Allan Sloan in his Washington Post column has an interesting take on the Justice Department’s decision not to indict KPMG over the firm’s involvement in the creation and promotion of allegedly illegal tax shelters:

The government didn’t dare file criminal charges against KPMG because an indictment alone would have driven it out of business, leaving us with too few big accounting firms to go around. KPMG was in this strong bargaining position because of the collapse of Enron’s accounting firm, Arthur Andersen, which the government foolishly indicted on criminal charges three years ago.

In an unpublished paper, Emilie R. Feldman, a doctoral student at the Harvard Business School, makes a compelling case that the Final Four firms absorbing Andersen’s business would have violated antitrust guidelines had it involved a sale rather than a collapse.
Feldman (disclosure: her family and mine are close friends) says having the Final Four absorb Andersen’s business added 455 points to the Herfindahl-Hirschman Index, a tool that antitrust mavens use to measure business concentration. Any increase bigger than 50 points would have violated the relevant guidelines, she says.
In other words, a collapse brought about by the Justice Department prosecutors allowed the Final Four to acquire at no cost business that the Justice Department antitrust enforcers would never have let them buy. You have to love it.

And Mr. Sloan also notes why the penalty that KPMG will pay the government under its deferred prosecution agreement is not likely onerous enough to put the firm out of business:

To be sure, the penalty imposed on KPMG isn’t chopped liver. It’s $456 million, which is real money. But it’s less than it seems to be, even though the deal forbids KPMG from deducting any of the money from taxable income. . . And you don’t need a CPA to see that this deal is one of the bargains of the year.
KPMG generated $3.8 billion of revenue in the year ended Sept. 30, 2004. . . between 35 and 48 percent of that was pretax profit, which works out to at least $1.33 billion, an average of $787,000 per partner. But remember that the penalty is after taxes. So we’ll assume an unrealistically high tax rate — 40 percent — for KPMG’s partners. This would leave after-tax profit of about $470,000 per partner. The $456 million is about $276,000 per partner. So KPMG’s partners are paying less than a year’s profit to avoid being destroyed by a criminal indictment. Pretty slick.
The firm and the government say none of KPMG’s payments will be covered by insurance. But the settlement calls for the government to get 50 percent of the first $288 million of insurance proceeds, should KPMG get any. (KPMG would keep anything above $288 million.) The settlement, the first $256 million of which was due last week, may end up costing KPMG less than the stated $456 million by the time it finishes paying next year.
So it’s time for KPMG’s partners to thank the gods of greed for creating the Enron scandal. Because if we hadn’t had Enron, we might not have KPMG.