Guilty plea by former KPMG partner over tax shelters

A former partner in the United States arm of the giant accounting firm KPMG pleaded guilty in a Manhattan court yesterday to participating in a sprawling scheme to set up illegal overseas tax shelters to rich clients hoping to duck tax obligations.

The plea was an important breakthrough for the US government. The KPMG affair represents the largest criminal tax case ever pursued by the US authorities. For its part, the firm paid $465m (£274m) last August to settle and avoid prosecution. It will also submit to outside monitoring.

David Rivkin pleaded guilty to defrauding the US and to tax evasion. His plea was to be considered by US District Judge Lewis Kaplan later yesterday. A lawyer for Mr Rivkin told the court that he will cooperate with prosecutors as they seek to convict other defendants at trial in September.

KPMG has acknowledged that the illegal tax shelters were designed to show $11.2bn in fictitious losses for a variety of rich clients. Rivkin was among 19 defendants, including 17 former KPMG employees. The shelters robbed the US Internal Revenue Service of $2.5bn in unpaid taxes, prosecutors say.

Among former senior officers facing trial are KMPG's former deputy chairman Jeffrey Stein and its erstwhile chief financial officer, Richard Rosenthal. Both men have asserted their innocence.

"I knew that the losses should not have been claimed on the tax forms," Rivkin told the court in a hearing. He admitted conspiring with others between January 1999 and May 2004 to help clients falsify documents for tax returns filed to the government. He also said he helped hide the fraud from the authorities. By agreeing to cooperate, he hopes to receive a more lenient punishment from the court.

As part of the fine paid last year, KPMG forfeited $128m in fees it had received for setting up the phony tax shelters.