Financial Times: KPMG in Tax case settlement: The Department of Justice filed one charge against KPMG of conspiring to defraud the Internal Revenue Service, but under the settlement it will not seek a trial of the firm.”: Posted Tuesday 30 August 2005
By Andrew Parker in New York
KPMG’s US business on Monday agreed to pay $456m in fines and related penalties over its past sales of allegedly abusive tax avoidance schemes - a deal the accounting firm hopes will ensure its survival.
US authorities have also imposed new restrictions on the group’s tax work and monitoring of its conduct by an outside consultant.
The Department of Justice filed one charge against KPMG of conspiring to defraud the Internal Revenue Service, but under the settlement it will not seek a trial of the firm.
KPMG will instead be put on probation until the end of 2006 as part of a deferred prosecution agreement with the justice department. So long as the firm does not reoffend during the probation period, and complies with the agreement, the criminal charge of conspiring to defraud the IRS will be dismissed, said people briefed on the case.
KPMG believes that by reaching a settlement with the Justice department, and averting an indictment and trial, it will retain its audit clients.
Robert Bennett, a lawyer representing KPMG's US business, said: "With the new leadership at KPMG, KPMG will not only survive but in my view will flourish in the future."
Timothy Flynn replaced Eugene O'Kelly as chief executive of KPMG's US business on June 8. On June 16, KPMG acknowledged that the Justice department had been investigating its sales of tax avoidance schemes to wealthy individuals between 1996 and 2002.
KPMG said at the time that it took "full responsibility for the unlawful conduct by former KPMG partners during that period, and we deeply regret that it occurred".
The settlement involves a ban on KPMG's US business marketing off-the-shelf tax avoidance schemes to wealthy individuals. Richard Breeden, a former chairman of the Securities and Exchange Commission, will scrutinise the conduct of KPMG's tax practice.
The Justice department is expected to press criminal charges against some former KPMG partners.
A 2003 report by staff on the Senate permanent subcommittee on investigations found that KPMG generated fees of $124m through sales of four tax avoidance schemes to clients between 1997 and 2001.
The report says one of the schemes, which the IRS classified as "potentially abusive", deprived it of $1.4bn in revenues.
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