KPMG created tax shelters that were later declared illegal, but Judge Lewis Kaplan has ruled that the government used improper coercion in seeking KPMG cooperation. The New York Times reports that the statements made by two KPMG partners will not be used at their trials.
KPMG vice-chairman Richard Smith and former partner Mark Watson were financially pressured to waive their Fifth Amendment rights and speak with federal prosecutors as well. When they spoke with prosecutors without these rights, they were exposing themselves to legal risk, according to the Assocated Press.
Judge Kaplan said in his ruling, “The government brandished a big stick – it threatened to indict KPMG. And it held out a very large carrot.” The Associated Press said that KPMG was offered the hope of avoiding indictment for bringing forward, “employees who would talk, notwithstanding their constitutional right to remain silent.” U.S. Attorney Michael Garcia has made a statement that prosecutors acted “ethically and properly” as their case developed. This case is the largest criminal-tax case ever, according to the New York Times.
The judge also ruled that the government used improper efforts to impel KPMG to force cooperation from employees. KPMG was improperly pressured by federal prosecutors to stop paying the legal bills of accused workers, crippling their ability to defend themselves. The Associated Press reports that the firm threatened to fire uncooperative workers. Invoking their Fifth Amendment rights would have resulted in their firing as well, according to the New York Law Journal.
The firm avoided criminal prosecution for its part in developing illegal tax shelters by paying a $456 million fine. Sixteen former KPMG employees and 2 outside professionals have been charged in this case, according to the New York Times.
Judge Kaplan did not dismiss the statements of all the defendants, including partner Carol Warley. These defendants were influenced to speak with federal prosecutors via other factors.