At the same time, accounting academics have rarely focused upon the predatory and anti-social role of accounting practices, institutions and accountants. Such activities include arms trading, drugs-trafficking, money laundering and tax avoidance/evasion schemes. The latter are directly connected with the increasing shift (at least in the Western world) from industrial capitalism to finance capitalism where huge global financial deals can be transacted almost instantaneously. The emergence of more ‘flexible’ forms of global production has pitched people, countries and societies against each other as businesses and wealthy individuals and corporations search for profits, tax breaks and even tax evasion. In this emerging economy, accountancy firms themselves have become a vehicle for anti-social and predatory actions. These actions present a relevant focus of research for accounting academics
With increasing liberalisation of financial markets, moneylaundering has emerged as a major financial crime. In 1994, the United Nations estimated that about US $750 billion of hot money passed through Western financial systems every year. Drug-traffickers, arms smugglers, gangsters, human organ smugglers, bootleggers, intelligence services, robbers and gangsters transfer their illicit gains from one location to another and launder the proceeds. The processing of such large amounts has the potential to impoverish national economies, international relations and the quality of economic, social and political life. Whilst some accountants may be unwittingly caught up in moneylaundering, it is relevant to ask how much of this activity cannot easily take place without the active/passive involvement of accountants. Accountants know the international financial systems, can create nominee (or shell) companies to receive the proceeds of moneylaundering and create a labyrinth of misleading audit trails.
Episodes such as BCCI shed some light on organised moneylaundering. However, evidence of direct accountant involvement is hard to come by as accountants rarely volunteer to divulge the details. An exception was the 1990 High Court case of AGIP (Africa) Limited v Jackson & Others (1990) 1 Ch. 26. It highlighted the involvement of UK accountants in moneylaundering. In this case, an accountancy firm was judged to have used a series of shell (or cut-out) companies to launder money through ordinary banks. The judge concluded that “[Accountants] knowingly laundered money. ... It must have been obvious to them that their clients could not afford their activities to see the light of the day. Secrecy is the badge of fraud. They must have realised that their clients might be involved in a fraud ...” The judge also named a Big-Eight firm and one of its partners for facilitating shell companies and related facilities. Despite the damning court judgement, the case has not prompted any government investigation. No report or fine has been exacted by any professional body or regulator (Mitchell, Sikka and Willmott, 1998).
Arms trading is another expanding activity. In the new global economy, nations of the world spend more per capita on armaments, weapons of death and destruction than on food, water, shelter, health, education or protecting the ecosystem (French, 1992). Accountants are caught up in the arms trade as well. Commenting on a major scandal ‘the Iraqi Supergun Affair’ that rocked Britain (Scott, 1996), the Chairman of the company (James, 1996) at the centre of the affairs argued that accountancy firms are also implicated in this trade. He accused auditors and receivers of facilitating a cover-up. It is difficult to recall any scholarly paper on the direct/indirect involvement of accountancy firms in the arms trade.
The quality of life has been declining for many marginalised groups. There are increasing national and international inequalities in the distribution of income. Hunger, homelessness and disease are on the increase. Across the world, healthcare and other public services are being squeezed and reduced in an effort to limit public expenditure and thereby compete effectively for the allocation of capital. Alongside this, a thriving tax avoidance industry exists (McBarnet, 1991). Major accountancy firms have profitably traded upon their reputation of being able to shave tax bills. Some of the schemes could be considered to be simple tax planning whilst others are very elaborate and seem to push ‘avoidance’ to new limits. An example of this is to be found in the UK where accountancy firms have specialised in developing tax avoidance schemes. One such scheme involved elaborate corporate structures and the use of shell companies in off-shore tax havens. In October 1997, Britain’s Inland Revenue obtained series of search warrants and raided the offices of Ernst & Young and Coopers & Lybrand (The Times, 20 October 1997, page 48; Accountancy Age, 23 October 1997, page 1). It is the first time that any of the Big-Six have been raided and seems to signal a widespread concern about the operations of the tax avoidance industry. Yet tax avoidance is rarely researched in accounting journals.
We have briefly considered three activities of accountants that have
been the subject of critical press reports. Critical academics can contribute
to an awareness of these activities by developing a research programme
that highlights and investigates the role of accountancy firms in anti-social
and predatory actions. This can help to generate pressures for change.
French, M., (1992). The War against Women’, New York, Ballantine Books.
James, G., (1996). In the Public Interest, London, Warner Books.
McBarnet, D., (1991). Whiter than white collar crime: tax, fraud insurance and the management of stigma, British Journal of Sociology, September, pp 323-344.
Mitchell, A., Sikka, P. and Willmott, H. (1998). The Accountants' Laundromat, Basildon, Association for Accountancy & Business Affairs.
Scott, Sir Richard, (1996). Report of the inquiry into the export of
defence equipment and dual-use goods to Iraq and related prosecutions’,
London, HMSO (5 Vols. + index).