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KPMG Expresses 'Deep Regret' Over Tax Shelter Sales

by Glen Shapiro, LawAndTax-News.com, New York

20 June 2005

Accounting giant, KPMG announced last Thursday that it "deeply regrets" the sale between 1996 and 2002 of unlawful tax sheltering arrangements such as Bond Linked Premium Structures (BLIPs) and Foreign Leveraged Investment Programmes (FLIPs).

It has been estimated that the sale of such schemes to customers brought the firm around $150 million, whilst depriving the US government of some $1.4 billion in lost revenue.

In a statement released last week, KPMG commented regarding the ongoing Department of Justice investigation that:

"It has been public knowledge that since February 2004, (that) the Department of Justice has been investigating certain tax services that were offered by the firm during the 1996 – 2002 time period. This is part of a larger tax shelter investigation into the role of accounting firms, law firms, large banks and taxpayers who participated in the development, promotion and implementation of tax shelters."

"KPMG takes full responsibility for the unlawful conduct by former KPMG partners during that period, and we deeply regret that it occurred."

The firm revealed that in order to ensure that such conduct does not occur again, it has:

  • Stopped providing the services in question;
  • Put in place a process to ensure that those responsible for wrongdoing have been separated from the firm;
  • Instituted firm-wide structural, cultural and governance reforms to ensure the highest ethical standards; and
  • Undertaken significant change in its business practices.

"We remain in discussions with the Department of Justice and continue to cooperate fully in its investigation. KPMG looks forward to a resolution that recognizes the significant reforms the firm has already made in response to this matter while appropriately sanctioning the firm for this wrongdoing. We take this matter very seriously and seek to resolve it fairly and expeditiously," the statement concluded.

It is not yet known whether the DoJ intends to push ahead with a criminal prosecution; observers have suggested that political pressure may mean that the Department opts for a deferred prosecution agreement, in order to avoid further reducing the 'Big Four' accounting firms in the United States to the 'Big Three'.

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