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KPMG offers apology over illegal tax shelters

NEW YORK -- KPMG LLP, one of the Big Four accounting firms, apologized yesterday for helping to set up illegal tax shelters, a move that could help it avoid a criminal indictment like the one that destroyed Arthur Andersen three years ago.

Federal prosecutors have been investigating certain tax services that were offered by KPMG to some of its wealthy clients between 1996 and 2002.

''KPMG takes full responsibility for the unlawful conduct by former KPMG partners during that period, and we deeply regret that it occurred," the audit firm said.

A Justice Department spokesman declined to comment, but The Wall Street Journal reported that prosecutors have built a criminal case against KPMG for obstruction of justice and the sale of abusive tax shelters. The paper, citing unnamed lawyers briefed on the case, said top department officials are debating now whether to seek an indictment of KPMG.

KPMG said it has taken stringent measures to change its culture and structure and other steps to see that those responsible for wrongdoing have left the firm.

Some accounting experts said that an indictment of KPMG would not bode well for the accounting industry. Dozens of top-notch corporations had to scramble around the world to find an auditor after Arthur Andersen was brought down by an indictment over its role in the accounting fraud committed at Enron Corp.

Robert Willens, accounting industry analyst at Lehman Brothers, doubted whether prosecutors would take the extreme step of indicting KPMG.

''Certainly I don't think they'd be looking to indict them," he said. ''Not because they don't think they might be indictable, but because it just doesn't make sense to do that to KPMG's clients and to narrow the choices for corporate America down to three major firms."

Apart from KPMG, federal authorities are also investigating Ernst & Young. An Ernst & Young spokesman declined to comment on the status of the probe.

Richard Smith, the KPMG executive who headed the firm's tax practice during at least some of the period covered by the investigation, resigned last year, about two years after having moved to be KPMG's chief financial officer.

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