You know that the criminalization of business in the post-Enron era has become routine when it’s newsworthy that the government has decided not to use its prosecutorial power to prompt another Arthur Andersen-type meltdown of a major accounting firm.
This NY Times article reports that KPMG and federal prosecutors have agreed in principle to a deferred prosecution deal under which the accounting firm would avoid a devastating criminal indictment for its involvement in the creation and promotion of questionable tax shelters in return for KPMG paying a hefty fine, which the Times article reports could be as much as half a billion dollars. Here are the earlier posts on the KPMG tax shelter probe and related problems.

Interestingly, the Times reports that one of the reasons that prosecutors are considering not indicting KPMG is that reasonable doubt exists as to whether the tax shelters that the firm created were improper. Unfortunately, that little “not illegal” technicality has failed to deter prosecutors in this post-Enron era from prosecuting a raft of other business interests for merely questionable conduct that is not clearly improper. To make matters worse, the federal government pursued that dubious policy in putting Arthur Andersen out of business and thus decreasing the number of large auditing firms, while at the same time increasing corporate compliance responsibilities that require more services of large auditing firms. So much for well-coordinated public policy, eh?
Of course, KPMG is not out of the woods yet by any stretch. The enormous fines and legal fees attendant to resolving the tax shelter probe and lawsuits alone is enough to cast some doubt on KPMG’s ability to survive as a going concern. However, given the paucity of large accounting firms these days to handle the demand for publicly-owned company auditing services, even the drain of high fines and litigation costs is probably not enough to push KPMG over the edge. KPMG customers will simply pay a substantial portion of KPMG’s costs in the form of higher fees, which raises the following legitimate issue: Why on earth are they required to pay more for all of this?