U.S. drops criminal case against KPMG

A criminal case against KPMG relating to alleged tax fraud has been dropped because the accounting firm complied with terms of an agreement with the government, federal prosecutors said Wednesday.

KPMG had agreed in August 2005 to pay $456 million, accept an outside monitor and admit to wrongdoing in resolving a federal investigation into questionable tax shelters.

The deferred prosecution agreement expired Dec. 31. U.S. District Judge Loretta Preska issued an order, made public Wednesday, that agreed with a request by the U.S. attorney for the Southern District of New York to drop a criminal conspiracy charge against KPMG.

But 16 former KPMG partners and two others still face criminal charges accusing them of helping cheat the government out of $2.5 billion by creating bogus tax shelters for wealthy clients. A trial is scheduled to begin Sept. 17.

“Today’s dismissal of the charge reflects our commitment to full and continuing compliance with the agreement we made with the government,” KPMG Chief Executive Timothy Flynn said in a statement. “We regret the past activities that led to these charges.”

By avoiding an indictment, New York-based KPMG may have escaped the fate of another accounting firm, Arthur Andersen, which was dissolved after being indicted over its role in Enron Corp.’s 2001 collapse. The U.S. Supreme Court in 2005 overturned Andersen’s subsequent conviction.

Prosecutors have been dealt several blows in the KPMG case. In July, U.S. District Judge Lewis Kaplan ruled that the government unconstitutionally pressured KPMG to withhold payment of legal fees on behalf of the 16 former partners.