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Charges Weighed in KPMG Tax Case

The Washington Post

Federal prosecutors have notified as many as 20 former partners at accounting firm KPMG that they could face criminal charges for their roles in selling tax shelters in the 1990s, according to people familiar with the case.

Government lawyers have not decided whether to bring criminal charges against the firm, but they are asking for tough concessions from KPMG as the price of any potential settlement. At the same time, they also are focusing on individual executives involved in the tax shelters, according to sources, who spoke on condition of anonymity because of the delicate stage of the investigation.

This year federal prosecutors in New York had recommended that KPMG face criminal charges, but senior Justice Department officials expressed concern about the prospect of another accounting firm collapse after the 2002 demise of Arthur Andersen and the Supreme Court’s reversal in May of Andersen’s criminal conviction, according to the sources. Prosecutors and the firm continue to negotiate, and a resolution could be weeks away.

The KPMG probe, which dates back several years, could be the next major case in a string of business fraud prosecutions after the collapses of Enron Corp. and WorldCom Inc. KPMG was one of several firms that sold questionable tax shelters to wealthy clients, creating lucrative sources of revenue.

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After reports of possible criminal charges against KPMG appeared in June, the firm issued a statement apologizing for “unlawful” activity by former partners and pledged to cooperate with investigators. The firm turned over batches of documents, pressured dozens of tax executives to resign and imposed caps on their attorney fees.

Analysts say those moves could help persuade regulators to forgo an indictment and impose lesser sanctions, such as requiring the firm to pay millions of dollars in financial penalties and admit to allegations that could implicate former employees.

The final agreement could be similar to Merrill Lynch & Co.'s pact with the Justice Department over its dealings with Enron, in which the firm agreed to increased monitoring and other business changes.

Unlike in the Andersen investigation, in which one mid-level audit partner pleaded guilty to obstruction of justice, prosecutors are focusing on senior people at KPMG, one of the four remaining major accounting firms in the country.

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