According to US press reports, KPMG has reached an agreement with prosecutors over its sale of abusive tax shelters under which it will pay $456 million and accept an outside monitor of its operations.
The so-called deferred-prosecution agreement would remain in effect until the end of 2006. Prosecutors will file a criminal complaint against the firm listing a single count of conspiracy to defraud the US government, but will not include a charge of obstruction of justice.
The terms of the agreement would avoid an indictment of the firm, something that brought down Arthur Andersen in the Enron affair, although charges could still be filed if KPMG breaches the agreement during its 'probation' period of 18 months. Richard Breeden, a former SEC chairman, will be appointed as an independent monitor of KPMG's operations.
Under the agreement, KPMG admits that the tax strategy called "Bond Linked Issue Premium Structure," or Blips, was a fraudulent tax shelter. The firm also admits that it engaged in improper conduct in connection with its promotion of the shelters known as Flip and Opis, which stand for "Foreign Leveraged Investment Program" and "Offshore Portfolio Investment Strategy," respectively.
Although the agreement includes an acknowledgement of wrongdoing by KPMG, the firm will not name any former partners involved in the tax shelter transactions, several of whom are expected to face criminal charges. In the agreement, KPMG also accepts a series of new restrictions on its tax practice, including a ban on marketing and selling prepackaged tax strategies.
Prosecutors are continuing with their investigations into the sale of the tax shelters sold between 1996 and 2002, and it is possible that banks, law firms, other accounting firms and possibly individual taxpayers who bought the shelters could face criminal charges at some future point.
KPMG still faces many civil cases being brought by former tax-shelter clients.
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