Tax fraud scandal [Bpk. KPMG] involves alleged illegal US tax shelters by KPMG exposed in early 2003. In early 2005, KPMG International member company KPMG LLP, the United States was accused by the United States. Ministry of Justice fraud in the marketing of a cruel tax shelter.
Video KPMG tax shelter fraud
Pending prosecution agreement
Under a suspended prosecution agreement, KPMG LLP acknowledged a criminal error in creating a fake tax shelter to help wealthy clients avoid 2.5 billion dollars in taxes and agree to pay a $ 456 million fine. KPMG LLP will not face criminal prosecution as long as it is in accordance with the terms of the agreement with the government. On January 3, 2007, the alleged criminal conspiracy against KPMG was canceled. However, Federal Attorney Michael J. Garcia stated that fees could be recovered if KPMG did not continue to be subject to continued supervision until September 2008.
On August 29, 2005, nine people, including six former KPMG partners and former vice chairmen of the company, were charged criminally in connection with a multibillion-dollar tax crime fraud conspiracy. The nine persons mentioned in the indictment are: Jeffrey Stein, former Vice-Chairman of KPMG, former Vice Chairman of the Tax Service, and former tax partner of KPMG, a lawyer with a Master's degree in tax law.
On October 17, 2005, ten others were indicted on charges of criminal conspiracy and tax evasion:
The four tax shelters in question are known as BLIPS, or premium structures related to the related bonds; Reverse, or foreign investment program; OPIS, or offshore portfolio investment strategy and variants of Flips; and SOS, or short options strategy.
Maps KPMG tax shelter fraud
Chronology
In August 2005, former German bank official Bayerische Hypo-Und Vereinsbank AG (HVB) Domenick DeGiorgio, who worked with KPMG to sell the shelter, pleaded guilty to tax evasion and fraud allegations. On February 15, 2006, HVB admitted criminal misconduct due to its participation in KPMG tax strike scams. The prosecution of the company was suspended by an agreement with the US Attorney. Under a deferred prosecution agreement, the company will pay a fine of $ 29.6 million, a fine, restitution and penalty.
On March 10, 2006, US District Judge Lewis A. Kaplan released former KPMG accounting executive David Greenberg with a $ 25 million bail. Kaplan's decision reversed his previous rejection of Greenberg. Judge Kaplan ordered Greenberg to live in Manhattan under electronic surveillance until his trial for tax fraud began, and warned his family that they would be financially destroyed if Greenberg attempted to flee the country. Kaplan also said that Greenberg's finances are in such a mess that it is impossible to find out where the assets are and what their value is. Called flight risk by federal prosecutors, Greenberg was the only defendant who was arrested by authorities when the indictment was dropped in October 2005.
On March 28, 2006, David Rivkin pleaded guilty to charges of conspiracy and tax evasion at the US District Court in Manhattan. "I know that the losses should not be claimed on the tax form," Rivkin told Justice Kaplan. Rivkin admitted that he conspired with others between January 1999 and May 2004 to prepare and execute false documents so that clients could file false tax returns. He also admitted that he was taking steps to hide the existence of a fake tax shelter from the Internal Revenue Service and to avoid registering shelters with the IRS by claiming the attorney-client privilege. Rivkin signed an agreement to cooperate with the prosecutor, who could then ask the judge to consider giving Rivkin a lighter penalty than the punishment he might face in jail. The sentence was set on February 9, 2007.
On June 27, 2006, Judge Kaplan ruled that by threatening KPMG with indictment unless the company denies the policy of paying defense fees from a partner indicted for work done on a corporate tax collection business trip, the Justice Department violates the constitutional rights of the employee. In his opinion, Judge Kaplan agrees with the opinions of the defendants that KPMG does not deserve to be pressured not to pay their legal fees, "because the government holds the proverbial pistol in its head."
Meanwhile, the related verdict was handed down in a civil case filed against the Internal Revenue Service in late 2004 by two Texas lawyers Harold W. Nix and C. Cary Patterson. Nix and Patterson sued the IRS for a refund after tax authorities rejected each of their claims for nearly $ 67 million in deductions stemming from the use of the BLIPS tax shelter in 2000. Their lawsuit is considered relevant to KPMG's tax fraud case, as BLIP is one of the tax shelters allegedly prosecuted by the prosecutor in that regard. On July 20, 2006, Judge T. John Ward of the United States District Court for the Eastern District of Texas ruled that the use of BLIPS by Nix and Patterson was essentially legitimate, as the IRS application of the more stringent Treasury regulations in 2003 against obligations BLIPS is "ineffective" and "not enforceable" because it is retroactive. The Internal Revenue Code generally prohibits retroactive regulations. In response to this verdict, prosecutors in the KPMG case have indicated that they will argue that BLIPS shelters are technically legitimate, but the way the defendants carry them out is cheating. In turn, lawyers for the defendants argued that no court of law ever ruled that the tax shelters in question were illegal. And in February 2007, Judge Ward essentially reversed himself and decided on a tax shelter consisting of a fake bank loan and was therefore invalid, although he had previously identified it in the above link.
On February 8, 2007, Deutsche Bank reached a settlement with hundreds of investors selling aggressive US tax shelters similar to those attacked by prosecutors in the KPMG tax fraud case. The settlement came a year after US prosecutors DOJ in Manhattan announced their investigation of Deutsche Bank's role in the dubious tax haven.
On May 23, 2007, Second Circuit dismissed complaints against KPMG accounting firm to recover expenses and expenses arising from allegations of criminal tax fraud involving former KPMG partners and employees. The court stated that the district court, which presides over the criminal case, erred in expanding the "additional" jurisdiction to civil disputes between the defendant and the non-party KPMG. Treating KPMG appeals as a petition for mandamus warrants, courts issuing warrants, emptying district court orders, and dismissing civil complaints.
On July 17, 2007, Judge Kaplan dismissed the allegations against 13 former KPMG employees, stating that he has no alternative because the government has a strongly armed KPMG not to pay the defendant's legal fees and has violated their rights. "This charge imposes serious crimes, they should have decided on the merits of each defendant," Kaplan wrote. "But there are limitations on the actions that are allowed even the best prosecutors." Blocking KPMG from paying its former employee legal bills "confiscates these defendants from displaying the defense they want to present, and, in some cases, even deprives them of their counsel of choice.This can not be tolerated in a society that holds itself to the world as a model justice, "Kaplan wrote in his decision. Kaplan's decision does not affect the prosecution of R.J. Ruble, a former legal partner at Sidley Austin LLP, and three former KPMG partners, including David Greenberg, who works in the Orange County office in the company and releases KPMG from any obligation to him when he leaves his job. John Larson and Robert Pfaff, two other former partners still face charges, leave KPMG eight years before a criminal act was filed and initially did not seek to ask the accounting firm to pay their legal bills.
On August 20, 2007, the prosecutor announced that one of his assistants and tax fraud actor, David Amir Makov, agreed to plead guilty and cooperate with the prosecution of his former colleague. In the previous week, the federal court in Manhattan received $ 150,000 from Mr. Makov as part of a security modification agreement allowing him to travel to Israel. Since Makov never worked for KPMG, he was not affected by Judge Kaplan's dismissal of allegations against 13 of his rule violators.
On September 10, 2007, Makov pleaded guilty to an information about the conspiracy. He agreed to pay a $ 10 million fine and give new details to those involved. Makov provides a brief explanation of how BLIPS works, or a Bond Associated Structure, which he says he helps create. In the previous trial, Judge Kaplan had sentenced the prosecutor for failing to explain clearly how BLIPS works. According to Makov's testimony, BLIPS shelters are created to generate artificial losses that are then used by wealthy investors to offset the profits in legitimate income. The shelter involves a recognized investment component as well as a bank, which extends the loan claimed to the investor. According to prosecutors, BLIPS was marketed and sold around 1999 and 2000 to at least 186 wealthy investors and earned at least $ 5.1 billion in fraudulent tax losses. The Presidio entity formed, owned and operated by Makov with colleagues-defendants Robert Pfaff and John Larson, both former KPMG employees, earned at least $ 134 million selling BLIPS. The IRS considers tax shelter as abuse if it has no legitimate business purpose or indigenous economic substance, in contrast to real lending, with risk money, or real investment. According to Makov, although BLIPS is made on paper to look like a seven-year investment, they do not involve real lending or real investment components. "There is no economic substance," Makov testified. "Instead, we create the appearance of economic substance, not reality." Makov claims that although initially he thought that BLIPS was legitimate, "as part of the scam" he was eventually "asked by a representative from Bank A," among others, "to come up with an investment excuse." He added that he was "clearly told by Bank A, KPMG" and others "that the loan is not at risk." According to The New York Times , people close to the case have identified "Bank A" as Deutsche Bank AG. The bank has not been charged yet, but is expected to reach a settlement with the government. A graduate of Harvard Business School and a one-time employee of Long Term Capital Management, before establishing the Presidio around 1999, Makov worked at Deutsche Morgan Grenfell, an investment banking branch of Deutsche Bank AG. Makov was initially accused of scores of allegations of fraud, tax evasion, and conspiracy, with each count carrying five years in prison. The prosecutor is expected to drop all other allegations if he cooperates during the trial.
The selection of the jury for KPMG's tax-protection fraud trial began on October 9, 2007. However, on October 18, 2007, Judge Kaplan delayed indefinitely the trial will commence in five days, using the jury he has chosen to hear the case, and remove Steven Bauer from Latham & amp; Watkins, a lawyer for former KPMG executive John Larson. The previous government has asked the judge to decide whether Bauer should be moved because he works as a lawyer for Makov and may have a conflict of interest. Larson refused to give up his right to free a lawyer from conflicting interests. Kaplan decides to disqualify Bauer as a trial lawyer for Larson, and promises to solve the problem whether Latham & amp; Watkins should also be disqualified if Larson attempted to be represented by another lawyer at the firm.
On August 28, 2008, the US Court of Appeals for the Second Circuit upheld the sacking of criminal charges against 13 former executives at KPMG. The court stated that the government prosecutor "unfairly interferes with the defendants' relationship with lawyers and their ability to file a defense, violates the Sixth Amendment...." by pressing KPMG to not pay their legal fees. Separately on the same day, US Deputy Attorney Mark Filip announced a new prosecution law aimed at not punishing companies as uncooperative to protect lawyer-client material or pay their employee's attorney in the hearing. "No company is required to cooperate or to seek credit cooperation by disclosing information to the government," Filip said at a press conference on the New York Stock Exchange. "Refusals by companies to work together, such as rejections by an individual to work together, are not a testament to guilt."
On October 15, 2008, the opening of the argument began in trials of David Greenberg and Robert Pfaff, former KPMG tax partner; John Larson, former KPMG senior tax manager; and Raymond Ruble, a former partner at law firm Sidley Austin. The four defendants were charged with conspiring to evade taxes for more than 600 clients in the so-called prosecution case of the largest criminal tax when it started in 2005 with 19 defendants, but were on trial on a much smaller scale. Assistant US lawyer John Hillebrecht told the jury in federal court Manhattan that the four men were lying and cheating "by making tax bills from some of our richest citizens disappear." In turn, Larson's defense lawyer Thomas Hagemann states that his client believes in good faith that what he does is allowed under the law, openly does his business, and acts with "good faith expression". Hagemann was named David Makov, a former Larson associate, turning one of the government's principal witnesses, "liars and perjury". The trial is expected to last three to four months.
On November 24, 2008, two of the four remaining defendants, former tax partner KPMG, Robert Pfaff and former senior tax manager John Larson, filed a motion to dismiss the accusations against them or declare a cancellation of the trial. The motion said that during the trial the prosecutors obtained testimony from witnesses who alleged Pfaff and Larson hid information from KPMG and its tax department to obtain KPMG approval for BLIPS, thus changing the tax fraud conspiracy with KPMG against the IRS into a conspiracy of honest service fraud against KPMG. The motion said that the defense did not receive notice of the change in prosecution theory and was unable to prepare the defense and therefore asked the judge to refuse the indictment or give a cancellation of the trial. The motion claimed that the government's alleged fraudulent procurement of KPMG secret tax returns through a parallel civil tax fraud investigation by the DOJ was a violation of the legal process. The defendants rely on three cases in which the district court rejects charges or suppress evidence "where the Government has committed civil actions solely to obtain evidence for criminal prosecution, or has failed to advise the defendant in a civil proceeding that he contemplates criminal charges." ( Two of these cases were later reversed on appeal.) The prosecution replied that the government always accused, and still argues, that KPMG as an entity is a conspirator, not a victim of any form of fraud. "That for a certain period of time there is an effort to keep certain facts from certain individual KPMG employees there is no moment whatsoever," the government said. Judge Kaplan rejected the motion, finding that none of the circumstances demanded by the defendants applied to their case: "The accused did not deny that there was a bona fide civil investigation, they only complained that there was a criminal investigation as well, and the defendant, who was not the target of the investigation civilians, not claiming to have been deceived by the government. "Interestingly, in the footnotes, the court noted that the defendants depended on the fact that four of the dismissed defendants had now given deposition testimony while unaware of criminal investigations. Judge Kaplan added that they "do not suggest that the government deceive these people," suggesting possible that if the government has engaged in some deceptive behavior, the defendants' movements may have more appeal.
December 1, 2008 marks the end of a deadline for federal prosecutors to seek certiorari by asking the United States Supreme Court to reconsider the appellate court's decision 2 The 2 August 2008 Circuit, which reinforced the decision of 17 July 2007 by Judge Kaplan in the Southern District Court of New York, rejected the criminal charges against 13 of the original 19 defendants.
From 8 to 10 December 2008, the jury heard the closing argument in the KPMG tax protection case. Raymond Ruble's lawyer, Jack S. Hoffinger, told the jury that it is impossible to conclude that the defendants deliberately tried to break the law in helping at least 600 rich people slash their taxes because they did not try to hide what they did from the Internal Revenue Service or otherwise. "What do we have, a big suicide pact?" He asked. He said that the defendants would not design a crime something and then "extinguish it there so the IRS will see it, the government will see it and we will end up in a court accused of a crime." US Assistant US Attorney Margaret Garnett responded that the defendant created a tax shelter which was actually meant to be a legitimate investment: "The defendants sold so-called investments for years and none of the defendant's clients ever made a dime from profit. "He said that the sole purpose of a fake tax shelter marketed from 1997 to 2000 was to" generate artificial tax losses to avoid millions and millions of taxes. " He speculates that the defendants may have a false sense of security from the law, and claim that "their greed and ambition overcome their right and wrong sense."
On December 18, 2008, lawyer Raymond Ruble, who had been a partner at Brown & amp; Wood, was convicted on 10 charges of tax evasion while investment consultants Robert Pfaff and John Larson were convicted of 12 counts. They are freed from conspiracy. David Greenberg, regarded by prosecutors as a "sustainable danger to society" and aviation risks, is exempt from all charges. Greenberg was jailed for five months and asked to use electronic monitoring for two and a half years thereafter. His release came as a result of Steve Acosta, a key government witness, who was "completely unable to provide immediate answers to cross examinations," as US Assistant Attorney John Hillebrecht acknowledged in closing arguments. Acosta has pleaded guilty to conspiracy and tax evasion in a cooperative deal aimed at leniency, possibly saying the government is now in danger. Without waivers, he could face three years in prison. Judge Kaplan ordered electronic monitoring to start for Pfaff at Golden, Colo., House and for Larson at his home in New York City, although the judge said he would reassess the need for next month's bailout, especially after what happened with Greenberg. Six people, including former tax partner KPMG, David Rivkin; David Amir Makov, a currency trader and a sole trader's sole remuneration in the Presidio; and Domenick DeGiorgio, former managing director at the German bank HVB, or Bayerische Hypo & amp; Vereinsbank, has pleaded guilty to criminal charges on this issue.
Some KPMG tax collection clients now demand KPMG for liability exposure.
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