KPMG Likely To Avoid Prosecution Over Tax Shelters

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

15 August 2005

Speaking to the New York Times last week, sources close to negotiations between KPMG and federal prosecutors have confirmed that the accounting firm is likely to avoid prosecution over its sale of 'abusive' tax shelters.

KPMG announced in June 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.

Althought it is not yet officially 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'.

An unnamed source briefed on the progress of the talks certainly appeared to confirm this on Thursday, telling the NY Times that:

"The discussions have all been directed at a negotiated resolution, not an indictment."

According to the NY Times report, whilst avoiding prosecution, it seems likely that the accounting firm will be obliged to pay up to $500 million in fines, and will need to clearly acknowledge its culpability in the matter and consent to the putting in place of an idependent monitor to ensure that it abides by US tax rules in the future.

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