RSS feedsToday like most other days, executives and employees at the US offices of KPMG are going about their daily tasks safe in the knowledge that their careers at a Big Four firm are secure.
For reasons still being debated in the United States, the Department of Justice has backed away from criminally indicting the firm in a multibillion- dollar tax shelter scandal and is instead going after individual KPMG personnel rather than the corporate entity.
On 17 October a federal grand jury in New York indicted 10 more former KPMG workers in the case to add to the nine already facing charges of tax evasion and obstruction of justice.
KPMG’s former chief financial officer, Richard Rosenthal, was among the latest group indicted. In a trial scheduled to start next May he will be joined in the dock by, among others, former deputy chairman Jeffrey Stein.
To ensure that the firm itself would not have to defend itself against felony fraud charges – which would have the effect of putting it out of business – KPMG has agreed to co-operate with the prosecution of its former personnel.
To ensure it does so, the government holds over the firm’s head the right to reinstate the criminal charges anytime up to 31 December next year.
KPMG has also agreed to pay $456m in fines, penalties and restitution for promoting four shelters, which allegedly cost the government at least $2.5bn in lost tax revenue. Prosecutors say that it is the largest criminal tax case ever in the US.
There is no doubt KPMG has benefited from a change in attitude since the demise of Arthur Andersen, which was sacrificed for its Enron and WorldCom failings.
Nowadays deferred prosecution agreements are the preferred modus operandi of the DoJ to preserve the entity while charging alleged individual culprits. KPMG now joins Bristol-Myers Squibb, Computer Associates, WorldCom, American Insurance, America Online, Monsanto, and others as a party to such an agreement.
Even the other members of the Big Four didn’t want to see KPMG go to the wall and, according to US reports, refused to indulge in the poaching of its clients. Additionally, many of its clients stood by the firm.
Perhaps that’s not too surprising because, as Thomas Ostrander, a tax lawyer with national firm Duane Morris, pointed out, no court has ruled that the tax shelters under scrutiny actually violated the Internal Revenue’s tax code.
“There is some litigation going on in San Francisco right now where a judge is considering a ruling on whether these tax strategies are appropriate or not and I’m sure the defence teams are hoping it turns out favourably,” he added.
Such niceties don’t offend consultant and former investigator at the US House of Representatives Government Reform and Oversight Committee, Joe Loughran, who believes the deferred prosecution sends the wrong message.
“It suggests some firms are just too big to jail, which leads to the conclusion that businesses should grow as much as possible so that they become untouchable,” he said.
