Another View: Corporate Cooperation Taken to New Lows

The KPMG DPA contains several remarkable provisions. As an initial matter, the government has dictated that KPMG, upon pain of corpor-ate death, must adhere to the government's version of facts that the tax strategies at issue are inherently fraudulent. This company confession is embodied in the DPA's 'Statement of Facts,' which mirrors the indictment of the 19 individuals now blamed for KPMG's alleged wrongdoing, United States v. Stein et al., S1 05 Cr. 888 (LAK) (S.D.N.Y., October 19, 2005). The DPA prohibits KPMG and any of its employees from making any statement, in any context, which is inconsistent with the Statement of Facts. It also requires KPMG to waive any attorney-client privilege or work product protection in favor of the government while allowing it to retain the protections against others. KPMG was forced to accept these and other conditions of the DPA despite that fact that: 1) none of the tax strategies charged as a crime have ever been found to be illegal; and 2) for years, KPMG assured its management, employees, and customers, as well as the government, that the strategies were lawful. The DPA will prevent KPMG from bringing these facts to light.

The government's heavy-handed tactics can be traced back to the now infamous memo drafted by former Deputy Attorney General Larry Thompson in January 2003. The Thompson Memo, among other things, sets forth a list of factors prosecutors are supposed to weigh in determining whether to charge a corporation criminally. Prosecutors are directed to look at several factors, including the nature of the alleged offense, whether the offense was voluntarily disclosed, any remedial measures taken by the target corporation, whether the employees deemed responsible for the wrongful acts have been terminated, and the extent of the corporation's cooperation with the government.