When someone tells you ethics don't matter, believe them

If we are going to trust company financial statements, we need to trust the Auditors. As a rule, I have limited trust in Audit Partners until they demonstrate that they can make difficult decisions. Morality and ethics-based decisions. Generally, in my opinion, they fail. The most difficult choice many will make will be how low can they bid to win the business, and then how high can they push the fees in the following years and still retain the business. 

 

Last week Francine McKenna shared an article on LinkedIn: “We are all victims of Trump's fraud”. She highlighted a quote from the judge in the case: 

 

“In this particular case, in applying the law to the facts, the Court intends to protect the integrity of the financial marketplace and, thus, the public as a whole. Defendants’ refusal to admit error — indeed, to continue it, according to the Independent Monitor — constrains this Court to conclude that they will engage in it going forward unless judicially restrained.” 

 

A former Big-4 Partner commented on that post. To say that I was surprised is not exactly true, as many Big-4 and large accounting firm partners that I have known were very “conservative”, and in too many cases are simply unethical people. I turned down working for a partner because I had seen him lie on proposals. Not "little white lies” but glaring mistruths that he knew were lies. Real lies. But I digress. 

 

The comment made was "Utter nonsensical language. No one had a specific civil action? Where was this judge with Madoff?" 

 

It was, of course, a mealy-mouthed attempt to discredit the judgment against Trump, but what it really showed is how much we can, or cannot, trust that former Big-4 Partner. 

 

I fired off a response that was not very polite, then forgot about it. But it has been bothering me since. Partners sign off the Audit Reports of company financial statements, to be provided to regulators, banks, and capital markets, and via them, in effect to any retail investor. The Partners are the gatekeepers and protectors of financial markets. To “say the quiet bit out loud” is not something that they should do. They should not publicly state that unless someone can find an actual individual that they harmed, who cares, it doesn't matter, "no harm, no foul”. 

 

“Utter nonsensical language.” 

 

How many Big-4 or large accounting firm Partners hold this view? How many are so morally craven that they think their firm's signature on the Audit Report to the financial statements should carry no weight? It is just a signature, and the user of the reports should do their own due diligence; ignore the auditor's report or signature. That is not an argument for the fees they charge. After all, a Big-4 signature is supposed to tell the markets that the company is reputable and that financial processes are robust enough to withstand a rigorous audit. Further, Big-4 Partners will happily remind clients and prospective clients that a Big-4 signature will add value to their share price. 

 

“No one had a specific civil action?” Really? The new standard for company executive and auditor accountability should be whether they were subject to a “specific civil action” by an identified individual? 

 

Audit does not exist to support the client's lies. To do so makes the auditor complicit in those lies. It is a fine line between not caring about the lies and actively supporting the production of the lies (Parmalat comes to mind). That line was drawn very clearly with Andersen, eventually. The entire premise of the PCAOB is to ensure Auditor integrity, not reporting company integrity. And on the whole, I'm not confident that the PCAOB or any oversight body will alter the moral compasses of Audit firm Partners.  

 

The Mission of the PCAOB is simple. "The PCAOB regulates the audits of public companies and SEC-registered brokers and dealers in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports."

 

Remember that the PCAOB came into existence because auditors could not be trusted. If Auditors (and by inference Audit Partners) could be trusted, there would have been no need to create the PCAOB. After all, its name says it all, the “Public Company Accounting Oversite Board”. 

 

Sure, I've met a few Big-4 and other firm Partners that I consider to the honest and with a level of integrity that makes them, in my eyes, worthy of the public's trust. Because that is what they are supposed to do, provide the investing public with confidence that what a company reports are, barring overt fraud that was well hidden, worthy of trust. A level of trust that the public can place in the word of the Auditor. But the list is short.  

 

More frequently they give themselves away by what they say and do. 

 

This is a world in which a former Andersen senior manager and later senior partner in a “second tier” firm told me that he was successful and would be rich because “God and Jesus love me more than he loves other people". You mean like the poor or those who suffer a negative life-changing event? Yes, was his answer, the event probably happened because they didn't love Jesus enough and Jesus doesn't love them enough. Success for him did not require any moral or ethical choices, because if he did something immoral or unethical and he got away with it, that was because God loves him more than God loves others. (I'm not making this up, this was a real conversation, and yes, he is now a Senior Partner in a second-tier firm.) 

 

In the other case, the partner included in a proposal that the firm has 450 dedicated Internal Audit professionals, 150 of whom had at least eight years of experience. This was a lie. I had told him two weeks earlier that a survey of the first had identified 150 people who could spell “Internal Audit", of whom maybe 30 had eight or more years of experience. He knew it was a lie, and he put it in a proposal anyway. When asked to work for him for six months to meet an overload situation, I declined saying that I could not work for someone who overtly lied on proposals. Frankly, there was too much risk to the firm and to me that he would continue to lie to the client, putting me, the account team, and the firm's reputation at risk. The response to my statement that he lied on proposals was “he's a salesman, what do you expect”. 

In a third case, we were shortlisted to provide Anti-corruption training. But when the director of procurement at the client asked us if we could "do something for the team", we answered that we couldn't as it would breach the UK Bribery Act. It was so ludicrous that we thought it must have been a joke, or a test. A Big-4 firm won the work. I wonder to this day if they "did something for the team". Anti-corruption training.

So, to bring this back to the original statement: if someone tells you ethics don't matter, believe them. And if they tell you they support Trump, then they have proved that ethics and morality do not matter to them. Believe them. 

The Future for Israel's War Criminals

After the Second World War, Nazis and war criminals were tracked down across Europe. But in a time before the ubiquity of information technology and facial recognition software, it was relatively easy for many of the leaders to escape capture. Some, most notably Mengele and Adolf Eichmann, were able to escape to South America where, in most cases, they were able to live out their lives. Some were eventually captured, but many escaped capture or censure to live out their lives as advisors to potentates across the continent.

For decades after the war, organisations such as the Wiesenthal Centre hunted down Nazis and their instruments, the individuals who guarded the concentration camps, forced people onto the trains to the camps, and were party to the executions of political officers and common Jews in Russia. Even as the criminals were being hunted, they were aging and changing their stories, their appearances, and their names. They took advantage of “Rat Lines” to escape to South America and to the Middle East in some cases.  

Some had official help. Thousands reached and lived out their lives in the United States. "According to the Associated Press, approximately 10,000 suspected Nazis emigrated to the U.S. after the Second World War — often with the assistance of American intelligence officials, who saw them as potential spies and informants in the Cold War."

What they, the Nazi hunters, didn't have then was facial recognition software. Was that nice German or Polish-speaking person next door a war criminal, or did he, as he claims, spend the war working on this father's farm? 

Did he facilitate blowing up hospitals and shooting civilians surrendering, or did he stay on the Kibbutz or in Tel Aviv working as an insurance salesman? Maybe he, or she, was a sniper shooting unarmed civilians, women, and children, as they ran across a street to collect water from the only working tap in the area, or to flee to a "safer" area. Maybe in frustration, they enjoyed destroying apartment buildings, with or without anyone in them.

And make no mistake, there have been war crimes committed by Israel and Israeli soldiers in Gaza. There is the example of the “accidental” killing of two Israeli hostages who had escaped, were shirtless, unarmed, and approached Israeli soldiers with their hands up, waving a white flag and speaking in Hebrew. Had those two been Palestinians it would have been a war crime. The fact that it was allowed to happen suggests that such behaviour is not only tolerated but protected by the Israeli military hierarchy. Shooting your own people is an accident. But that accident did not happen in a void. 

Clearview AI has amassed a database of images that they use to identify individuals from a single photo. In 2022, Ukraine used Clearview AI to identify Russian casualties and to inform their families when the Russian government hadn't. Clearview is used by law enforcement agencies, and no doubt by the Israeli government to identify all of the Hamas terrorists who attacked Israel on 7 October 2023. And with justification.

But Clearview AI and other facial recognition software will also identify the Israeli soldiers who have (potentially individually, collectively absolutely) engaged in war crimes. These soldiers, like the civilians that they are at other times, love to memorialise events for themselves and their close friends. They take pictures and have their pictures taken. They are in the backgrounds of other people's pictures. And they are taking these pictures in Gaza. 

And they will be identified.

Unlike the Nazis who could wear their hair differently, grow a moustache, and wear different uniforms or clothes, these war criminals will not be able to hide. Well, most of them will not be able to hide. They will be identified, and their names will be reported and recorded.  

When it comes time for a post-war reckoning, expect countries such as South Africa and others to indict individual Israeli soldiers for specific war crimes, and Israeli generals and politicians for issuing illegal orders and condoning war crimes. There will be international arrest warrants issued. Israel, and the US no doubt, will brand the indictments as antisemitic and as stunts that they will ignore. However, the international legal frameworks will not make those indictments or arrest warrants disappear.  

How many will see the inside of a courtroom and face charges? Very few. They will be protected by their government and some friendly governments willing to ignore the arrest warrants.  

But Pinochet thought he was immune to arrest. Until a judge in Spain indicted him for war crimes for the period that he was Dictator of Chile. The principle of Universal Jurisdiction was applied for the first time with Pinochet. It will apply to the Israeli soldiers who have committed war crimes, or have been accused in court of having committed war crimes.

Israel's war criminals from the Gaza war and attempted genocide will find they have a very constrained set of options and futures. They will be able to live in Israel as war heroes. They may even be able to board direct flights from Tel Aviv to New York (or other direct destinations in the US). But they will fear landing or visiting many other countries. That will be their life. 

Trips to Europe? Not unless they can get false papers and fake passports, and even then, with facial recognition being used, or going to be used at almost every customs and immigration counter across the continent, even a false moustache and funny glasses, linked to a false name on a passport will not save them.  

The boycott of Israel will begin with a simple boycott of anyone who fought in Gaza and any "leaders" who encouraged or accepted war crimes as a means to an end. Their names and images will be matched to arrest warrants across the world.

And we are not only talking about the generals and colonels, and very probably cabinet-level ministers. And most probably Netanyahu himself. We are also talking about the privates and the sergeants and lieutenants. The “little guys” who “just followed orders”, but did so with a bit too much enthusiasm.