Unethically Incentivized

There is an interesting case bubbling down under in Australia, with PricewaterhouseCoopers (PwC) getting grilled due to "misuse" of government information. Essentially, PwC is a service provider for the Australian government and is involved in the tax policy design and development. They then used this confidential information to provide tax services to its clients to reduce their tax liabilities, which include large global tech companies, amongst other industries.

While this dates back to 2015 at least, I suspect that all of the "big four" (Deloitte, Ernst & Young, KPMG, and PwC) are likely doing similar, as all of them have contracts with the Australian government to provide various services. Of course, PwC is in the spotlight now, but how long until the next "anomaly" is found?

For example, this kind of thing:

I don't know if you remember this from way back in 2011, but there was a little bit of an issue identified, as members of congress are getting much higher returns than the average market, beating it by around 10% or more - depending on their role - even beating out Corporate Insiders.

"In the course of performing their normal duties, members of Congress have access to non-public information that could have a substantial impact on certain businesses, industries or the economy as a whole. If used as the basis for common stock transactions, such information could yield significant personal trading profits,"

There are a lot of "coincidences" in terms of buys and selloffs, and this doesn't factor in the spread of information to "friends and family" so that they can benefit too.

There is often talk about "ethics" in business and government, but the fact is, that without accountability, the incentive outweighs the cost, especially since traceability is difficult, meaning that getting caught is low. And then, because of the system itself, even if caught, these types of events end up being swept under the rug, much like the flash in the pan that was the "Panama Papers" where +11M documents were released in 2016 that exposed tax havens and criminal activity at a mass scale.

Did Anyone Go to Jail for the Panama Papers?

Germany has issued an arrest warrant for Mossack Fonseca lawyers Juergen Mossack and Ramón Fonseca for tax evasion and operating a criminal organization.
However, because of Panama's extradition laws, they will not be handed over to German officials. In Panama, they face charges connected to the Panama Papers scandal and bribery with a Brazillian company, of which they spent two months in jail before bonding out.
U.S. taxpayer Harald Joachim von der Goltz was convicted of wire and tax fraud, money laundering, and a host of other crimes relating to the Panama Papers scandal. He was sentenced to four years in a U.S. federal prison.

The article on Investopedia ends with,

Time will tell who else will be charged in connection with this scandal.

And while the last update was a year ago, I don't expect anyone else to be arrested, nor many more mentions to the document release, because it is within a system that is designed with the capabilities to protect itself, so they will. Again, when incentive to act in a specific way is greater than the cost of acting that way, because people are people.

Ethics is a nice idea to contemplate, but history is far more accurate when viewed through the lens of incentive. While an individual may act with ethical consideration, that same person can lower ethical responsibility once they can consider their behavior in terms of group actions. When the group is acting unethically, it distributes the responsibility of the individual and makes it "okay", since everyone else is doing it. Yet, that argument doesn't hold up at the individual level, as evidenced by parents when they say,

if everyone else was jumping off a cliff, would you do it too?

There is also the "crime of opportunity" component too, where some people have access to information that gives them a lot of opportunity with a low amount of risk. They are robbing the bank, without having to enter into the bank with ski masks and demand the cash. They can do it all from a distance, without putting themselves directly in the firing line. And, while people will argue that this is par for the course for politicians and bankers - it is common for us all.

For instance, trolls and interest groups on Twitter, can have power at a group level with little exposure to the individual, because they have strength in faceless numbers, being able to amplify a message without having to put much skin in the game. A lot of the government activity is like this too, as while there are politicians as the face, there are a host of facilitators that are largely unknown, making decisions that the face will never see.

And of course, because of corporations being able to hide their various activities, they are protected most of the time too, until there are leaks uncovering what is actually going on. But, I don't think we should have to wait for leaks in order to see a problem these days, we should be getting real-time data on the health of the economy, and the health of our government and corporate ecosystem.

Of course, this isn't going to happen, no matter how many leaks, or how many scandals get swept under the rug, until we as the consumer force demand it through our own activities. The way we consume, the way we vote, the way we demand from government and corporation alike.

What we should recognize is that unfortunately, we don't live in an ethical world and even the watchdogs need watching. This seems like an impossible problem of infinite layers, but it isn't that complex, once the systems are in place to provide transparency and more granular visibility on the activities of the largest organizations. As they say,

Lead by example.

And the example they are setting is one where as long as it is in our best interest and the cost of getting caught isn't too high, do it - no matter what it costs others.

Posted Using LeoFinance Alpha