November 29, 2022

Donalds Hobby

World Finance Reviews

EY and Deloitte exit Russian operations over Ukraine invasion

EY will axe its 4,700-person business in Russia, becoming the third of the Big Four accounting firms to announce a divorce from its operations in the country since the invasion of Ukraine.

It was followed by its rival Deloitte, which announced on Monday afternoon that it would separate its operations in Russia and Belarus from its global network and that it would cease to do business in the countries.

PwC and KPMG had announced similar moves on Sunday night, citing the Russian government’s actions in Ukraine.

The withdrawals are the most significant exits of professional services firms from Russia since the conflict in Ukraine began last month.

“In light of the escalating war, the EY global organisation will no longer serve any Russian government clients, state-owned enterprises or sanctioned entities and individuals anywhere in the world,” EY said on Monday.

The firm said it had begun a restructuring to separate its Russian member from the group. “This is not something we take lightly,” it said, calling the decision “heartbreaking” and the war “shocking and abhorrent”.

EY’s Russian staff account for about 1.5 per cent of its global workforce of 312,000. It also employs 700 people in Ukraine.

Between them the Big Four have about 15,000 staff and partners in Russia.

Punit Renjen, global chief executive of Deloitte, said splitting the Russian and Belarusian business was the “right decision” but that his firm’s 3,000 professionals in the countries had “no voice in the actions of their government[s]”.

Deloitte would “honour our commitments and obligations to global financial markets and multiple regulatory bodies”, he said, suggesting it would continue at least some of its existing Russia-related work.

The Big Four are structured as networks of locally owned partnerships with most of the profits retained in each country, meaning that their Russian operations will continue to exist as standalone entities under new names.

None of the Big Four said how long the separations would take but people at two of the firms said they could take about six months because of the legal and practical complexity.

The newly independent Russian firms will be free to work for both domestic and international clients. They are not bound by western sanctions imposed on hundreds of Russian companies and individuals.

Remaining in the Big Four networks posed potential problems for the Russian firms because they faced criminal punishment if they dropped clients in order to comply with the western sanctions by which their international colleagues were bound. Auditors in the country also face significant penalties if they resign from contracts with state-owned entities, said people in the industry.

The Big Four, which provide tax and consulting advice along with accounting and audit services, are generally free to refer work to independent firms in countries where they do not have a presence.

Accountants and consultants that have announced they will pull back from Russia are likely to face scrutiny this week over the detail of their plans. Neither PwC nor KPMG committed to ending overseas audit work for Russian state-owned entities, for example.

Consultants McKinsey and Boston Consulting Group announced last week that they were suspending work for Russian clients but said they would continue work on some existing projects in the country. They have kept their Moscow offices open.

Also on Monday, international law firm Norton Rose Fulbright said it was exiting Russia. The firm, which has 50 lawyers based in the country, said it was “closing our Moscow office as quickly as we can” and was not “accepting any further instructions from businesses, entities or individuals connected with the current Russian regime, irrespective of whether they are sanctioned or not”.

The firm added it would “donate the profits . . . to appropriate humanitarian and charitable causes” in any case where it could not immediately exit Russian mandates.

Additional reporting by Kate Beioley