Over this past weekend, this NY Times article reviewed the civil litigation and criminal investigation into KPMG’s mass-marketing of dubious tax shelters from the late 1990’s through late 2003. Here are the previous posts over the past year and a half on KPMG’s tax shelter woes.
Now, based on this Wall Street Journal ($) article, it appears that KPMG is literally fighting for its life as the Justice Department decides whether to indict the firm over is role in promoting the tax shelters. What is particularly troubling about KPMG’s perilous situation is that the firm has cooperated with the Justice Department in an effort to stave off a criminal indictment. That should give the American International Group Inc. board members pause as they consider their similar decision to cooperate with governmental investigations into AIG.
The threat of an indictment already has KPMG pursuing a settlement of the case under a deferred-prosecution agreement or other settlement with the Justice Department. However, some partners in KPMG management are now convinced that even a deferred-prosecution settlement of potential criminal charges would seriously damage the firm and possibly cause an Arthur Andersen-type meltdown. An indictment would almost certainly cause thousands of innocent KPMG employees to lose their jobs and force KPMG’s dozens of equally innocent institutional clients to find another accounting firm among the remaining three large accounting firms.
So, the dubious governmental policy of criminalizing merely questionable business practices may result in some big companies not being able to to find an accounting firm capable of providing adequate audit services at all.
Some governmental policy, eh? And even if an indictment of KPMG is justified in this particular circumstance, Professor Ribstein points out the irony in the situation.