Global Auditing Firms Struggle To Leave Russia

Big consulting firms such as Accenture PLC and McKinsey & Co. have quit or stopped all client work. But the Big Four accounting firms are still there, trying to unwind complicated relationships with their Russian counterparts.

The protracted pullout puts Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers in the awkward position of condemning Russia’s invasion of Ukraine but still working for Russian companies, many of them state-owned.

It also could be embarrassing or worse. PwC Russia, for example, is offering businesses in Russia “decision-making support in turbulent times” that includes the option of making “imports via another…country,” according to its website.

Rerouting imports might be a way to sidestep sanctions imposed by the US and Europe, according to Charlie Steele, a former US Treasury Department sanctions attorney.

“What they are suggesting certainly could be used as an avenue to try to evade sanctions,” said Mr. Steele, a partner at consulting firm Forensic Risk Alliance. He added that the Russian accounting firm “might not have bad intent; they might think they are offering a lawful alternative.”

A spokeswoman for PwC Russia declined to comment. A spokesman for PwC’s international network said it “would be unacceptable for any member of the PwC Network to facilitate the violation of sanctions.” PwC is “actively working on the separation” of the Russian firm from its network, the spokesman added.

The Big Four’s long goodbye to Moscow also leaves them promising to abide by an array of sanctions against Russia, while operating in a country where those sanctions don’t apply and could even be made illegal.

The Big Four’s exits, once completed, will create stand-alone Russian firms built with international support and know-how. Those firms can now draw on that Western expertise in advising Russian companies on how best to minimize the impact of sanctions.

The Big Four will likely use these new firms for the now-complicated task of auditing the Russian operations of multinationals, according to people familiar with the matter. That could be one reason for the global firms to keep supporting their Russian counterparts, despite the separation .

Of the Big Four, Deloitte has the smallest Russian presence and appears closest to extricating itself from the country. It has removed much of its branding from its Russian business and aims to complete the separation early next month, according to a person close to the firm .

The other three remain in the throes of negotiations with their Russian firms, which still carry their brand, according to people familiar with the matter. The divorce process is proving complicated, the people said. EY expects it to take another five to eight months to complete, according to a person close to the firm.

Some of the consulting giants have gotten out faster. Accenture this month said it has completed the transfer of its Russian business to local leadership. The new firm has until May 9 to change its name, and until May 23 to finalize its rebranding, Accenture said .

Rival consulting firm McKinsey has “now ceased all client work in Russia,” global managing partner Bob Sternfels said last week in a posting on social media.

Accounting firms might find it harder to make a clean exit because of the way their global networks are organized. Firms in each country are separately owned entities, bound by a legal agreement under which they pay a fee to share branding, technology and intellectual property.

Removing that shared support entirely could make it difficult for the Russian firms to offer their existing audit and other services, people close to the Big Four firms said. “The separation needs to happen in a way that those firms can continue to operate…the intention isn’t to knife them,” one of the people said.

EY’s Russian firm has assured clients that it will still offer services based on standards developed by the global organization. EY “will continue to provide methodological support to [the] Russian practice,” the Russian firm said on its website. That could mean access to some resources of the global organization. A spokeswoman for EY’s global network declined to comment.

One factor creating delays is the need to fulfill contractual obligations, such as completing or handing over audit and tax work in progress. There is also the logistics of disentangling the Big Four brand from Russia, both online and in paper-based documents.

Deloitte took down a page on its website after The Wall Street Journal asked why Russia was shown as part of the Deloitte Strategy consulting network. “It was simply an oversight, and we missed it when the relevant pages from our website were being removed,” a Deloitte spokesman said.

The pullout isn’t a big financial blow for the Big Four. The Russian firms represent less than 1% of the accounting giants’ global revenues, according to people close to the Big Four. But the loss of the businesses, built up over decades , still hurts.

“It is like having to go home and shoot your own dog,” one of the people said. “It is very painful, very emotional—[we] never expected this to happen.”

The Russian accounting firms will likely pay more dearly for the split. They face the loss of their brand, of support from the global network, and of a significant part of their client base, as multinationals depart Russia in droves.

The accounting firms also risk losing partners and junior staff. The war against Ukraine has triggered a brain drain of professional workers from Russia. McKinsey last week said it has helped more than 500 of its roughly 700 staff in Moscow relocate with their families to offices outside Russia.

Around 10% to 15% of the Big Four’s Russia-based staff will likely find jobs outside Russia elsewhere in the Big Four networks in the next 12 months, one person close to one of the firms predicted.

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