Prosecutors have officially dropped a criminal conspiracy charge against KPMG in a fraudulent tax-shelter case after the accounting firm fulfilled the terms of its nonprosecution agreement with the U.S. government.
In an order issued Tuesday and made public Wednesday, U.S. District Judge Loretta A. Preska signed off on a request by prosecutors to dismiss a one-count criminal information against the firm.
In August 2005, KPMG agreed to pay $456 million as part of a deferred prosecution agreement with the government in which it admitted to fraudulent conduct in the design and marketing of certain tax shelters. The agreement ran through December 2006.
By complying with the terms of that agreement, the firm avoids prosecution.
In a statement, U.S. Attorney Michael J. Garcia said prosecutors sought dismissal of the charge pursuant to the terms of the deferred prosecution agreement and based on the report and recommendation of the firm's outside monitor.
"The charges against KPMG may be re-instituted if it is determined that KPMG has violated any provision of the DPA," Garcia said. "The monitorship, which has been comprehensive and effective, will continue until September 2008, and may be extended if KPMG violates the DPA during the period of the monitorship."
The deferred prosecution agreement allowed KPMG to avoid the fate of auditing firm Arthur Andersen, which collapsed following a criminal indictment against it as part of the government's probe into Enron. A 2002 felony conviction against Andersen in the matter was overturned in 2005.
"Today's dismissal of the charge reflects our commitment to full and continuing compliance with the agreement we made with the government in August 2005," Timothy P. Flynn, KPMG chairman and chief executive, said in a statement. "We regret the past activities that led to these charges. The 20,000 people of KPMG today are focused on maintaining ethics and compliance programs that will serve as a role model for the profession and enable us to serve our clients with the highest degree of professionalism."
Criminal charges are still pending against 16 former KPMG executives and two others who have been accused of participating in a scheme that allowed wealthy people to avoid paying billions of dollars in taxes to the Internal Revenue Service. That case is tentatively set for trial in September 2007.
The criminal case against the former executives has been on hold while the 2nd Circuit Court of Appeals considers a civil dispute over whether KPMG should pay legal fees for the one-time executives.
In June, Judge Lewis A. Kaplan, who is presiding in the criminal case against the one-time KPMG executives, found that prosecutors violated the constitutional rights of those former executives by putting undue pressure on the firm not to advance them defense costs. The former executives have since filed a civil complaint against KPMG seeking advancement of defense costs.