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The Marketplace Report: KPMG Deals with the Feds

ALEX CHADWICK, host:

Back now with DAY TO DAY. I'm Alex Chadwick.

One of the nation's Big Four accounting firms, KPMG, admits that it broke the law by creating and selling a set of tax shelters for wealthy individuals. The IRS says this scheme cost the government billions of dollars in lost revenue. Now why is KPMG acknowledging this unlawful conduct at this point? John Dimsdale joins us from the "Marketplace" bureau in Washington, DC.

John, how long has the investigation been under way?

JOHN DIMSDALE ("Marketplace"): For more than a year. There are several of them, actually, by both the IRS and the Justice Department. And the feds are supposedly real close to criminal indictments after looking at the accounting firm's tax packages that were aggressively marketed to rich people. They promised them big tax savings and some very questionable shelters.

CHADWICK: I--two questions: One, would they indict just KPMG or the people who took advantages of these things as well? And why would the company admit guilt now before the indictment?

DIMSDALE: Well, the threat is that they might indict both, and the company is trying to avoid that scenario, certainly a criminal charge against the company as a whole, especially after seeing what happened to Arthur Andersen. You know, it used to be the Big Five accounting industry...

CHADWICK: Right.

DIMSDALE: ...but Andersen was the auditor that signed off on the cooked books at Enron and WorldCom, and the government prosecuted them, the firm went under. Now before Andersen's bankruptcy, KPMG took a tough line against the government's investigation. But after witnessing Andersen's fate, they're more contrite. And a lot of big multinational corporations are rooting for KPMG, and that's because if the company folds, it'll mean more than just the loss of 12,000 jobs. It means that company choices for auditing choices dwindle to three. And under new accounting standards after Enron, companies need more than just one auditor, big companies do.

CHADWICK: Wow.

DIMSDALE: Joshua Ronen, an accounting professor at New York University, thinks KPMG has a pretty good case.

Professor JOSHUA RONEN (New York University): On balance, the case against KPMG could be confined to a few partners rather than indicting the whole firm. And I suspect that the Department of Justice will be reluctant to indict given what happened with Arthur Andersen.

CHADWICK: John, just a couple of weeks ago, the Supreme Court threw out the Arthur Andersen conviction.

DIMSDALE: Yeah, and some say that'll make the government even more gun-shy against KPMG. They say Andersen's credibility was destroyed by the government's prosecution, and when the court reversed the Andersen verdict, the government looked bad, like it caused thousands of employees to unnecessarily lose their jobs. So KPMG has some leverage here to ask for a settlement with the government.

Coming up later today on "Marketplace," we're looking at how the high price of oil may be changing the political debate and possibly the outcome of Iran's elections.

CHADWICK: Thanks, John Dimsdale of "Marketplace" from American Public Media. Transcript provided by NPR, Copyright NPR.

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Alex Chadwick
For more than 30 years, Alex Chadwick has been bringing the world to NPR listeners as an NPR News producer, program host and currently senior correspondent. He's reported from every continent except Antarctica.
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