KPMG tax shelter fraud
The KPMG tax shelter fraud scandal involves allegedly illegal U.S. tax shelters by KPMG that were exposed beginning in 2003. In early 2005, the United States member firm of KPMG International, KPMG LLP, was accused by the United States Department of Justice of fraud in marketing abusive tax shelters.
Under a deferred prosecution agreement, KPMG LLP admitted criminal wrongdoing in creating fraudulent tax shelters to help wealthy clients dodge $2.5 billion in taxes and agreed to pay $456 million in penalties. KPMG LLP will not face criminal prosecution as long as it complies with the terms of its agreement with the government. On January 3, 2007, the criminal conspiracy charges against KPMG were dropped. However, Federal Attorney Michael J. Garcia stated that the charges could be reinstated if KPMG does not continue to submit to continued monitorship through September 2008.
On 29 August 2005, nine individuals, including six former KPMG partners and the former deputy chairman of the firm, were criminally indicted in relation to the multibillion-dollar criminal tax fraud conspiracy. The nine individuals named in the indictment were:
On 17 October 2005, another ten individuals were indicted on criminal conspiracy and tax evasion charges:
The four tax shelters at issue were known as BLIPS, or bond linked issue premium structure; Flips, or foreign leveraged investment program; OPIS, or offshore portfolio investment strategy and a variant of Flips; and SOS, or short option strategies.
In August 2005, former official of the German bank Bayerische Hypo-Und Vereinsbank AG (HVB) Domenick DeGiorgio, who worked with KPMG to sell the shelters, pleaded guilty to tax evasion and fraud charges. On 15 February 2006, HVB admitted to criminal wrongdoing for its participation in the KPMG tax shelter fraud. The prosecution against the company was deferred by agreement with the U.S. Attorney. Under its deferred prosecution agreement, the company will pay $29.6 million in fines, restitution and penalties.
On 10 March 2006, U.S. District Judge Lewis A. Kaplan released former KPMG accounting executive David Greenberg on $25 million bail. Kaplan's ruling reversed his previous denial of bail to Greenberg. Judge Kaplan ordered Greenberg to live in Manhattan under electronic monitoring until his trial for tax fraud begins, and warned his family that they would be financially ruined if Greenberg attempted to flee the country. Kaplan also said that Greenberg's finances were in such disarray that it was impossible to figure out where his assets were and how much he was worth. Called a flight risk by federal prosecutors, Greenberg was the only defendant to be arrested by authorities when the indictments were handed down in October 2005.
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