PwC paid British American Tobacco £132 million for its involvement in a “deeply faulty” audit of an affiliate of the tobacco giant, accused of dumping toxic chemical into two US rivers.
The UK manufacturer of Lucky Strike, Dunhill and other cigarettes sought more than £600m in damages for a “negligent audit” of Windward Prospects, an historic division of BAT that was a paper-maker. , the tobacco giant, claimed that Windward had breached its agreement to cover costs of environmental cleanup because of the flawed audit.
Windward, now under administration, has been accused of dumped chemicals used to make carbonless paper, for the purpose of copying receipts and bills, into rivers and lakes in Wisconsin and Michigan.
BAT spun off the company in 1990, but the tobacco giant claimed that the company had agreed to pay for the costs of clean-up. Windward paid out two dividends in 2008 and 2009. The total amount was about £488million. BAT says that this money should have gone to cleaning the rivers. BAT claimed that the dividends paid by Windward were only due to PwC’s negligent auditing, which led Windward to breach its indemnity clause.
BAT’s spokesman confirmed: “We have reached an agreement with PwC.” PwC has declined to comment.
BAT’s half year results stated: “In June of 2024, BAT settled one of its historic litigations relating to the cleaning costs of the Fox River and recognized a net income of £132 Million. The balance of the debtors was still outstanding at 30 June 2024. It is expected that the Group will receive the money in Q3 2024.” This payment is believed to have come from PwC.
BAT fired PwC in 2015 after 17 years as its auditor. This was when the legal dispute began.
PwC published its annual results last month and revealed that it had set aside £181 for legal claims and fines, and paid out £162 in cash. This was a much higher figure than the £33million it set aside in 2012. This is a significant increase over the other Big Four firms, Deloitte EY, KPMG and Deloitte.
Sources close to PwC have said that the provisions are for “the settlement historical claims”. It denied allegations of negligence in the Windward audit.
PwC UK, which includes Middle East operations, generated revenues of £6.3 billion last year. Last year, PwC’s UK firm and its Middle East operations combined raked in £6.3 billion in revenues.
The legal provisions are thought to have affected partner pay, as partners receive a share of profits at the close of the financial year.
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