” Richard Murphy, City of University London’s professor of practice in international political economy, and one of the authors on the study of the big four’s worldwide operations, told Bloomberg BNA in a July 4 telephone interview. “Tax havens exist to serve the needs of people who are not actually there.”

Big Four’s Responses

As the auditors of the world’s largest companies, the big four are at the center of global capitalism and among the world’s biggest employers. In 2016, they had average staff count of 222,000, according to data compiled by Bloomberg BNA. By contrast, Apple Inc. has 80,000 staff.

In a July 5 email, a KPMG spokesman responded to the study by citing the firm’s International Transparency Report and its International Annual Review, both of which provide an overview of KPMG’s global structure. Each entity is “separate” and “legally distinct,” the spokesman added.

Ernst & Young has offices where its clients conduct business, a spokesman said in a July 5 emailed statement. The firm’s advice complies with both national and international law, he added.

Deloitte and PwC did not respond to Bloomberg BNA’s calls and emails for comment.

Auditors or Regulators?

Although each of the big four publishes annual transparency reports with details on their global footprints, the study claims the firms don’t accurately report the locations in which they operate.

It also claims the firms deliberately set up separate legal entities, contrasting to a globally integrated company, operating with common names and standards to cut risk and increase financial opacity.

While it said PricewaterhouseCoopers reports most of the jurisdictions in which it operates, the study cited Ernst & Young as the worst firm for transparency of its operations after the authors identified only 83 percent of its staff. A study on KPMG, meanwhile, failed to find the legal ownership of its offices in 55 jurisdictions.

“These firms are regulators, in effect, of global capitalism, as we rely on them to audit the biggest corporations,” said Murphy, who wrote the study with Saila Naomi Stausholm, a PhD candidate at Copenhagen Business School. “Any regulator should have to work to the highest level of transparency.”

Public Global Tax Reports

To boost the transparency of the big four’s operations, the study calls for them to file consolidated financial statements that include public tax reporting on a country-by-country basis. On July 4, the European Parliament voted to bring in this measure, known as public country-by-country reporting.

In addition, the study calls for lawmakers to:

  •  Define the big four as single entities for group accounting purposes in the European Union;
  •  License the firms as single entities for audit and taxation purposes throughout the trading bloc;
  •  Ring-fence, and eventually separate entirely, audit services from other parts of the firms’ services.

Corporate Structure Focus

Fabio De Masi, a member of European Parliament and vice chairman of its investigative committee on the Panama Papers, called for focus on the big four’s corporate structures in light of the report.

The firms “have to be seen for what they are: big, multinational corporations,” he said in a July 5 statement. “This would simplify their regulation and it would be easier to hold them to account for their global actions.”

Matt Carthy, meanwhile, a fellow member of European Parliament and the Panama Papers committee, said he will work to ensure the study’s recommendations are taken into account.

“Over the past year of our work on the Panama Papers inquiry we have examined in great detail of the role that enablers and promoters of tax avoidance and tax evasion schemes play internationally,” he said in a July 5 statement.

“The Panamanian law firm Mossack Fonseca is just one example of this, but corporate law firms, company service providers and tax advisers are critical to facilitating these damaging practices.”

The study bases its categorization of tax havens on the Tax Justice Network’s Financial Secrecy Index.

To contact the reporter on this story: Benjamin Stupples in London at

To contact the editor responsible for this story: Penny Sukhraj at

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