Haunted by the ghost of Andersen, federal prosecutors and the accounting firm KPMG jockeyed for months over charges stemming from KPMG’s unlawful behavior in the booming 1990s.
The verdict is in: KPMG gets to live.
The government Monday indicted eight former executives on conspiracy charges linked to KPMG’s marketing and selling of fraudulent tax shelters. The firm will pay $456 million and submit its operations to stringent oversight. It still faces civil litigation from clients and the possibility of a criminal indictment in Mississippi. But it survives.
It’s clear the government and KPMG learned valuable lessons from the demise of Andersen three years ago. Federal prosecutors insisted on indicting the entire Andersen firm on a single obstruction of justice charge. The case went to trial. The government won. Andersen died.
The cost was 28,000 U.S. jobs. In May, though, the U.S. Supreme Court threw out the verdict and accused the government of overreaching. That did nothing to change reality: Andersen is still dead, the 28,000 jobs are gone.
This time around, the Justice Department and KPMG’s new leaders wisely explored settlement, rather than the path that killed Andersen. This settlement preserves KPMG as a functioning, though weakened, entity; it saves jobs at KPMG. KPMG may have a struggle to restore its reputation. But at least it will have the chance.
The firm stood accused of setting up tax shelters that helped the very rich escape an estimated $2.5 billion in taxes. The Internal Revenue Service said those shelters had no legitimate economic purpose other than to dodge taxes. KPMG knew that but continued to market them long after other accounting firms had pulled back and paid fines.
Some argue the legitimacy of these tax shelters has never been tested in court–but that doesn’t excuse the behavior. People at the firm issued phony letters to clients and contrived false tax losses to offset gains. That was illegal. KPMG now has acknowledged as much and the government will attempt to prove in court that certain individuals were responsible. KPMG has learned a painful and expensive lesson, but it gets to live–courtesy of Andersen.”
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