Accusations of improprieties in the sales of tax shelters have KPMG facing Arthur Andersen’s fate.
The Department of Justice believes it has built a case against KPMG for obstruction of justice and the sale of illegal tax shelters. According to the Wall Street Journal, lawyers for the firm have begun negotiating with federal prosecutors to save the company.
In the wake of the Andersen reversal, and perhaps a perceived need by DOJ not to wipe out another big accounting firm, the Department has been exploring other options. It is claimed that an unwritten DOJ policy allows for negotiations between its higher officials and lawyers for KPMG.
Avoiding prosecution could mean dramatic changes in the way KPMG does business. DOJ could require not only a substantial fine, but may force the Big Four firm to accept independent oversight and major changes to its business practices.
DOJ has to walk a tightrope in deciding whether or not to push for prosecution, even on a so-called deferred basis. Former DOJ official William Mateja told the WSJ that prosecutors weigh factors beyond the evidence.
“In light of the Andersen case, the department is going to be extremely careful about any decision to indict a company like KPMG, realizing the huge ramifications – the practical, economic and social fallout.”
KPMG first disclosed two years ago that it and several former partners were under investigation by the US Attorney’s office for the Southern District of New York. Only recently was it disclosed that the Internal Revenue Service has deemed the marketing of tax shelters in the 90s “abusive”.
David Utter is a staff writer for Murdok covering technology and business. Email him here.
