Two former KPMG executives indicted for setting up tax shelters in Dublin walked free from a Manhattan courtroom yesterday after a judge castigated federal prosecutors for violating the men's constitutional rights.
The pair, Jeffrey Stein and Jeffrey Eischeid, were among 13 KPMG defendants released yesterday from the largest criminal case for tax avoidance in US history after prosecutors admitted they tried to stop KPMG from paying the men's legal costs.
However, RJ Ruble, a lawyer contracted by KPMG to set up the Dublin scheme is still to go on trial after Judge Lewis Kaplan agreed that KPMG had never intended to pay his legal fees.
The three were accused of laundering tens of millions of dollars for rich clients by setting up bogus currency trades through Irish sounding shell companies such as "Sligo (2000) Co Ltd".
One Dallas financier, Keith Tucker, and his wife, Laura Bynum Tucker, put $39 million (€28 million) into the scheme and have had to pay $21.7 million in unpaid tax and penalties as a result.
Under the scheme, the couple claimed that they did not have to pay US taxes on an Irish company, Epsilon Ltd, but then wired the money back to the US six days later, claiming a net loss for tax purposes.
Prosecutors say the Dublin operation was part of a KPMG system that allowed wealthy investors to avoid $11.2 billion in taxes.
Legal analysts have said the case is a severe blow to the US attorney's office in Manhattan, which was accused by defence lawyers of first trying to force KPMG to pay for the men's legal fees and then preventing the firm from doing so.
The lawyer who approved the scheme, Mr Ruble, a former partner of KPMG's legal advisors Brown & Wood law firm, was "centrally involved" in the preparation of the Dublin scheme, according to the indictment. He set up the scheme along with Mr Eischeid, who was head of KPMG's "innovative strategies group", and Mr Stein, who was vice-chairman of KPMG tax services, according to prosecutors.
However, Judge Kaplan agreed that of the three, only Mr Ruble is subject to prosecution because he could not have expected to rely on KPMG to pay his legal fees.
He is to go on trial with another outside contractor, David Amir Makov, who worked at an investor firm, and two former KPMG executives, Robert Pfaff and John Larson, who left KPMG "some time ago" and didn't petition for legal fees last year.
