PwC pays out £132m to British American Tobacco over flawed audit

PwC is thought to have paid £132 million to British American Tobacco for its role in a “deeply flawed” audit of one of the tobacco giant’s subsidiaries, which was accused of dumping toxic chemicals into two rivers in the US.
The UK maker of Lucky Strike and Dunhill cigarettes had been seeking more than £600 million in damages from the Big Four giant for a “negligent” audit of a historic division of BAT, Windward Prospects, a paper maker. The tobacco giant claimed that the flawed audit caused Windward to breach its commitment to cover environmental clean-up costs.
Windward, which is now in administration, was accused of dumping chemicals used in making carbonless paper for duplicating receipts and invoices, into rivers in Wisconsin and Michigan.
The company was spun out of BAT in 1990 but the tobacco giant alleged that it had agreed to cover the associated clean-up costs. In 2008 and 2009 Windward paid its shareholders two dividends, worth about £488 million in total, money which BAT claims should have been allocated for cleaning up the rivers. BAT alleged that these dividends were paid only because of negligent auditing work by PwC and led to Windward breaching its indemnity clause.
A BAT spokesman said: “We can confirm we have reached a settlement with PwC. We will not be making further comment on the specifics of the agreement at this time.” PwC declined to comment.
A note in BAT’s half-year results, said: “In June 2024, the Group settled one of its historical litigations related to the clean-up costs of the Fox River, recognising net income of £132 million. At 30 June 2024, the balance was held within debtors and is expected to be received by the Group in Q3 2024.”. It is understood that this payment had come from PwC.
BAT dropped PwC as its auditor after 17 years in 2015, when it started the legal wrangle.
PwC’s annual results, published last month, showed that the firm had set aside £181 million for legal claims and regulatory fines over the past year, and that £162 million was paid out in cash during this period. The figure was considerably higher than the £33 million it had set aside last year. It is also significantly higher than its other Big Four competitors, Deloitte, EY and KPMG.
A source close to PwC said that these provisions were for “the settlement of historical claims”. It previously denied claims of negligence on the Windward audit.
PwC’s UK firm, which also includes its Middle East operations, made £6.3 billion in revenues last year. Its more than 1,000 partners took home £862,000 each last year, down from £906,000 the year before.
As partners are paid a proportion of the firm’s profits at the end of the year, it is thought that the legal provisions would have had an impact on partner pay.