International auditors PWC face an uncertain future in Russia and could soon lose its right to operate if it fails to overturn a court ruling over links to bankrupt oil giant Yukos.
A Russian newspaper yesterday published transcripts of the verdict from the Moscow Arbitration Court, which last week fined PWC €400,000.
The precise details of the court's criticism were harsher than expected, accusing PWC of collusion with Yukos to assist tax evasion, and prompting speculation that PWC may face further trouble from the Russian authorities.
The auditor's Moscow offices were also subject to a high-profile raid last month, when documents were removed by interior ministry officials just ahead of the court hearing. PWC complained that unrelated documents were also seized in that raid.
With the Russian finance ministry still to rule on whether the firm can renew its operational licence by mid-May, it must try and overturn the harsh conclusions currently standing against it.
The court concluded that PWC was "practically a participant in implementing illegal tax schemes", reported the business daily Kommersant.
It reported that the court found PWC had deliberately deceived shareholders and breached professional ethical standards. PWC in Moscow has strenuously rejected the criticism in court and plans to continue appealing its findings within the Russian legal system.
After the fine was imposed last week, PWC argued its auditing standards were in "full conformity" with both Russian law and professional standards.
It believes it can still convince Russian courts that a private contract between itself and Yukos was being wrongly interpreted by Russian law and that the arbitration court has gone beyond its own jurisdiction.
It's reported that the situation has become so grave that senior Bush administration figures, such as the US secretary of state, Condoleezza Rice, have raised the issue with Russian authorities.
The fine relates to PWC's audits of Yukos accounts for the period 2002-2004. Yukos, once the country's largest private oil firm, has since been broken up and the company's main shareholder, Mikhail Khodorkovsky, imprisoned on charges linked to tax fraud. He denies the charges and claims his company was targeted for political reasons.
But as one of the largest auditors in the rapidly growing Russian market, the sudden departure of PWC could cause major difficulties for other large Russian firms dependent on its services and also further undermine confidence in the emerging market.
It's estimated that around 2,000 firms, which make up 50 per cent of business turnover in Russia, avail of PWC's services.
Last week, Russian state-controlled oil firm Rosneft snapped up an auctioned unit of Yukos's assets after only one other bidder, TNK-BP, came forward. Next month, some of Yukos's other business units will also come under the hammer.
