Federal judge deals second blow to KPMG prosecution

[JURIST] A federal judge in Manhattan ruled [opinion text, PDF] Wednesday that statements made by two partners at accountancy firm KPMG [corporate website] cannot be used in their upcoming trial because federal prosecutors coerced the two defendants into cooperating with the ongoing criminal tax shelters case [JURIST report] by using excessive financial pressure over the two men. US District Judge Lewis Kaplan also ruled that economic pressure led KPMG Vice Chairman Richard Smith and former KPMG partner Mark Watson to waive their Fifth Amendment rights to remain silent in the absence of an attorney, and that federal prosecutors also coerced KPMG into threatening to fire employees that did not cooperate with the investigation. Kaplan wrote:

Having considered the evidence, the Court is persuaded that the government is responsible for the pressure that KPMG put on its employees. It threatened KPMG with the corporate equivalent of capital punishment. KPMG took the only course open to it...It exerted substantial pressure on its employees to waive their constitutional rights.
Wednesday's ruling marks Kaplan's second blow to the prosecution. In June, Kaplan ruled [JURIST report] that the government violated the constitutional rights of 16 former KPMG employees by pressuring the accounting firm to stop paying the employees' defense costs. The 16 defendants are accused of setting up tax shelters, costing the US government an estimated $2.5 billion in revenue. KPMG has admitted the tax shelters were illegal and has taken full responsibility for the unlawful conduct [JURIST report]. In August 2005 KPMG itself agreed to pay the IRS a $456 million fine [JURIST report] to avoid criminal prosecution for the tax shelters, and agreed to be supervised for three years by a former SEC chairman. AP has more.

 

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