KPMG’s US arm may avoid charges

THE American arm of international accounting firm KPMG may avoid criminal charges over its sale of tax shelters that could send it out of business, after the Bush administration instructed federal prosecutors to seek a settlement, sources familiar with the case said yesterday.

The Justice Department in Washington directed David Kelley, the US attorney for the Southern District of New York, to negotiate a deal to avoid charges that could drive KPMG out of business, said the sources, who requested anonymity.

A settlement would ease concerns in the Justice Department and among securities regulators that KPMG’s collapse would eliminate thousands of jobs and reduce the number of major accounting firms to three. Hundreds of large companies would have to scramble for an auditor if KPMG goes under.

If the talks between Kelley and KPMG break down, the firm could still be indicted, the people familiar with the discussions said. KPMG may face charges it obstructed justice, sold abusive tax shelters to rich clients and misled investigators from the Internal Revenue Service.

Prosecutors also have notified as many as 20 ex-KPMG partners that they may face criminal charges for their roles in selling the tax shelters, the Washington Post reported this week.