PwC Faces Record Fine in China Over Evergrande Scandal: Operations in the Country at Risk

China is preparing to impose a record fine on PwC, the multinational auditing and consulting firm, for its role in the collapse of the real estate developer Evergrande, to which it provided audit services. According to Bloomberg, the Chinese Ministry of Finance could announce a fine of at least one billion yuan ($138 million) as early as this week, surpassing the 212 million yuan penalty imposed on Deloitte Touche Tohmatsu in 2023. Additionally, PwC might be required to cease operations in China, although the final decision has not yet been made and the terms could change.

Chinese regulators have targeted PwC in the fraud investigation against Evergrande, the former real estate giant accused of falsifying its 2019-2020 financial statements and inflating the revenue of its key division, Hengda, by approximately $78 billion. According to Bloomberg, PwC has the most extensive network of real estate clients listed in Hong Kong among the Big Four consulting firms and has conducted audits for major Chinese property companies like Country Garden and Sunac, both of which have been in precarious conditions for years after defaulting on dollar bond payments.

Over the past two years, PwC has lost numerous significant clients in China; in May alone this year, clients such as China Taiping Insurance Holdings, China Merchants Bank Co., and People’s Insurance Company (Group) of China terminated their contracts. PwC has also faced scrutiny in other jurisdictions: in 2022, the Financial Reporting Council of Hong Kong investigated its work with Evergrande, and in 2023, Australian authorities probed it over a tax leaks scandal. Additionally, in 2023, PwC was fined £5.6 million in the UK for deficiencies in the audit of Babcock International Group.