A group of PwC partners has launched a breakaway firm in Cyprus to take on work from Russia-linked clients whom the Big Four accountants will no longer touch.
PwC has operated a “sanctioned anywhere, sanctioned everywhere” policy globally since shortly after Russia’s invasion of Ukraine in February, going beyond what is legally required.
This had a particularly large effect on PwC Cyprus, given the extensive links between Russia and Cyprus, thinning the firm’s roster of clients and prompting three partners to quit in June and launch Kiteserve, a boutique about half of whose clients have a Russian connection.
Kiteserve managing partner Theo Parperis said his new firm observed EU, US and UK sanctions, but added: “The Big Four went well beyond the sanctions imposed by these countries ... and, effectively, we’re covering that space to a certain extent, but ... we were very selective.” He said Kiteserve could have taken on “four times more work if we wanted”.
He estimated that about 50 per cent of Kiteserve’s clients had links to Russia but predicted this would reduce over time. The work related mostly to assets in the west rather than in Russia, Mr Parperis added.
“These clients ... are serviced also by western banks, by western lawyers,” said Mr Parperis. “So why should we be singled out?”
Unlike PwC Cyprus, Kiteserve does not voluntarily observe sanctions imposed by countries such as Australia and Canada. It provides services to entities sanctioned by the EU when permitted under a derogation, though this accounts for only a “small percentage” of Kiteserve’s clientele, said Mr Parperis, adding that the “majority” were not the subject of sanctions by the EU, US or UK.
The Kiteserve founders struck a deal with the Big Four group to buy themselves out of restrictions on hiring PwC Cyprus staff and the usual five-year ban on former partners selling audit, tax or compliance services.
The deal to waive the restrictions handed PwC Cyprus a gain in return for allowing the departing partners to work for any company they wished.
Neither PwC nor Kiteserve disclosed the value of the deal to remove the non-compete restrictions. The sum was intended to offset the upfront cost to PwC Cyprus of making normal retirement payouts to the departing partners, said one person with knowledge of the arrangement. PwC said the amounts were “in accordance with normal market practice, or contractual obligations” and “the net payment to the retiring partners is not material to PwC Cyprus or its partners”.
Mr Parperis said he and his co-founders were close to PwC’s mandatory retirement age and the Ukraine war had accelerated plans to strike out alone.
Kiteserve operates from PwC offices in Nicosia and Limassol. PwC said the space was separate and was being sublet to Kiteserve on terms mirroring PwC’s rental contract while it negotiates a transfer of the leases. Kiteserve hired about 20 of its roughly 30 staff from PwC.
“Kiteserve is fully independent of PwC Cyprus and is not a member of the PwC network,” said PwC. Apart from the “arm’s length” agreements on separation and subletting “there are no agreements between PwC Cyprus and Kiteserve and the partners do not have any economic interest in each other’s respective businesses”, it said.
PwC Cyprus said it had pivoted its business and found new work as part of a “bounce-back” strategy after the impact of international sanctions. — Copyright The Financial Times Limited 2022