Major consulting firms such as Accenture PLC ACN 1.94%
and McKinsey & Co. has completed or stopped all client work. But the four big auditing firms are still there, trying to settle complicated relationships with their Russian counterparts.
The prolonged withdrawal 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 can also be embarrassing or worse. PwC Russia, for example, offers companies in Russia “decision-making support in turbulent times,” which includes the ability to make “imports through another … country,” according to its website.
Redirection of imports could be a way to circumvent sanctions imposed by the United States and Europe, according to Charlie Steele, a former sanctions lawyer from the US Treasury Department.
“What they are proposing could certainly be used as a way to try to avoid sanctions,” Mr. Steele, a partner at the consulting firm Forensic Risk Alliance. He added that the Russian auditing firm “may not have bad intentions; they may think they are offering a legal 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 ease the breach of sanctions.” PwC is “is actively working on the separation of the Russian company from its network, the spokesman added.
The four stores’ long farewell to Moscow also promises them to comply with a series of sanctions against Russia while operating in a country where these sanctions do not apply and may even be made illegal.
The exits of the four stores will, when completed, create independent Russian companies built with international support and know-how. These firms can now draw on Western expertise in advising Russian companies on how best to minimize the impact of sanctions.
The big four are likely to use these new firms for the now complicated task of auditing the Russian operations of multinational corporations, according to people familiar with the matter. This may be one of the reasons why global firms continue to support their Russian counterparts despite the separation.
Of the big four, Deloitte has the smallest Russian presence and seems to be the closest to getting out of 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 company.
The other three are still in talks with their Russian companies, which still carry their trademark, according to people familiar with the matter. The divorce process is proving to be complicated, the people said. EY expects it will take another five to eight months to complete, according to a person close to the company.
Some of the consulting giants have come out faster. Accenture said this month that it has completed the transfer of its Russian business to local management. The new company has until May 9 to change its name and until May 23 to complete its rebranding, Accenture said.
Rival consulting firm McKinsey has “now suspended all client work in Russia,” global managing partner Bob Sternfels said last week in a post on social media.
Auditing firms may find it more difficult to make a clean exit because of the way their global network is organized. Companies in each country are separately owned entities, bound by a legal agreement, after which they pay a fee to share branding, technology and intellectual property.
Removing the shared support altogether could make it difficult for Russian firms to offer their existing auditing and other services, people close to the four major firms said. “The separation must be done in a way so that these companies can continue to operate … the intention is not to pinch them,” said one of the persons.
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EY’s Russian company has assured customers that it will continue to offer services based on standards developed by the global organization. EY “will continue to provide methodological support to [the] Russian practice, “the Russian company said on its website. It could mean access to some resources in the global organization. A spokeswoman for EY’s global network declined to comment.
One factor that creates delays is the need to meet contractual obligations, such as completion or handover of ongoing audit and tax work. There is also the logistics of separating the Big Four brand from Russia, both online and in paper-based documents.
Deloitte removed a page on its website after The Wall Street Journal asked why Russia was listed 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 removed,” a Deloitte spokesman said.
The draw is not a big financial blow for the big four. Russian companies represent less than 1% of the accounting giants’ global revenue, according to people close to the big four. But the loss of companies built up over decades still hurts.
“It’s like going home and shooting your own dog,” said one of the people. “It’s very painful, very emotional …[we] had never expected this to happen. ”
The Russian auditing firms are likely to pay more for the breakdown. They are facing the loss of their brand, of support from the global network and of a significant part of their customer base as multinational corporations leave Russia in droves.
Auditing firms also risk losing business partners and younger employees. The war against Ukraine has triggered the brain drain of professional workers from Russia. McKinsey said last week that it has helped more than 500 of its approximately 700 employees in Moscow move with their families to offices outside Russia.
About 10% to 15% of the four major Russia-based employees are likely to find jobs outside of Russia elsewhere in the four major networks over the next 12 months, a person close to one of the companies predicted.
Write to Jean Eaglesham at Jean.Eaglesham@wsj.com and Mark Maurer at firstname.lastname@example.org
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