New York - Agreeing to pay a $456 million fine to the federal government, Big Four accounting firm KPMG LLP will escape a criminal indictment for its sale of questionable tax shelters from 1996 to 2002.

After a summer of negotiations, it's a small price to pay for the firm, which would have been barred from working with public company clients if found guilty. As part of the deferred prosecution agreement, the charges will be dismissed on Dec. 31, 2006, if KPMG lives up to all of the terms of the agreement made with the U.S. Attorney's Office for the Southern District of New York and the Internal Revenue Service

Criminal conspiracy charges were separately brought in U.S. District Court in Manhattan against nine former KPMG executives for designing and marketing the tax shelters, which allowed clients to report tax losses to offset big profits elsewhere.

"We regret the past tax practices that were the subject of the investigation," said KPMG chairman and chief executive Timothy P. Flynn in a statement. "The resolution of this matter allows KPMG to confidently face the future as we provide high-quality audit, tax and advisory services to our large multinational, middle-market and government clients." 

In January 2004, KPMG announced congressional scrutiny into its past shelter activities after a November 2003 report compiled by a Senate Government Affairs Subcommittee showed that KPMG collected roughly $124 million in fees from shelters from 1997 through 2001. Investigators have said that the shelters may have cost the government more than $1.4 billion in taxes. In June, the firm released a statement acknowledging "unlawful activity" by former partners. Individual partners may still face indictment.

The fine will be paid in three installments, and KPMG will also implement elevated standards for its tax business. As first reported last week, former Securities and Exchange Commission Chairman Richard C. Breeden was selected to independently monitor the firm's compliance with the agreement for a three-year period. Breeden, who owns his own consulting firm, was appointed to act as WorldCom Inc.'s corporate monitor and remains an ex-officio member of WorldCom's board.

The next step for KPMG will be resolving a number of lawsuits filed by individual taxpayers.

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