Post by Sapphire Capital on Sept 5, 2008 4:01:52 GMT 4
US government fails to reinstate KPMG indictments
International Tax Review
A US appeal court has upheld a decision to throw out the the indictment of 13 former KPMG executives for tax fraud.
Judge Dennis Jacobs, chief judge of the US Court of Appeals for the Second Circuit, agreed that federal prosecutors had violated the defendants' constitutional right to legal counsel by threatening to indict KPMG if it paid the legal fees of the former partners and employees.
Jacobs wrote that the government "unjustifiably interfered with defendants' relationship with counsel and their ability to mount a defense, in violation of the Sixth Amendment. "
On the same day, in a policy turnaround, deputy attorney general Mark Filip published changes to the guidelines preventing prosecutors from demanding firms not pay employee legal fees in federal criminal cases.
The Justice Department imposed the tough corporate fraud guidelines in 2003 after the collapse of Enron and a subsequent flurry of corporate fraud scandals. Officials said at the time that the aggressive tactics were meant to encourage executives to cooperate in investigations into possible wrongdoing rather than risk seeing their companies indicted.
The appeals court's ruling upheld a July 2007 decision by US District Judge Lewis Kaplan in Manhattan. Kaplan said it was intolerable that prosecutors threatened to indict KPMG, which probably would have destroyed the firm, unless it stopped paying legal bills for former executives.
The case began in 2005 when 17 former KPMG executives and two other defendants were accused of selling illegal tax shelters between 1996 and 2005, reportedly costing the Treasury around $2 billion. One executive pleaded guilty, along with individuals not affiliated with KPMG. Four of the 19 defendants are due to go on trial later this year. Charges against KPMG, the fourth-largest US accounting firm, were dismissed in 2005 after it paid a $456 million fine.
Kaplan found that the 13 defendants were forced to constrain their defences for financial reasons because KPMG wouldn't pay the fees. The firm acted in cooperation with the government, the appeals court said, so its refusal to pay the fees, which it normally would have paid, amounted to state action.
"KPMG was faced with the fatal prospect of indictment; it could be expected to do all it could, assisted by sophisticated counsel, to placate and appease the government," Jacobs wrote on behalf of the court.
The three appeal judges didn't address Kaplan's finding that the government's actions also violated the defendants' Fifth Amendment right to due process, or fairness.
International Tax Review
A US appeal court has upheld a decision to throw out the the indictment of 13 former KPMG executives for tax fraud.
Judge Dennis Jacobs, chief judge of the US Court of Appeals for the Second Circuit, agreed that federal prosecutors had violated the defendants' constitutional right to legal counsel by threatening to indict KPMG if it paid the legal fees of the former partners and employees.
Jacobs wrote that the government "unjustifiably interfered with defendants' relationship with counsel and their ability to mount a defense, in violation of the Sixth Amendment. "
On the same day, in a policy turnaround, deputy attorney general Mark Filip published changes to the guidelines preventing prosecutors from demanding firms not pay employee legal fees in federal criminal cases.
The Justice Department imposed the tough corporate fraud guidelines in 2003 after the collapse of Enron and a subsequent flurry of corporate fraud scandals. Officials said at the time that the aggressive tactics were meant to encourage executives to cooperate in investigations into possible wrongdoing rather than risk seeing their companies indicted.
The appeals court's ruling upheld a July 2007 decision by US District Judge Lewis Kaplan in Manhattan. Kaplan said it was intolerable that prosecutors threatened to indict KPMG, which probably would have destroyed the firm, unless it stopped paying legal bills for former executives.
The case began in 2005 when 17 former KPMG executives and two other defendants were accused of selling illegal tax shelters between 1996 and 2005, reportedly costing the Treasury around $2 billion. One executive pleaded guilty, along with individuals not affiliated with KPMG. Four of the 19 defendants are due to go on trial later this year. Charges against KPMG, the fourth-largest US accounting firm, were dismissed in 2005 after it paid a $456 million fine.
Kaplan found that the 13 defendants were forced to constrain their defences for financial reasons because KPMG wouldn't pay the fees. The firm acted in cooperation with the government, the appeals court said, so its refusal to pay the fees, which it normally would have paid, amounted to state action.
"KPMG was faced with the fatal prospect of indictment; it could be expected to do all it could, assisted by sophisticated counsel, to placate and appease the government," Jacobs wrote on behalf of the court.
The three appeal judges didn't address Kaplan's finding that the government's actions also violated the defendants' Fifth Amendment right to due process, or fairness.