Prosecutors Charge Individuals Over KPMG Affair

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

31 August 2005

As expected, it was announced on Moday that 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; in addition, a federal grand jury charged nine people with conspiracy to defraud the US government in connection with four types of shelters offered by the firm.

The nine include three former chiefs of KPMG's tax practice and attorney Raymond J. Ruble, a former partner at law firm Sidley Austin Brown & Wood, who wrote legal opinions supporting some of the shelters in question. All nine defendants are expected to plead not guilty; many of their lawyers said that the charges were outrageous. Prosecutors said there were many as yet unidentified co-conspirators and that the government's investigation is continuing.

Under the main settlement, KPMG agreed that the $456 million in penalties won't be tax-deductible and cannot be paid from liability insurance.

At a news conference in Washington, Attorney General Alberto Gonzales said the decision to settle with KPMG "reflects the reality that the conviction of an organization can affect innocent workers and others associated with the organization, and can even have an impact on the national economy." In a vote of confidence in KPMG, the Justice Department will continue using the firm as its own outside auditor.

KPMG Chairman Timothy Flynn said: "We are pleased to have reached a resolution with the Department of Justice. We regret the past tax practices that were the subject of the investigation. KPMG is a better and stronger firm today, having learned much from this experience."

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