culture, politics, commentary, criticism

Thursday, June 16, 2005
Sheltering the guilty. KPMG helped its clients steal $1.4 billion from American taxpayers, and yet the Justice Department is reluctant to indict it (
Federal prosecutors have built a criminal case against KPMG LLP for obstruction of justice and the sale of abusive tax shelters, igniting a debate among top Justice Department officials over whether to seek an indictment -- at the risk of killing one of the four remaining big accounting firms.


The threat of an indictment could persuade KPMG to settle the case with substantial financial penalties under a deferred-prosecution agreement or other settlement. For Justice Department officials, avoiding an indictment could avert serious damage to KPMG -- an "Andersen scenario" that could cost thousands of employees their jobs and deprive KPMG's hundreds of clients of a choice for accounting services.

Just two weeks ago the Supreme Court reversed the conviction of the big accounting firm Arthur Andersen, which collapsed after being indicted by the Justice Department for obstruction of justice in connection with its role in the Enron Corp. scandal. The Andersen reversal also provided a reminder that the government can lose these big cases. Any trial involving accounting will be highly complex for a jury and difficult to argue for prosecutors.


The case against KPMG and some of its former executives centers on the promotion of tax shelters aimed at wealthy individuals and in great demand during the 1990s economic boom. KPMG's tax-shelter products cost government as much as $1.4 billion in lost revenue, the IRS has said.

The shelters, known by acronyms FLIP, OPIS, BLIPS and SC2, among others, were the subject of a U.S. Senate investigation two years ago. A November 2003 report concluded that "dubious tax shelters are no longer the province of shady, fly-by-night companies, ... they are now big business."

The investigation singled out KPMG, saying "although KPMG denies being a tax-shelter promoter, the evidence establishes that KPMG devoted substantial resources to, and obtained significant fees from ... potentially abusive and illegal tax shelters ... costing the U.S. Treasury billions." In the years since the shelters were exposed, hundreds of clients have settled with the IRS, turning over millions of dollars. Many clients, in turn, have sued KPMG.
So, who cares?

There are two aspects that are relevant to today's political climate. First, the government was willing to indict a company (Arthur Andersen) whose activities contributed to the financial damage of a large but limited number of private individuals and institutions (Enron employees and shareholders). Now the same government appears to be unwilling to indict a competing company whose activities contributed to the financial damage of every US taxpayer, that is, the public at large. This inconsistency suggests that the Justice Department is misnamed.

Second, this larger inconsistency, and the fact of the Andersen conviction being overturned, support one of the pet theories of this blog: namely, that the de facto destruction of Arthur Andersen (the lack of legality of the conviction doesn't affect that Andersen is now for all purposes a corporate corpse) was simultaneously a sideshow to move the heat of the spotlight from Enron senior management to its undoubtedly guilty but less pivotal auditor, as well as a cover for the vice president.

All of the anguished public hand-wringing about "killing" one of the then five remaining big accounting firms didn't apply when one of those big accounting firms was Halliburton's auditor while Dick Cheney was CEO: Arthur Andersen. The SEC investigation of Halliburton's accounting irregularities on Cheney's watch couldn't get very far when the auditor has been vaporized by the Justice Department, under the direction of an all-energy crony White House. ["Under Cheney's tenure, accounting irregularities at the company exceeded $234 million, according to documents obtained by the watchdog group Center for Public Integrity."]

So spare us the violins if KPMG goes down. As accessory to the theft of $1.4 billion from the US Treasury, KPMG deserves a big "fuck you" sung from taxpayers from sea to shining sea.

For a trip down memory lane, you can see older posts on this topic here, here, and here. Note that one of KPMG's notorious rich tax shelter clients was none other than Terri Schiavo's ophthamologist, kitten killer Bill Frist.

Greatest Hits · Alternatives to First Command Financial Planning · First Command, last resort, Part 3 · Part 2 · Part 1 · Stealing $50K from a widow: Wells Real Estate · Leo Wells, REITs and divine wealth · Sex-crazed Red State teenagers · What I hate: a manifesto · Spawn of Darleen Druyun · All-American high school sex party · Why is Ken Lay smiling? · Poppy's Enron birthday party · The Saudi money laundry and the president's uncle · The sentence of Enron's John Forney · The holiness of Neil Bush's marriage · The Silence of Cheney: a poem · South Park Christians · Capitalist against Bush: Warren Buffett · Fastow childen vs. Enron children · Give your prescription money to your old boss · Neil Bush, hard-working matchmaker · Republicans against fetuses and pregnant women · Emboldened Ken Lay · Faith-based jails · Please die for me so I can skip your funeral · A brief illustrated history of the Republican Party · Nancy Victory · Soldiers become accountants · Beware the Merrill Lynch mob · Darleen Druyun's $5.7 billion surprise · First responder funding · Hoovering the country · First Command fifty percent load · Ken Lay and the Atkins diet · Halliburton WMD · Leave no CEO behind · August in Crawford · Elaine Pagels · Profitable slave labor at Halliburton · Tom Hanks + Mujahideen · Sharon & Neilsie Bush · One weekend a month, or eternity · Is the US pumping Iraqi oil to Kuwait? · Cheney's war · Seth Glickenhaus: Capitalist against Bush · Martha's blow job · Mark Belnick: Tyco Catholic nut · Cheney's deferred Halliburton compensation · Jeb sucks sugar cane · Poindexter & LifeLog · American Family Association panic · Riley Bechtel and the crony economy · The Book of Sharon (Bush) · The Art of Enron · Plunder convention · Waiting in Kuwait: Jay Garner · What's an Army private worth? · Barbara Bodine, Queen of Baghdad · Sneaky bastards at Halliburton · Golf course and barbecue military strategy · Enron at large · Recent astroturf · Cracker Chic 2 · No business like war business · Big Brother · Martha Stewart vs. Thomas White · Roger Kimball, disappointed Republican poetry fan · Cheney, Lay, Afghanistan · Terry Lynn Barton, crimes of burning · Feasting at the Cheney trough · Who would Jesus indict? · Return of the Carlyle Group · Duct tape is for little people · GOP and bad medicine · Sears Tower vs Mt Rushmore · Scared Christians · Crooked playing field · John O'Neill: The man who knew · Back to the top

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