It has emerged that the US government is attempting to revive its case against
13 former partners of accounting firm KPMG, who stand accused of facilitating
the use of illegal tax shelters which allegedly cost the Treasury billions in tax revenues.
The case, billed as the largest criminal prosecution in US legal history, was
thrown out by US District Judge Lewis Kaplan in July 2007, after he concluded
that the government had denied the defendants their constitutional right to
counsel by pressuring their former employer to cut off payment of legal fees.
But at a hearing in the US Second Circuit Court of Appeals on Tuesday, the
government argued that it had not brought any pressure to bear on KPMG to stop
paying the defendants' legal fees, and that any violation of their rights had
only been temporary.
While it was normal practice for KPMG to pay the legal costs of former employees
accused of wrongdoing, it reversed its policy in this case, fearing that, by
being seen to be helping the defendants, it could bring about an indictment
on the company itself.
According to the so-called 'Thompson Memorandum,' written in 2003 by then-Deputy
US Attorney General Larry Thompson, prosecutors may consider a company's payment
of legal fees for "culpable employees and agents" when deciding whether
to indict the company.
The defendants, of which there were initially 19, were accused of helping to
structure and sell the tax shelters, which were deemed abusive by the Internal
Revenue Service. The agency has estimated that the tax shelters helped investors
avoid some $2.5 billion in taxes.
However, in August 2005, KPMG avoided indictment
by agreeing to pay $456 million in penalties to cover former clients who participated
in the tax shelters, known as Blips, Flip, Opis and Short Option Strategy.
Four of the original 19 defendants are scheduled to go on trial later this
year.
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