KPMG probes ex-partners over tax shelters

"I don't think that anybody, either KPMG or the Justice Department, wants another Arthur Andersen," said Lawrence Barcella, an attorney specializing in white-collar cases who was a federal prosecutor.

Deferred prosecution? "It may be the only meaningful option," he said.

The corporate scandals of 2002 tarnished the accounting industry, as a stream of instances became known of too-cozy auditors signing off on big companies' inflated and misleading financial statements. Yet having fewer accounting firms could reduce competition and the number of choices for companies seeking auditors, experts have warned.

Congressional auditors have urged government agencies to consider the risks of further consolidation in the accounting industry when they take enforcement action against firms.

In the way that "too big to fail" became an unofficial doctrine of policy toward corporations, "too concentrated to indict" has become a moniker for the accounting industry, suggested John C. Coffee, a law professor at Columbia University.

"It's a strange kind of immunity" for KPMG, he said.

While the prosecutors in principle wield the club of potential indictment, the firm knows that being put in the criminal dock is unlikely and thereby gains a certain leverage in the negotiations, Coffee said.

New York-based KPMG said Thursday that it stopped providing the tax shelters in question in 2002 and that it has taken steps to ensure that the unlawful conduct doesn't recur. That includes "firm-wide structural, cultural and governance reforms" to ensure "the highest ethical standards," the firm said.

KPMG said it "looks forward to a resolution that recognizes the significant reforms the firm has already made in response to this matter while appropriately sanctioning the firm for this wrongdoing."

Justice Department spokesman Bryan Sierra declined to comment Thursday. George Ledwith, a spokesman for KPMG, declined to comment on the negotiations with the department or the firm's options.

Top department officials embraced the idea of deferred prosecutions several months after Andersen's conviction. A January 2003 memo by then-Deputy Attorney General Larry Thompson signaled the change. It said that pretrial agreements of the sort previously used in criminal cases against individuals could be applied to companies. There have been no high-profile corporate prosecutions since.

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