According to Whistleblower in PwC case, deficiency in ED investigation may cause Rs. 3,100-crore loss to state exchequer

Sarvesh Mathur – a former key employee of Pricewaterhouse Coopers (PwC) and the main whistleblower in the case against PwC India, has told the Enforcement Directorate (ED) that an incomplete investigation against the accounting firm could cause a loss of Rs. 3,100 crore to the state exchequer.

His complaint to the ED and a petition in the court led to an investigation against the PwC. PwC was also fined an amount of Rs. 230 crore by the ED for illegally routing foreign funds to India as grants.

In a complaint dated September 23, 2019, Mathur has alleged that the ED had not complied substantially with Supreme Court directions. Further, it was alleged that no investigation had been made against the audit firms which together with PwC India form the network of the firm and despite there being strong evidence, the provisions of Prevention of Money Laundering Act, 2002 were not invoked by ED.

In Mathur’s letters, there are specific inputs by Justice AP Shah, former Chief Justice of Delhi High Court that included information pertaining to funds illegally received by PwC India from PwC Services BV, Netherlands for non permitted investments and payment of non-compete fee for acquisition of tax practice of RSM & Co. and the consulting business of ECS Private Limited. Justice AP Shah in the letter has highlighted the various violations committed by PwC India and has expressed concerns over the ED’s reluctance to investigate the audit firms for violations of similar amounts despite being put on notice several times.

Mathur has also alleged that Price Waterhouse, Bangalore, the tainted auditor of Satyam, also received a million US dollars.

Foreign Professional Indemnity Insurance (PII) of $60 million (Rs. 280 crore) was paid by PwC taken without the approval of Reserve Bank of India (RBI). Out of this, $15.5 Million was remitted to the United States to settle a Class Action suit arising out of Satyam. At the time of the remittance, RBI had specifically asked PwC if it had a foreign policy in which case the remittance would have required specific RBI approval. PwC misled RBI by confirming in writing that it had an Indian Insurance policy.

Further, an insurance premium of around Rs. 100 crore was paid over several years for the PII without RBI approval, the letter says. In total, the letter addressed to the Prime Minister’s Office (PMO) and the Finance Minister, highlighted violations worth more than Rs. 3,100 crore, which sought investigation by the ED.

According to Section 13(1) of Foreign Exchange Management Act (FEMA) 1999, the amount of the penalty can be up to three times the sum involved. Further Section 13(2) of FEMA, 1999 provides that in addition to the penalty, the money or property in respect of which the contravention has taken place can be confiscated and handed over to the Central Government. Mathur has alleged that the ED levied a penalty of only one time the sum involved on PwC.

According to Mathur, all the illegal funds allegedly came through (a large foreign bank) that involved more than 25-30 high value transactions spread over 2-3 years. The said bank had been PwC India’s banker for decades. Further it was uncertain whether the bank raised any alarm or suspicion regarding the use of the funds.

The letters further give out details of lack of investigation with regard to camouflaged investment of around Rs. 220 crore by PwC Services BV, Netherlands in audit firms: Price Waterhouse, Lovelock and Lewes, Dalal & Shah Mumbai and Price Waterhouse Bangalore in blatant violation of FEMA 1999 and Chartered Accountants Act, 2002 (CA Act). Grants were ostensibly received to enhance level of skill of PwC India resources.