KPMG to pay $456 mln fine in tax shelter case

(Adds details of settlement, background)

NEW YORK (Reuters) – Big Four accounting firm KPMG agreed
to pay a $456 million fine in a settlement with U.S.
authorities over past tax shelter sales, officials said in a
federal court hearing on Monday, avoiding an indictment of the
firm.

As part of the settlement, KPMG, one of the world’s four
largest accounting firms, will accept outside supervision by an
independent monitor.

The pact avoids a criminal indictment of KPMG that
accounting industry experts said could have destroyed it in a
possible replay of the March 2002 federal indictment that led
to the downfall of former top accounting firm Andersen.

That indictment, stemming from the Enron Corp. scandal,
caused clients to flee and Andersen to collapse, throwing
thousands of people out of work. Many federal officials today
regret the episode and wanted to avoid a recurrence with KPMG.

Federal agents for more than three years have been
investigating tax shelters that were sold by KPMG mostly to
wealthy individuals between 1996 and 2002.

KPMG could not immediately comment. A spokeswoman for the
Justice Department in Washington had no immediate comment, but
the department has scheduled a press conference for 1:45 pm EDT
to discuss the settlement.

KPMG said publicly in mid-June that it accepted “full
responsibility for the unlawful conduct by former KPMG partners
during that period, and we deeply regret that it occurred.”

The shelters at issue are no longer sold by KPMG. The
accounting industry generally has scaled back its shelter
business amid a surge of official probes and bad publicity.

In a sign of possible further action, federal prosecutors
early in August obtained a guilty plea from Domenick DeGiorgio,
a former official at Bayerische Hypo und Vereinsbank (HVB), a
German bank involved in financing “fraudulent tax shelters.”

HVB participated in transactions involved in “Bond-Linked
Issue Premium Structure,” or BLIPS, shelters.

According to a lengthy investigation by the U.S. Senate’s
Permanent Subcommittee on Investigations, BLIPS were among the
tax shelters developed and marketed by KPMG.

Tax academics have said that, rather than indicting KPMG,
federal authorities would seek to charge a number of former
executives once involved in the firm’s tax shelter business.