Western accountants and consultants have flocked to Russia for three decades, taking advantage of the booming international trade caused by the collapse of the Soviet Union.
Professional services groups sought to avoid geopolitical tensions as they built global empires but Invasion of Ukraine are forcing them to consider whether continuing to do business in Russia is still ethically, commercially or politically viable.
The head of a major international accounting firm in the UK said: “I don’t understand how you can stand on stage and say that it is acceptable to continue doing business in Russia. “I can’t see a result that allows that.”
Industry insiders said this week that accounting and consulting groups have yet to discuss leaving Russia because it is “too early” as they rush to comply with international sanctions and try to help. help employees in Ukraine.
But on Tuesday night, Grant Thornton became the first major professional services firm to go beyond the quibble and cut ties with FBK, the 500-person Russian affiliate that audits the state oil company. Gazprom, citing “the conflict in Ukraine”.
The consulting offices of McKinsey, Boston Consulting Group and Bain & Company in Moscow employ about 1,000 people in total. All three said they would refuse to work for government agencies in Russia, but none have closed operations in the country or stopped working for state-owned companies.
The Big Four accountants – Deloitte, EY, KPMG and PwC – employ more than 13,000 people in Russia, representing about 1.1% of their total global staff, through alliances with domestic companies. They condemned the war but offered some details on how the conflict would affect the clients they worked with.
Offices in Russia contribute only a small percentage of global revenue for most major professional services corporations – Grant Thornton had $21.7 million in domestic sales last year compared with 6.6 billion dollars globally – but they are strategically important because they allow advisors to provide “one-stop shop” to multinational clients.
A senior British auditor said leaving the country would cause problems, leaving a “big gap” in the UK’s ability to audit subsidiaries and assets of multinationals. Russia. Big accounting groups don’t usually pull out of states during geopolitical crises, he added.
Unlike corporations like BP and Shell, which have moved to divest Russian oil companies Rosneft and Gazprom, the advisers have so far remained committed to their Russia offices.
Consultants and accountants will be legally required to sever ties with Russian clients targeted by Western sanctions, but are under pressure from staff and alumni. and their campaigners to go further.
Vladimir Ashurkov, chief executive officer of Anti-corruption organizationwas founded by Alexei Navalny, an opposition activist jailed by the Russian president Vladimir Putin. “[M]y experience in international finance has taught me not to expect ethical decisions by professional services firms,” he added.
In the rare instance of a partner publicly deviating from official company lines, the head of McKinsey’s office of 40 consultants in Ukraine, Oleksandr Kravchenko, say on saturday that businesses should close their operations in Russia and stop working for any company in which the Kremlin has even a 1% stake.
Andrei Caramitru, a former senior partner at McKinsey, told global managing partner Bob Sternfels that he should be “ashamed” for not closing the company’s Moscow office, which serves 21 of the 30 companies. Russia’s largest.
“It’s blood money, in your hand, staining you every day that you keep it open,” he said in a post on LinkedIn targeted Sternfels, who he said knew the client’s “Kremlin ties”. McKinsey declined to comment.
Consulting and accounting bosses are afraid to speak out against Moscow in the event that employees face retaliation by the Russian government or by protesters who engage in internal discussions at the company. said.
“We don’t care about $50 million or anything in Russia,” said one person at a Big Four company. However, “you don’t want employees to be beaten up or sent to prison for fouling the Kremlin situation.”
A backlash could also hurt their business interests, not just in Russia but globally – the Big Four reported combined revenue of $167 billion last year. One of the Big Four disconnected Ukraine offices from international IT platforms last week because of concerns their global network was vulnerable to cyberattacks, a person with knowledge of the matter told Reuters. know.
Quietly refusing to work for Russian-owned companies also risks being banned from the country, said people who work at professional services firms. The job is “part and all of business in Russia,” one person said.
While Grant Thornton’s rejected Russian affiliate audits Gazprom, PwC audits its German subsidiary. EY signs the account of Rosneft, whose largest shareholder is the Russian state. PwC audits Sberbank, The largest bank of Russia, was sanctioned by the US. In recent weeks, EY won a bid to take over the future audit work, people familiar with the matter said.
PwC and EY declined to comment on individual clients. EY said it was “evaluating existing and new mandates under the new sanctions”.
The advisers also face a new set of international conflicts. Western governments are likely to call on them to help run their sanctions regimes but accepting such contracts will lead to retaliation from Moscow, a global chief executive of a scheme. Big Four math says.
In a cold war scenario, his company would have to consider whether to downsize its operations in Russia or limit its offices there to serve domestic customers, he said. “I don’t think there’s any question,” he added, when asked if his company could exit the country entirely.
Jason Hungerford, a partner at the London-based law firm Mayer Brown, said professional services firms remaining in Russia would not be able to withdraw profits for years due to the sanctions.
“The tanks are not coming back tomorrow, next month, or next year. We will be here for a long time,” he said.
McKinsey, BCG and Bain operate as global partnerships with a single leadership structure but more complex accounting firms. They are organized as an integrated network of independent national companies, owned by partners in each country and limited profit sharing international.
Western sanctions will generally not ban their Russian entities from working for sanctioned companies. However, foreign employees cannot serve embargoed customers, cutting the integration services that the marketing team does.
Sanctions could also make it difficult for Russian offices to use shared international resources such as IT systems, finance, conflict control and marketing staff.
If Russia becomes increasingly isolated economically and politically, international advisers and other businesses could leave the country.
Removing a company from the global network is often a slow process. But accountants may be trying to come up with moves such as a “graceful redesign,” with Russian member firms severing formal ties with global accounting groups rather than waiting to be reprimanded. eliminated, said the head of an accounting firm in the UK.
It is possible that international accounting teams could still try to recommend work to their former Russian colleagues afterwards, he added.
It is possible that such a “graceful” solution could be found. But there is parade their credentials as an ethics leader during the pandemic – and as their customers hastily suspend business in Russia – self-appointed pioneers may end up looking like laggards.
Additional reporting by Arash Massoudi