Posted on 06/19/2007 11:04:07 PM PDT by bruinbirdman
KPMG, the accountancy firm, told the US Justice Department that it would unleash a “nuclear bomb” that would leave more than 1,000 companies without an auditor, if it indicted the firm for selling fraudulent tax shelters, according to newly released internal documents.
The Justice Department began to investigate KPMG in 2004 for allegedly helping wealthy clients to save money by setting up illegal tax shelters. The investigation came after Arthur Andersen’s indictment in 2002 for obstructing the US Government’s inquiry into Enron.
Roger Bennett, KPMG’s lawyer, argued that his client’s indictment could wipe out one of the four remaining large accounting groups, as the Enron inquiry had eradicated Andersen.
Mr Bennett told prosecutors at a meeting on March 22, 2005, that “a death spiral is going to start, and KPMG will be out of business”.
KPMG employed 20,000 people “whose lives will be destroyed”, he said, according to the memos, first reported by Bloomberg News.
“We’re asking you to use a smart bomb, not a nuclear bomb.” Mr Bennett said that KPMG had “gotten rid of all the wrongdoers” and promised to cooperate to help David Kelley, the US attorney bringing the case, to indict the staff involved in the scheme.
Mr Kelley referred to Mr Bennett’s argument as “ridiculous”, according to the documents, although it seemed to work. Two senior US Justice Department officials intervened and KPMG avoided an indictment.
In return, the accountant settled with the Government in April 2005 by agreeing to pay a $456 million fine.
The documents, although several years old, have only just come to light as part of a criminal investigation into 18 former KPMG partners accused of orchestrating the tax shelters. They are awaiting trial in September on charges of cheating the US Treasury out of at least $2 billion, in what the US Government has labelled America’s biggest ever criminal tax case.
The KPMG cases have prompted a full-scale investigation into the use of tax shelters in the United States.
Last month, American federal prosecutors charged four partners at Ernst & Young, the accountancy group, with a scam that allegedly used the September 11 terrorist attacks of 2001 to deprive the US Government of hundreds of millions of tax dollars. If convicted, the four could face years in jail.
The E&Y partners allegedly helped wealthy clients to cut their tax bills by creating phony losses on fictional investments that they could offset against their taxable income. It is alleged that they used “false and fraudulent factual scenarios” such as the World Trade Centre attacks, which sent the value of investments plunging across the globe, as a way to sidestep taxes, Michale Garcia, the US attorney bringing the case, said last month.
E&Y, which has not been indicted in relation to the tax shelters, allegedly made $121.7 million in fees from bogus tax shelter profits in the form of a cut of the savings that it generated for its clients. Many had made their fortunes from the technology boom.
KPMG declined to comment on the documents relating to the tax shelters.
Tough luck....
The mid-90’s legislation that allowed banks to buy the auditors was the WORST financial legislation to come out in DECADES........
It led to some of the biggest Corporate debacles in history, with the supposedly neutral auditors overpowered by the banking side which wanted the commisions.
Which wins?
the $3 million audit contract?
Or the $500 million in commissions from the derivitive sales?
KPMG, the accountancy firm, told the US Justice Department that it would unleash a “nuclear bomb” that would leave more than 1,000 companies without an auditor, if it indicted the firm for selling fraudulent tax shelters, according to newly released internal documents.Say, what?! This is what you would expect a Bond villain or Lex Luthor to say. What legal theory supports an argument like this? Indict us and we will bring down the industry. So whatever unlawful behaviour was uncovered should be allowed to stand? So: The firm may act and continue to act with impunity because it is holding a sector of the financial services industry hostage?
The best way to prevent this deadly combination is to totally eliminate all deductions. The top rates would fall faster than Michael Moore in an intense gravitic field.
Big 5, Big 4, Big 3, Big 2...
(watch out PWC!)
An investors net gain is still subject to "confiscatory tax rates" - don't you worry your little head about that. But saddle them with that on top of taxes on costs of doing business - you'll wind up with no risk takers, no entrepreneurs, just a bunch of unchecked commie rats dictating what you may have left of your enterprise to get by with. "Atlas Shrugged"
Maybe some notorious rich and powerful favor "progressive" tax rates (who don't know what money is) - I doubt that it is popular with most. Desire to "escape the tax code" - you bet. Nobody I know is asking for a 38% tax rate with AMT in the wings! That is foisted on the rising middle class by scumbag demagogues pandering to the populous poor wretched ignorant masses who can conceive of nothing better in their miserable lives despite living in this font of freedom and wealth.
Individuals are largely taxed based on their revenue (wages, salary.) Only businesses are generally taxed based on any rational, accounting-based definition of income. The central problem isn't the way businesses are taxed, but the way individuals are taxed--and the fact that rich individuals are treated more like a business, and less like a wage earner.
Any corporate employee subjected to the tyranny of SOX compliance would consider this a blessing from Heaven.
Then again, the thought of establishing a rapport with a whole new group of auditors isn't pleasant, either.
It would be very difficult to break up the larger firms; they are international in scope and are needed to serve the huge multi-national companies. I wouldn't say it can't be done, but it would be very difficult.
Also, individuals working at the accounting firms do not have a corporate shield, per se. Each is responsible for his or her actions and can be held liable. Each, is, however, shielded from the actions of others within the firm and creditors.
Honesty, I agree, should be a given.
I think we are nearing the point where auditors for individual public companies will be selected by the government (SEC) and rotated every 5 years or so.
And, in a straight partnership, each partner is responsible for policing the behavior of every other partner. That was the best way to ensure that firms did not tolerate bad behavior.
With the evolving ability to shelter your personal situation from the group, the emphasis shifted from ensuring that the group behaved well to covering your personal well-being from the group punishments. That led to acceptance or tolerance of bad behavior, as long as you would not get caught and punished.
And that is where the trouble with professional firms started. Everything after that is a detail.
This is so a non-threat I wonder how loud the feds laughed!
KPMG has been actively recruiting gays and lesbians and their counterparts in the Justice Dept will do nothing to hurt those health benefits.
Some of those tax shelters destroyed Jenkins and Gilcrest, a 100 year old law firm with a great conservative reputation. A few flaming cheetos in Chicago brought the entire 400 lawyer firm to its knees in less than three years.
The Most Ethical Administration in History has screwed the American public again, years after they left town. What a legacy.
Now only five defendants:
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.