A federal prosecutor on Tuesday testified that KPMG's decision to withhold legal fees for 16 of its former employees accused of a criminal tax shelter scheme did not influence the government's decision not to prosecute the accounting firm. 2

A federal prosecutor on Tuesday testified that KPMG’s decision to withhold legal fees for 16 of its former employees accused of a criminal tax shelter scheme did not influence the government’s decision not to prosecute the accounting firm.

“It was not a factor we were considering, particularly,” said Shirah Neiman, who is chief counsel to the U.S. Attorney for the Southern District of New York and is the supervisor overseeing the KPMG (KPMG.UL: Quote, Profile, Research) criminal tax shelter case.

Even so, the question of whether KPMG would advance legal fees to employees was on the government’s agenda at its first meeting with the accounting firm in early 2004, Neiman said.

The evidentiary hearing in U.S. District Court in Manhattan was held to determine whether federal prosecutors, using federal guidelines on indicting companies, improperly pressured KPMG not to pay the legal fees of 16 of its former executives in an effort to avoid prosecution.

KPMG agreed last August to pay $456 million, accept an outside monitor, and admit to criminal wrongdoing to resolve the federal probe into the tax shelters in question.

The government has accused 18 defendants of scheming to defraud the U.S. Internal Revenue Service by creating and implementing bogus tax shelters that helped wealthy clients evade $2.5 billion in taxes.

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