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Russian Prosecutors Go After Yukos Auditors

From Kommersant:

YUKOS Auditors May Face Criminal Charges Tax inspectors have accused PricewaterhouseCoopers Audit of aiding YUKOS evade taxes. Lawyers say that the suit filed by the tax inspectorate may result in the auditor, whose clients include Gazprom and the Central Bank of Russia, losing its license and its employees facing criminal charges. Last week, the Arbitration Court of Moscow accepted a suit by Moscow Tax Inspectorate No. 5 claiming that ZAO PricewaterhouseCoopers Audit abetted YUKOS in tax evasion. The tax inspectorate is demanding that PricewaterhouseCoopers Audit’s 2002 contract with YUKOS be invalidated as “ a deal concluded with the a goal contrary to the bases of lawfulness and morality.” The case will be heard by Judge Pavel Markov, the chairman of the bankruptcy judges, who heard the YUKOS bankruptcy case. PricewaterhouseCoopers Audit is a subsidiary of PricewaterhouseCoopers and is one of the “big four” consulting companies. The other three are Ernst & Young, Deloitte & Touche and KPMG. PricewaterhouseCoopers Audit conducted audits at YUKOS between 2002 and 2004. The suit against PricewaterhouseCoopers Audit claims that the company produced double audit reports for YUKOS – one official and an separate, internal audit for the oil company’s executives. The official audit mentioned the accuracy of YUKOS’ financial records and its compliance with Russian law. The internal audit report stated that the company’s establishment of a fund for the support of production was illegal and questioned operations with securities. The suit claims that the official audit report was intentionally misleading, which under article 11 of the law “On Auditing Activity,” is grounds for rescinding the auditor’s license. PricewaterhouseCoopers general director Mike Kubena told Kommersant that “written information for the management of a client company is not a double standard but an official audit report… In the written information, we suggested that the management remove the shortcomings mentioned.” Public relations manager for Deloitte & Touche CIS Evgeny Freidinov told Kommersant that double reporting is prohibited by that company’s code of ethics. In May 2003, the U.S. Securities and Exchange Commission fined PricewaterhouseCoopers $1 million for irregularities in its audit of SmarTalk TeleServices in 1998 and company audit partner Philip Hirsch was banned from working in the industry for a year. In Russia, tax charges of 290 million rubles have been made against PricewaterhouseCoopers Audit this year and found legal by three courts. Olga Pleshanova, Dmitry Butrin, Maxim Shishkin