About Satyam Scam!!

Managers at the outsourcing company Satyam Computer Services spun an elaborate web of fraud to attract customers and investors, while using stakes in the company to raise cash for themselves, according to a report filed by India’s top investigation agency.
The deception played out over at least eight years, involved dual accounting books, more than 7,000 forged invoices, dozens of fake bank statements, thousands of unnecessary employees and auditors who received fees several times the market rate, according to a charge sheet filed by the Central Bureau of Investigation in a court in Hyderabad.

The 77-page document details the scope of the fraud at Satyam, and lays out the bureau’s case for charging six company managers, their PricewaterhouseCoopers auditors and an adviser with cheating, forgery and falsification of accounts.

Satyam managers, including the founding brothers B. Ramalinga and B. Rama Raju “were able to attract prospective customers and investors by making them believe” that the company was “carrying out huge volumes of business,” the report said.

The details of the bureau’s investigation could bolster a string of class-action suits pending against Satyam managers and auditors.

Tech Mahindra, a joint venture between the Indian conglomerate Mahindra & Mahindra and BT Group, won an auction to take over Satyam on April 13 with a bid valuing the company at $1.1 billion. The deal may still need to clear regulatory hurdles in the United States and Europe.

The Raju family and their friends, which held 19 percent of Satyam when it went public in 1992, “made hay when the sun was shining” by selling shares as they carried out the fraud, the bureau said in its report. More than 300 investment companies were started, some of which used loans backed by shares to invest in real estate and agriculture, the report said. Banks issuing the loans included Deutsche Investments India, GE Capital Services and DSP Merrill Lynch.

Like many companies, Satyam had a multistep process for taking customer orders, calculating what the work would cost and generating invoices. Managers in different departments checked and crosschecked the figures as they passed through the system.

But employees in the accounts receivable team could also practice “emergency generating of invoices” which bypassed most of the steps, the bureau report said.

From the beginning of April 2003 to the end of 2008, nearly 75,000 of these special invoices were created. Of these, 7,561 were fraudulent, generated to make Satyam look as if it had more business than it did.

The invoices named 11 different Indian companies but were never received by those customers, the report said, based on conversations with the companies. From 2004 until the fraud came to light when B. Ramalinga Raju confessed in January, sales were inflated 18 percent a quarter on average, for a total of about 42.6 billion rupees ($840 million).

Satyam has claimed that the invoices were paid through the New York branch of Bank of Baroda, on Park Avenue in Manhattan. But the bank said it received no such payments, according to the report. To back the invoices, the managers falsely inflated the percentage of employees that it said were working “onsite,” or on profitable projects, the bureau said.

A part of the inflated sales were recorded in Satyam’s books as debt every quarter, using forged monthly bank statements, the bureau said. By the quarter ended September 2008, that fictitious debt totaled about $100 million.

Every quarter, the Raju brothers and two finance executives received both the actual and falsified sales figures, the bureau said. A copy of the dual reports was retrieved from the e-mail box of the chief financial officer, Srinivas Vadlamani.

The company’s auditors, S. Gopala Krishnan and Srinivas Talluri, who have been suspended from PricewaterhouseCoopers, both received figures from Satyam’s banks that were in “great variance with the figures provided by the management” but certified Satyam’s accounts anyway, the bureau said. In return, the bureau claims, the auditors received an “exorbitant audit fee” over and above the market rate.

In an e-mailed statement, the global director of communications for PricewaterhouseCoopers, Mike Davis, said “We are aware that charges have been leveled against the two PW partners. We are yet to engage with the partners on the contents of the charge sheet and therefore we are not able to comment at this stage.”

Both brothers are accused of forging receipts for bank deposits and destroying the forgeries. Satyam’s founding brothers, the company’s chief financial officer and the two PricewaterhouseCoopers auditors remain in jail in Hyderabad.

Investment companies created in the names of the brothers’ wives, children and even their mother were used to hold proceeds from selling shares and from borrowing 17.4 billion rupees ($350 million) from finance companies.

Sathyam scam - Is PWC guilty?

Satyam Computer fraud not only disgraced the Indian IT sector but also Pricewaterhouse Coopers, one of the most prestigious accounting firms in the world. Pricewaterhouse Coopers (PWC) was the officially appointed auditor of Satyam Computers. On April 5, 2009, Vadlamani Srinivas, former CFO, Satyam Computers, said that the entire plan to create false account was masterminded by former Satyam chairman, B Ramalinga Raju. Ramalinga Raju’s brother, Rama Raju, Mr. Vadlamani and cost accountant, G Ramakrishna, were actively involved in the fraud. In his confession, Mr. Vadlamani said that they have been conducting the fraud for the last four-five years. However, the auditors of Pricewaterhouse Coopers, S Gopalakrishnan and Talluri Srinivas, were not involved in the scam. Mr. Vadlamani said that the auditors were presented forged documents.

Mr. Vadlamani said that the communication between the banks that handled Satyam’s accounts and the auditors was limited. The correspondence between the two was done via chairman and the managing director. The management provided the auditors false documents.

On April 5th Uttam Kumar Agarwal, President, and a member of the Institute of Chartered Accountants of India (ICAI) interrogated Mr. Vadlamani Srinivas and the two PWC auditors at the Hyderabad’s Chanchalguda jail. After the interrogation, Mr. Kumar Agarwal told reporters that they heard Vadlamani’s confession and talked with the two PWC auditors and they would continue their investigation. Mr. Vadlamani admitted in front of ICAI members that the cost accountant, G Ramakrishna implemented the plan under the direction of B Ramalinga Raju.

On January 7, 2009, B Ramalinga Raju, former chairman, Satyam Computers publicly admitted of cooking up Satyam accounts. A total of Rs. 80 billion fraud sent a major tremor through the Indian corporate world. Pricewaterhouse Coppers was als pulled into the scandal as it was the official auditor but PWC officials did not comment on the matter. The Central Bureau of Investigation (CBI), Securities and Exchange Board of India and the Special Frauds Investigation Office are jointly investigating the fraud. CBI said that they would file the chargesheet on April 9. CBI wanted Ramalinga Raju and his brother, Rama Raju, to go through a lie detector test but they denied to cooperate.

Formed in 1998, the Pricewaterhouse Coopers is the largest professional services firm. In 2008, its cumulative worldwide revenue stood at $28 billion. The firm employs more than 146000 people in 150 countries. According to news reports, the two PWC auditors were arrested on January 24, 2009 by Andhra state CID. Prior to that day, they were quizzed on January 21st at the auditor’s office at jubilee hills and at Satyam Info City. On January 23rd, they were called at the CID headquarters and questioned for long hours.

Is the G-20's War on Tax Havens a Sham?

World leaders agreed in London to blacklist tax havens, but the roll call of non-compliant countries released later by the OECD has no entries

The heads of state of the world's most powerful nations seemed somewhat tired, and yet extremely satisfied. On the Thursday of the week before last, after hours of negotiations, they had finally agreed to a plan for a new, cleaner global financial system.

"The era of banking secrecy is over," the official communiqué issued at the end of the G-20 summit in London concluded. From now on, the authors wrote, "non-cooperative jurisdictions, including tax havens," can expect to face sanctions and be placed on a list of countries not in compliance with the "international standard for exchange of tax information."

The threat promptly produced astonishing results. Less than 120 hours after the close of the London summit, the Organization for Economic Cooperation and Development (OECD) published the shortest blacklist of all time—with exactly zero entries. Apparently not a single country today remains willing to serve as a place of refuge for global capital.

The fact that all the world's tax havens seem to have disappeared overnight is primarily the result of skillful diplomacy. Even the most notorious offshore financial centers have managed to quickly purge themselves of all suspicions of aiding and abetting tax evaders.

The task was not exactly made difficult for the erstwhile offenders. All a country had to do in order to be removed from the list and accepted into the circle of the supposedly purified was to provide the OECD with the solemn assurance that it intended to abide by international agreements in the future. Whether this is a step forward remains to be seen.

As a result of these assurances, OECD Secretary-General Angel Gurría divided the international community into a mere two groups. The first includes countries that behave in an exemplary fashion, such as all of the G-20 nations. This step ensured that the London summit would not become bogged down in self-criticism.

The second group includes those countries that are theoretically opposed to international tax evasion, but until now have not always seen this as a reason to translate convictions into action—by instituting concrete rules under double taxation treaties, for example.

For experts, of course, the OECD list serves up a handful of surprises. For instance, hardly any tax officials would have believed that the OECD's so-called "white list" would include some of the most notorious tax havens of the recent past, such as the British Channel Islands Guernsey and Jersey.

Another astonishing outcome of the new system is that China is suddenly considered a model country, even though its two so-called Special Administrative Regions, Hong Kong and Macau, are considered safe havens for tax evaders. And it borders on the miraculous that even the Cayman Islands, with a population of 50,000 people and 80,000 registered companies, have been placed on the OECD's gray list of countries willing to be reformed.

The reality is that diplomats from many states spent long days making sure their country ended up on the correct list. To avoid anyone being pilloried, a series of lively negotiations began around the world in the run-up to the G-20 summit. The important thing was to show good will.

On April 1, just one day before the London summit, the Cayman Islands managed to sign seven bilateral treaties—with the Faeroe Islands, Iceland and Greenland, for example—to cooperate on matters of taxation. Although the specific concessions made by the Caymans, a British overseas territory, are modest, what counts is the spirit of willingness.

China also took pains to avoid international disgrace. According to participants in the preparatory meetings leading up to the summit, the Chinese negotiators categorically refused to be placed on the gray list, let alone the black list.

Otherwise, so the Chinese threatened, they would let the entire list project fail—an outcome that France, for its part, was determined to prevent. Before the summit, French President Nicolas Sarkozy had boldly told French voters that he planned to wage a relentless battle against tax havens.

Other diplomats now believe that it might have been better to forget about the list altogether, especially as it is unclear what exactly will happen to the fiscal rogue states. The closing communiqué of the London G-20 merely includes a vague reference to "sanctions."

"The list is complete nonsense; the process stinks to high heaven," says Luxembourg Foreign Minister Jean Asselborn, whose country was placed on the OECD's gray list. He and his fellow citizens of the Grand Duchy—which has a population of just 485,000 but is home to 3,402 investment funds—feel offended to have been lumped in with the worst of the offenders.

"Luxembourg does not protect tax evaders, but we also don't want (German Finance Minister Peer) Steinbrück to be able to find out at the push of a button how much money a given individual has in his account," Asselborn says irately.

The fact that China has been placed a step above Luxembourg is even more of a slap in the face to Asselborn. "I cannot understand how a country like France can stand up for China while opposing European Union countries or Switzerland," he says. "That destroys the glue holding Europe together."

Tax havens where politicians park their billions

e world is witnessing a severe recession, jobs are vanishing with unemployment rates rising sky-high, major businesses are going under -- financially, none of us has experienced such hard times ever.

And now visualise the other side of the coin -- trillions of dollars stashed away safely in a tax haven, wealthy tax evaders -- politicians, as well as businessmen -- saving billions and getting richer. . .

How much 'dirty' money is there? Well, there is no exact figure, but the Organisation for Economic Cooperation and Development estimates that at least $11 trillion have been stashed away globally. That is roughly about Rs 5,55,50,000 crore!

India loses a great deal of tax money as firms and individuals park billions into tax havens the world over.

However, with the financial tsunami inundating the world, more and more countries are beginning to clamour for better tax conformity and transparency. Along with the United States and Japan, Germany and France too believe the offshore system not only deprives them of taxes, but also aggravates the financial crisis further.

The issue was dramatised by the case of UBS, the Swiss banking major, who in order to settle the charge that it promoted tax fraud, agreed to divulge the names of some 300 clients to the US. But US says it is yet to receive the names of another 47,000 (American) account holders suspected of tax evasion.

So check out the favourite nations where billions of dollars have been stashed away by the high and mighty. . .

Tax Havens

A tax haven is a place where certain taxes are levied at a low rate or not at all.

Individuals and or firms can find it attractive to move themselves to areas with lower tax rates. This creates a situation of tax competition among governments. Different jurisdictions tend to be havens for different types of taxes, and for different categories of people and or companies.

There are several definitions of tax havens. The Economist has tentatively adopted the description by Geoffrey Colin Powell (former Economic Adviser to Jersey): "What ... identifies an area as a tax haven is the existence of a composite tax structure established deliberately to take advantage of, and exploit, a worldwide demand for opportunities to engage in tax avoidance." The Economist points out that this definition would still exclude a number of jurisdictions traditionally thought of as tax havens. Similarly, others have suggested that any country which modifies its tax laws to attract foreign capital could be considered a tax haven. According to other definitions, the central feature of a haven is that its laws and other measures can be used to evade or avoid the tax laws or regulations of other jurisdictions.

In its December 2008 report on the use of tax havens by American corporations, the U.S. Government Accountability Office was unable to find a satisfactory definition of a tax haven but regarded the following characteristics as indicative of a tax haven: no or nominal taxes; lack of effective exchange of tax information with foreign tax authorities; lack of transparency in the operation of legislative, legal or administrative provisions; no requirement for a substantive local presence; and self-promotion as an offshore financial center.

Big 4 - History & Evolution

This group was once known as the "Big Eight", and was reduced to the "Big Five" by a series of mergers. The Big Five became the Big Four after the near-demise of Arthur Andersen in 2002, following its involvement in the Enron Scandal.

Since 1989, mergers and one major scandal involving Arthur Andersen have reduced the number of major accountancy firms from eight to four.

Big 8 (until 1989)

The firms were called the Big 8 for most of the 20th century, reflecting the international dominance of the eight largest accountancy firms:

1. Arthur Andersen
2. Arthur Young & Co.
3. Coopers & Lybrand
4. Ernst & Whinney (until 1979 Ernst & Ernst in the US and Whinney Murray in the UK)
5. Deloitte Haskins & Sells (until 1978 Haskins & Sells in the US and Deloitte Plender Griffiths in the UK)
6. Peat Marwick Mitchell, later Peat Marwick
7. Price Waterhouse
8. Touche Ross

Most of the Big 8 originated in alliances formed between British and US accountancy firms in the 19th or early 20th centuries. Price Waterhouse was a UK firm which opened a US office in 1890 and subsequently established a separate US partnership. The UK and US Peat Marwick Mitchell firms adopted a common name in 1925. Other firms used separate names for domestic business, and did not adopt common names until much later: Touche Ross in 1960, Arthur Young (at first Arthur Young, McLelland Moores) in 1968, Coopers & Lybrand in 1973, Deloitte Haskins & Sells in 1978 and Ernst & Whinney in 1979.

The firms' initial international expansion was driven by the needs of British and US based multinationals for worldwide service. They expanded by forming local partnerships or by forming alliances with local firms.

Arthur Andersen had a different history. The firm originated in the United States, and expanded internationally by establishing its own offices in other markets, including the United Kingdom.

In the 1980s the Big 8, each now with global branding, adopted modern marketing and grew rapidly. They merged with many smaller firms. One of the largest of these mergers was in 1987, when Peat Marwick merged with the KMG Group to become KPMG Peat Marwick, later known simply as KPMG.

Big 6 (1989-1998)

Competition among these public accountancy firms intensified and the Big 8 became the Big 6 in 1989 when Ernst & Whinney merged with Arthur Young to form Ernst & Young in June, and Deloitte, Haskins & Sells merged with Touche Ross to form Deloitte & Touche in August.

Confusingly, in the United Kingdom the local firm of Deloitte, Haskins & Sells merged instead with Coopers & Lybrand. For some years after the merger, the merged firm was called Coopers & Lybrand Deloitte and the local firm of Touche Ross kept its original name. In the mid 1990s however, both UK firms changed their names to match those of their respective international organizations. On the other hand, in Australia the local firm of Touche Ross merged instead with KPMG[2][3]. It is for these reasons that the Deloitte & Touche international organization was known as DRT International (later DTT International), to avoid use of names which would have been ambiguous (as well as contested) in certain markets.

Big 5 (1998-2002)

The Big 6 became the Big 5 in July 1998 when Price Waterhouse merged with Coopers & Lybrand to form PricewaterhouseCoopers.

Big 4 (2002-)

The Enron collapse and ensuing investigation prompted scrutiny of their financial reporting, which was audited by Arthur Andersen, which eventually was indicted for obstruction of justice for shredding documents related to the audit in the 2001 Enron scandal. The resulting conviction, since overturned, still effectively meant the end for Arthur Andersen. Most of its country practices around the world have sold to members of what is now the Big Four, notably Ernst & Young globally and Deloitte & Touche in the UK.

Big 4 are sometimes referred as "Final Four"[4] due to widely held perception that competition regulators are unlikely to allow further concentration of the accounting industry and that other firms (BDO International is the fifth largest) will never be able to compete with the Big 4 for top end work as there is a market perception that they are not credible as auditors or advisors to the largest corporations.

2002 saw the passage of the Sarbanes-Oxley Act into law, providing strict compliance rules to both businesses and the auditors. PricewaterhouseCoopers' association with the accounting fraud at Satyam has rattled confidence in the Big Four

Big 4's - Intro

The Big Four are the four largest international accountancy and professional services firms, which handle the vast majority of audits for publicly traded companies as well as many private companies.

1. Pricewaterhouse Coopers
2. Deloitte Touche Tohmatsu
3. Ernst & Young
4. KPMG

Revenues
PWC - $28.2bn
Deloitte - $27.4bn
E&Y - $24.5bn
KPMG - $22.7bn

Employees
PWC - 155,693
Deloitte - 165,000
E&Y - 135,000
KPMG - 137,000