Once KPMG switched sides and began to assist the DOJ’s investigation, the firm became remarkably pliable. For example, the deferred-prosecution agreement, dated August 26, 2005, provided that KPMG would admit to the facts and conclusions of a comprehensive government memorandum detailing how and why the shelters were indeed fraudulent. KPMG agreed to cooperate “fully and actively” with federal prosecutors in going after individual defendants, and to make its “best efforts to make available its recent and former partners and employees to provide information and/or testimony as requested by” the government.
KPMG’s agreement with the DOJ contained one particularly breathtaking stipulation — that neither KMPG nor its employees and attorneys would “make any statement, in litigation or otherwise, contradicting the Statement of Facts or its representations in this Agreement.” In other words, KPMG warranted that no one connected with the company would wander off the reservation and change the agreed-upon story. Recognizing that some individual employees might at some point veer off script, the agreement stated that, should the DOJ decide some statement contradicted the official version of the settlement agreement, KPMG would be notified and would have 48 hours to issue a “repudiation” of any such “contradictory statement.” (If any private party were to enter into such an agreement with a potential witness in a federal criminal case, he or she likely would be indicted under the many dangerously broad and vague federal interference-with-a-witness and obstruction-of-justice statutes.)
Cooperation, in short, was defined as KPMG’s doing virtually anything and everything asked of it by DOJ prosecutors. And one further provision of the deferred-prosecution agreement sheds additional light on the DOJ’s deal with KPMG: the firm, in the words of the agreement, “has been involved in an engagement to audit the Department of Justice’s financial statements.” Because of KPMG’s signing onto the agreement, the DOJ for its part agreed that the firm would continue as its auditor. (Under federal criminal law, one could readily argue that this constitutes bribery or threats directed to a witness.) Such was the high degree of confidence now placed by the government in its erstwhile prey. The partnership between the DOJ and the auditing firm would continue, presumably profitably for both.
But, in addition to the dubious nature of the DOJ’s pressure on KPMG to toe the prosecutors’ line, there’s another way in which the government’s deal with KPMG appears to be abusive and of dubious legality: had a private company similarly sought to rely on its auditor’s imprimatur in order to defend itself against a charge of accounting sloppiness (or worse), DOJ prosecutors likely would be giving serious consideration to a criminal prosecution for violation of the federal false-statements statute, or one of myriad other such laws, some of recent vintage adopted to close perceived auditing and reporting “loopholes” in the Enron scandal.
Bear in mind that the Department of Justice has indicted citizens for making false statements no more misleading than FBI Assistant Director Miller’s claimed reliance on the Bureau’s independent auditor as guarantor of the FBI’s financial integrity. Indeed, Martha Stewart’s indictment included a charge that she lied in a press release when she denied having engaged in insider trading. Somehow, every time you think that the prevarications and accompanying ironies couldn’t get any worse, our federal government outdoes itself.