Accounting firm KPMG yesterday admitted it helped wealthy individuals in the US to evade tax on billions of dollars of income and capital gains by selling them "fraudulent" tax avoidance schemes.
The candid acknowledgement of wrongdoing by KPMG came as the US department of justice said it would not prosecute the firm so long as it did not reoffend.
But the justice department said it would prosecute seven former KPMG partners whom it accused of conspiring to defraud the US Internal Revenue Service (IRS).
The settlement unveiled, between the justice department and KPMG's US business, should ensure its survival. The firm is put on probation rather than on trial under the terms of a deferred prosecution agreement.
The justice department filed one charge against KPMG of conspiring to defraud the IRS, but it will be dismissed at the end of next year if the firm complies with the settlement.
KPMG's US business must pay $456 million (€373 million) in fines and penalties, cease certain tax work and allow monitoring of its conduct by an outside consultant. The deferred prosecution agreement, which was approved by KPMG's US board of directors, says the firm accepts responsibility for violations of the law resulting from actions by certain tax partners and staff between 1996 and 2002.
"KPMG admits and accepts that. . . through the conduct of certain KPMG tax leaders, partners and employees. . . KPMG assisted high net worth US citizens to evade US individual income taxes on billions of dollars in capital gain and ordinary income by developing, promoting and implementing. . . fraudulent tax shelters," says the agreement.
A statement of facts attached to the agreement says unlawful conduct by KPMG partners included preparing false and fraudulent tax returns for clients, and concealing the tax avoidance schemes from the IRS.
However, it acknowledges KPMG's US business has severed ties with the partners and staff accused of wrongdoing.
Timothy Flynn, chief executive of KPMG's US business, said the firm regretted the past tax practices.
