August 29,2005

Baucus Outraged at KPMG Criminal Conduct


(WASHINGTON, D.C.) Today, the U.S. Department of Justice announced that accounting firmKPMG admitted to criminal wrongdoing that cost the United States more than $2.5 billiondollars in taxes. KPMG concocted tax shelter transactions and filed false and fraudulent taxreturns that claimed phony tax losses. In a deferred prosecution agreement, KPMG will pay$456 million in fines, restitution and penalties, and agreed to several restrictions on futurebusiness activities. It also must fully cooperate with pending criminal investigations of severalformer KPMG partners, staff and associates.

Senator Max Baucus, Ranking Democratic Member of the Senate Finance Committee,issued the following statement:

“Today's admission by KPMG that the firm engaged in a broad criminal conspiracy toconcoct false and fraudulent tax shelters is long overdue and confirms what many have suspectedfor some time. Two years ago, the accounting firm told the Finance Committee that ‘fromKPMG's perspective, tax advice and assistance provided to clients was exhaustively reviewedand analyzed to assure consistency with law and regulations in effect at the time.’

“The detailed statement of facts presented in court today makes clear that KPMGknowingly broke the law and then blatantly lied about it to Congress, the Internal RevenueService and the Department of Justice. KPMG's conduct has undermined the integrity of ourvoluntary self-assessment tax system and the significant fine imposed today in no waydiminishes that fact. KPMG must continue to cooperate with the government, clean house, andimplement strong quality controls to ensure compliance with the letter and spirit of our tax laws.Moreover, KPMG should not be permitted to deduct their settlement payment and shift the costonto the back of the American taxpayer.

“Further, KPMG’s admission to its criminal activity underscores the need for strong antitaxshelter laws. It’s not right that the truth had to come at the cost of not only billions of dollarsof lost taxes, but also after an expensive government investigation as well. The American peopleshould not have to shoulder this burden. I am committed to ensuring that this wrong is maderight and that KPMG changes its ways. It’s time for this Congress to codify the economicsubstance doctrine to give the government the tools it needs to crack down on abusive taxavoidance schemes without years of court wrangling.”