Elizabeth Warren Shocked to Learn Big Public Accounting Firms Do Shady Sh*t (UPDATE)

[UPDATE] It looks like Sen. Elizabeth Warren (D-MA) is still on her quest to make life miserable for the biggest public accounting firms in the US.

According to a Feb. 22 report by the New York Times, Liz and Rep. Pramila Jayapal (D-WA) are asking the US Treasury Department to investigate the cozy relationship Treasury has had with the Big 4 and RSM US through the years, after a Times investigation last fall detailed several instances of how these firms allow some of their top tax lawyers to be poached by the government, mostly in the Treasury’s tax policy office, so they can help write tax rules that benefit their clients. Then they end up returning to their old firm, oftentimes rewarded with a promotion to partner.

The NYT noted that this back and fourth between Big 4 tax lawyers and the Treasury Department went on (at least) during the presidencies of Donald Trump, Barack Obama, George W. Bush, and Bill Clinton.

The two lawmakers sent letters to each of the Big 4 firms and RSM (see below this update for the letter sent to Deloitte) warning them that they’ve introduced the AntiCorruption and Public Integrity Act (S. 5070) that would end “these corrupt schemes.” Warren and Jayapal also asked the firms a series of questions about their participation “in the corrupt revolving door scheme detailed by the New York Times.”

According to the Times article on Feb. 22, Warren and Jayapal saw enough in the responses to their questions by the firms to ask the Treasury Department in a letter to look into this post haste:

“Following our own investigation that has corroborated these allegations and raised new concerns about the accounting giants that take advantage of these revolving-door schemes, we urge you to immediately open an inquiry into this matter,” the two lawmakers wrote in their letter. It was sent to the Treasury Department’s acting inspector general, Richard K. Delmar, and its inspector general for tax administration, J. Russell George.

“Accounting giants are abusing the public trust and taking advantage of the revolving door between public service and private profit,” the lawmakers said in the letter.

[…]

“But these disclosures only reveal the tip of the iceberg,” the lawmakers wrote. “Neither the firms nor the Treasury Department provided meaningful information about their employees’ responsibilities and clients, either at the firms or while in government.”

While Deloitte and PwC ignored the question of, “Since January 1, 2001, how many lawyers or other employees [of your firm] have taken tax policy positions in the Treasury Department, the IRS, or elsewhere in the federal government and returned [to your firm] after their government service?” citing confidentiality and employee privacy issues or that “we do not track this information,” EY provided Warren and Jayapal with the following:

After a review of our records, we have identified seven persons who left EY in the past 10 years, took what we believe can be considered a tax policy role at Treasury or the IRS, and then returned to EY. Of the seven people, some returned at the same rank as the rank at which they left our firm, while some returned at a higher rank. Additionally, we estimate that, on average, there were 5.5 years between when those persons left our firm and when they rejoined. This significant average tenure is consistent with the spirit of public service we observe in our people who look to take their expertise to the government.

KPMG said in its response to the lawmakers’ questions:

Over the twenty-year period from January 1, 2001 to date, KPMG has had five senior tax professionals who left the Firm to serve at either the Department of the Treasury or the Internal Revenue Service and who then returned to KPMG.

In a follow-up letter to Warren and Jayapal, KPMG found one other instance of a senior tax professional who had left the firm to work at the IRS and then returned to KPMG.

RSM said in its letter to Warren and Jayapal that an internal investigation found only one person who met their criteria since the firm’s Washington National Tax practice opened in 2010.

All told, Warren and Jayapal told the Treasury Department in their letter that “since January 1, 2001, at least 24 employees left their companies to take tax-policy positions in the federal government and returned to the companies afterward, with many receiving promotions, raises, or both upon their return.”

You can read Warren and Jayapal’s letter to the Treasury Department here. You can read the five accounting firms’ responses here.

[Article originally posted on Oct. 8, 2021.]

Uh-oh, the Big 4 firms have gotten Sen. Elizabeth Warren’s dander up.

The Massachusetts Democrat was appalled at a recent New York Times report that found at least 35 examples of big public accounting firm tax lawyers who left to join the US Treasury’s tax policy office or other government positions and then were rehired by their old firm. In nearly half of those cases, the employees were promoted to partner upon their return—often doubling their pay.

What drew Warren’s ire was how these ex-PA tax lawyers were able to approve generous tax loopholes that were often used by their former firms, give tax breaks to former clients, and roll back efforts to rein in tax shelters while working inside the US government, according to the report. The NYT wrote:

The largest U.S. accounting firms have perfected a remarkably effective behind-the-scenes system to promote their interests in Washington. Their tax lawyers take senior jobs at the Treasury Department, where they write policies that are frequently favorable to their former corporate clients, often with the expectation that they will soon return to their old employers. The firms welcome them back with loftier titles and higher pay, according to public records reviewed by The New York Times and interviews with current and former government and industry officials. …

After lobbying by PwC, a former PwC partner in the Trump Treasury Department helped write regulations that allowed large multinational companies to avoid tens of billions of dollars in taxes; he then returned to PwC. A senior executive at another major accounting firm, RSM, took a top job at Treasury, where his office expanded a tax break in ways sought by RSM; he then returned to the firm.

The thing is, this has been going on at the Big 4 for a long time. A Redditor commented about the NYT article: “And in other news, water is wet.” But now, thanks to the Times, this gaming of the system is now out in the open.

Apparently Warren couldn’t believe how sneaky and shady the Big 4 (and RSM) really are, so she and House Rep. Pramila Jayapa (D-WA) decided that sending letters to the CEOs of Deloitte, PwC, EY, KPMG, and RSM tsk-tsking them over this scheme will get them to stop. But if that doesn’t work, Warren and Jayapa threatened to stop it via an ethics bill they introduced in Congress in both 2018 and 2020.

The letter states: “Americans are sick and tired of these corrupt schemes, and we’ve introduced the AntiCorruption and Public Integrity Act (S. 5070) that would end them. The decades-long scam in which large accounting firms have abused the revolving door between the government and the private sector to help their wealthy clients avoid paying their fair share of taxes demonstrates precisely why this legislation is necessary.”

Here is the full text of one of the letters Warren and Jayapa sent to the five accounting firms. This is the one Deloitte CEO Joe Ucuzoglu received:

Joe Ucuzoglu
Chief Executive Officer
Deloitte US
30 Rockefeller Plaza
New York, NY 10112

Dear Mr. Ucuzoglu:

We write regarding a disturbing new report that reveals the corrupt revolving door between the world’s largest accounting firms and the federal government—and the extent to which this “remarkably effective behind-the-scenes system” “help[s] the world’s biggest companies avoid taxes.” On September 19, 2021, the New York Times exposed how large accounting firms—including Deloitte—send their lawyers into high-ranking positions in the federal government to create new tax loopholes for their clients, and then reward the same lawyers with bigger paychecks and promotions upon their return. We are seeking information to understand the extent to which Deloitte has been involved in these unethical schemes.

Accounting giants are abusing the public trust and taking advantage of the revolving door between public service and private profit. The Times report uncovers that, in the last four presidential administrations, dozens of lawyers have left the top accounting firms for tax-policy positions in the Treasury Department and the Internal Revenue Service—where they have rewritten America’s tax laws for the benefit of their former clients. Once they return after their stints in government to work for those same clients, they receive promotions and massive salary increases in exchange for their “public service.”

In one instance, Deloitte and PricewaterhouseCoopers designed a lucrative new tax shelter for multinational corporations, which was placed at risk when the Treasury Department issued a warning notice to shut down the scheme. But several years later, a former Deloitte attorney entered the Treasury Department, and his office issued new regulations to ease the path for companies shifting their profits offshore to avoid U.S. taxes. The attorney soon returned to Deloitte and was immediately promoted to partner.

Americans are sick and tired of these corrupt schemes, and we’ve introduced the AntiCorruption and Public Integrity Act (S. 5070) that would end them. The decades-long scam in which large accounting firms have abused the revolving door between the government and the private sector to help their wealthy clients avoid paying their fair share of taxes demonstrates precisely why this legislation is necessary. Under our bill:

• Executive branch employees would be required to recuse themselves from matters that might financially benefit their immediately prior employers or clients
• Private-sector companies would be restricted from immediately hiring or paying any senior government official that was recently lobbied by the company
• The world’s largest corporations, banks, and monopolies would be restricted from immediately hiring or paying any senior government official after they leave government service
• Private-sector companies would be banned from providing “golden parachutes” to compensate executives for entering into federal service
• Lobbyists would be required to disclose any specific government actions that they attempted to influence, any meetings conducted with public officials, and any documents provided to those government officials
• A new U.S. Office of Public Integrity would be created to enforce federal ethics and anticorruption laws

Our legislation would close the revolving door between massive accounting firms like yours and the federal government, ensuring that our government officials work for the people and not the wealthiest corporations and their clients. And Sen. Warren’s Real Corporate Profits Tax, which would simplify the tax system and make it harder for giant corporations to create and profit from tax loopholes, would reduce the payoff from these unethical practices and the incentives to engage in them.

To better understand Deloitte’s participation in the corrupt revolving door scheme detailed by the New York Times, we ask that you answer the following questions by October 19, 2021:

1. Since January 1, 2001, how many lawyers or other Deloitte employees have taken tax policy positions in the Treasury Department, the IRS, or elsewhere in the federal government and returned to Deloitte after their government service?

2. For each of these employees, please provide the following information:

a. When they left Deloitte, and when they returned.
b. What position(s) they served in at Deloitte, before and after their government service, and what their specific responsibilities were in those positions.
c. What position(s) they served in in the federal government, and what their specific responsibilities were in those positions, including any regulatory or legislative matters they worked on that affected Deloitte clients.
d. Who their clients at Deloitte were, before and after their government service.
e. Their compensation at Deloitte, before and after their government service, and any bonuses or other compensation they received in relation to their government service.

3. What are Deloitte’s policies to guard against conflicts of interest for employees who formerly worked for the federal government? Specifically, are Deloitte employees allowed to retain clients if they worked on matters related to these clients while serving in the federal government?

Thank you for your attention to this matter.

Sincerely,

Elizabeth Warren
United States Senator

Pramila Jayapa
Member of Congress

Warren and Jayapa can send all the letters they want to the Big 4, but the fact is nothing is gonna change. Their ethics bill probably won’t get the support it needs in Congress (it hasn’t even left the Senate Finance Committee) before the 2022 election to be enacted into law— and it definitely won’t if the Dems lose control of either the House and/or the Senate next year. And there’s no way the Big 4 and RSM and whatever other firms are doing this (probably BDO and Grant Thornton too) will stop gaming the system if it benefits them and their clients.

But good effort, tho, Liz and Pramila.

How Accounting Giants Craft Favorable Tax Rules From Inside Government [New York Times]