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KPMG to pay $456 mln fine in tax shelter case

Posted on: Monday, 29 August 2005, 11:46 CDT

(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.

Source: REUTERS

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