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INSIDE THE KPMG NEGOTIATIONS

July 06, 2007

The New York Times today describes notes taken by a defense attorney during the tense negotions between international accounting firm KPMG and the Justice Department when the firm was on the verge of being indicted:

Now Mr. Barloon’s notes of meetings from March through June 2005, which were made public in June in connection with the related criminal trial of 16 former KPMG tax employees, provide a rare and detailed look inside the closed-door process of those dealings.

“We almost never get a front-row seat to a negotiation between a major multinational company and the United States government,” said Stephanie Martz, director of the White Collar Crime Project.

An indictment would probably have brought down KPMG. The notes seem to show that the government made KPMG throw some of its partners off the sled to hold off the wolves:

Rod Rosenstein, the deputy assistant attorney general, who was at the meeting, asked whether the Justice Department was “setting a precedent that we can’t prosecute somebody if they come and clean everything up.”

But earlier in the meeting, [defense attorney] Mr. Bennett said that “what was really precedent-setting about the case was the conditioning of the payment of [partner and employee] legal fees on cooperation. We said we’d pressure — although we didn’t use that word — our employees to cooperate.”

This denial of legal fees for employees is at the heart of efforts to have the criminal charges against former KPMG partners and employees dismissed. The trial judge is considering the issue.

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