Business Case Studies,Corporate Governance & Business Ethics Case Study, Flour Corp's Business Ethics Practices: Creating Six Sigma Standards in Staying Corruption-Free

Code : GOV0026C

Year : 2006

Industry :Consulting

Region : US

Teaching Note: Available

Structured Assignment : Available

Abstract: On August 26, 2005, KPMG, one of the world’s Big Four accounting and auditing firms, lost the biggest ever tax shelter fraud case to the US Justice Department. KPMG had been involved in developing and aggressively marketing tax shelter products from 1996 to 2003, to its wealthy clients who sought tax planning advice. The firm did not register these products with the Internal Revenue Service, which later declared the tax shelters as illegal. The tax shelter products had resulted in a tax evasion of USD 2.5 billion by creating false losses of about USD 11 billion. However, KPMG was not criminally indicted for the fraud. Instead KPMG confessed to being involved in the fraud and agreed to pay a penalty of USD 456 million. It was accepted that KPMG would not offer tax planning services to clients and would not continue to sell the tax shelter products. If KPMG agreed to certain conditions until December 2006, no criminal charges would be levied against the firm and KPMG could escape with mere penalties.

The case gives an account of the important tax shelter products of KPMG and highlights the details of the litigation against the firm. The case aims to analyse whether the regulatory authorities were correct in protecting KPMG from criminal charges and whether they need to play a more important role in fraud prevention.