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Federal judge dismisses charges against 13 KPMG defendants

[JURIST] US District Judge Lewis Kaplan Monday dismissed charges [opinion, PDF] against 13 of 16 defendants in an ongoing criminal tax shelters case [JURIST report] against former employees of the accounting firm KPMG [corporate website], ruling that federal prosecutors violated the constitutional rights of the defendants [JURIST report] by pressuring KPMG not to pay for the defendants' legal fees. Kaplan wrote that the case against the remaining three defendants, as well as two other defendants who were not KPMG employees, will proceed. Their trial is slated for September. Prosecutors may reinstate charges against all 13 defendants if Kaplan's first ruling is overturned on appeal.

The constitutional violations stem from the Department of Justice's 2003 "Thompson Memorandum" [PDF text], which deemed that a "the advancing of attorneys fees" to "culpable employees and agents" could be considered a factor in favor of prosecuting a corporation. KPMG initially negotiated with the defendants and paid the legal fees of some defendants, but ceased payments due to pressure from government prosecutors. The defendants are accused of setting up tax shelters that cost the US government an estimated $2.5 billion in revenues. KPMG has admitted the tax shelters were illegal and has taken full responsibility for the unlawful conduct [JURIST report]. In August 2005, KPMG agreed to pay the IRS a $456 million fine [JURIST report] to avoid criminal prosecution. The DOJ revised the Thompson Memorandum [JURIST report] late last year. Bloomberg has more.

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