In 2003, the U.S. Internal Revenue Service issued summonses to KPMG seeking information about certain tax shelters and their investors. In February 2004, the United States Department of Justice (USDOJ) opened a criminal inquiry. The USDOJ accused the U.S. member firm, KPMG LLP, of fraud in marketing tax shelters. KPMG dismissed or required the retirement of more than a dozen partners and employees who were involved. KPMG LLP admitted criminal wrongdoing in creating fraudulent tax shelters to help wealthy clients avoid $2.5 billion in taxes between 1996 and 2002, and agreed to pay $456 million in penalties to avoid indictment. Under the deferred prosecution agreement, KPMG LLP did not face criminal prosecution in exchange for complying with the terms of its agreement. On 3 January 2007, the criminal conspiracy charges against KPMG were dropped.
In 2012, KPMG brokered a deal for Microsoft with the government of Puerto Rico to give them a tax rate of nearly 0%, allowing Microsoft to sell its intellectual property to a 85-person local factory. It took years for the IRS to unravel the scheme, a "Rube Goldberg machine that channeled at least $39 billion in profits to Puerto Rico".
The HBOS accounts were published in February 2008 and six months later HBOS had to be rescued by Lloyds Bank. One reason for undertaking an investigation into the audit was that the audit did not reveal the HBOS Reading branch fraud. HBOS, and subsequently Lloyds Bank, accountant Sally Masterton wrote the Project Lord Turnbull Report which described how the Bank and other organizations reacted to the Reading Branch fraud and was highly critical of the firm. However, the audit was investigated by the FRC which concluded, "there was not a realistic prospect that a tribunal would make an adverse finding against KPMG in respect of the matters within the scope of the investigation", and "The firm's work did not fall significantly short of the standards reasonably to be expected of the audit, the test that a tribunal would apply".
In January 2018, it was announced that KPMG, auditor of collapsed UK construction firm Carillion, would have its role examined by the Financial Reporting Council (FRC), and it was summoned to give evidence before two House of Commons select committees on 22 February 2018. The final report of the Parliamentary inquiry into Carillion's collapse, published on 16 May 2018, criticised KPMG for its "complicity" in the company's financial reporting practices. In January 2019, KPMG announced it had suspended the partner that led Carillion's audit and three members of his team; in August 2021, an FRC disciplinary panel was scheduled for 10 January 2022 to hear a formal complaint against KPMG and former KPMG partner Peter Meehan regarding the provision of allegedly false and misleading information concerning the 2016 Carillion audit.
The tribunal convened to hear the formal complaint started on 10 January 2022. At the disciplinary hearing, KPMG's UK chief executive Jon Holt said the firm had discovered misconduct by it staff in its own internal investigations, and immediately reported it to the FRC. Following the FRC tribunal, KPMG was fined £14.4m (one of the biggest penalties in UK audit history) for misconduct relating to its audit of Carillion and another firm, and received a "severe reprimand" from the regulator. KPMG were also ordered to pay £3.95m in costs.
The tribunal heard allegations that KPMG staff created false meeting minutes and retroactively edited spreadsheets before sharing them. A further tribunal will consider penalties for individual KPMG staff, including partner Peter Meehan; the FRC recommended that he be banned for 15 years and fined at least £400,000. In July 2022, it was announced that he had been fined £250,000 and banned for ten years; three other former KPMG executives also received fines and lengthy bans. A junior member of KPMG staff, Pratik Paw—who, aged 25, had been the most junior member of the Carillion audit team—faced a "life changing" fine of £50,000 and a four-year ban, prompting critics to suggest that accounting firms should enable junior colleagues to challenge their superiors, so that low ranking workers are not blamed for accounting scandals. Ultimately, Paw was not fined or suspended but was severely reprimanded.
Read the full text
The FRC opened a second investigation into how KPMG audited Carillion's accounts. The FRC's first report, which found a number of breaches, was delivered to KPMG in September 2020; the FRC was awaiting a KPMG response before deciding whether to take enforcement action. In March 2021, KPMG was reported to be "inching towards a financial settlement with regulators" over its auditing of Carillion, with the FRC expected to impose a record fine, possibly around £25m, on KPMG for its failings.
In May 2020, the FT reported that the Official Receiver was preparing to sue KPMG for £250m over alleged negligence in its audits of Carillion. In May 2021, the liquidator secured funding for its legal action, with speculation that the likely damages claim could be as much as £2 billion. In February 2022, Sky News reported the Official Receiver's claim would be in the range of £1bn-£1.5bn, with one source suggesting around £1.2bn. The OR's negligence claim focuses on the value of major contracts which were not properly accounted for in audits in 2014, 2015 and 2016, resulting in misstatements in excess of £800m within Carillion's financial reports. KPMG was said to have accepted management explanations for inflated revenue and understated cost positions. The OR had received legal advice that KPMG was answerable to Carillion's creditors for a portion of their losses. KPMG said: "We believe this claim is without merit and we will robustly defend the case. Responsibility for the failure of Carillion lies solely with the company's board and management, who set the strategy and ran the business." The claim, for £1.3 billion (US$1.77 billion), accused KPMG of missing "red flags" during audits of Carillion, in one of the largest claims against an audit firm.
In November 2022, the OR said KPMG had "failed to respond" to Carillion allegations that it had failed to properly audit the accounting of 20 significant construction contracts. KPMG reiterated that Carillion's failure was solely the fault of the company's board and management. In February 2023, The Guardian reported that KPMG had settled the £1.3bn lawsuit brought by Carillion's liquidators; details of the settlement were not made public.
In October 2023, the Financial Reporting Council fined KPMG UK £21 million, saying it had failed to follow "the most basic and fundamental audit concepts" and an "unusually large number of breaches" had been found. For three years before the collapse Carillion was not subject to reliable audits. KPMG UK will also pay legal costs of about £5.3 million. The previous year a £14.4m penalty had been imposed on KPMG UK for providing misleading information to the regulator.
2017 South African corruption scandal
In 2017, KPMG was embroiled in related scandals involving the Gupta family. KPMG, whose history in South Africa dated back to 1895, and which had been part of the international organization since its founding in 1979, faced calls for closure, and an uncertain future, as a consequence of the damage done to the South African economy as a result of its activities.
KPMG had been working with a Gupta family company in the mining sector, Oakbay Resources and Energy, for 15 years prior to the revelations of corruption and collusion in 2016, at which point KPMG resigned. The full impact and financial profit that KPMG received is yet to be determined; however, at least one large company has terminated its services with KPMG due to its relationship with Oakbay.
In July 2017, after controversial documents were leaked by the AmaBhungane Centre for Investigative Journalism, former chief executive of KPMG South Africa and the former partner that was responsible for audits related to the Gupta family, Moses Kgosana, withdrew from becoming the chairman of Alexander Forbes, a financial services firm.
In 2015, KPMG issued a controversial report that implicated former Finance Minister Pravin Gordhan in the creation of an illegal intelligence gathering unit of the South African Revenue Service (SARS). This report was seen by elements of the media to be part of a wider Gupta-linked state capture conspiracy, with the aim of forcing Gordhan out of his post. The report was withdrawn by KPMG in September 2017, earning the ire of the Commissioner of SARS, Tom Moyane.
After an internal investigation that found work done for the Gupta family fell "considerably short" of the firm's standards and amid rising political and public backlash, KPMG's senior leadership in South Africa, including its chairman Ahmed Jaffer, CEO Trevor Hoole, COO Steven Louw, and five partners, resigned in September 2017.
Save South Africa, a civil-society group, accused KPMG and UK PR firm Bell Pottinger of playing a "central role in facilitating state capture". Numerous South African companies either fired KPMG in the immediate aftermath of the scandal, or were reconsidering their relationships with the firm with the international chairman of KPMG, John Veihmeyer, apologising for the conduct of the South African arm and the firm pledged to donate fees earned from Gupta businesses, as well as the withdrawn SARS report, to anti-corruption activities.
Other cases
2003
KPMG agreed to pay $125 million and $75 million to settle lawsuits stemming from the firm's audits of Rite Aid and Oxford Health Plans Inc., respectively.
2004
KPMG agreed to pay $115 million to settle lawsuits stemming from the collapse of software company Lernout & Hauspie Speech Products NV.
2005
During August, KPMG LLP admitted to criminal wrongdoing and agreed to pay US$456 million in fines, restitution, and penalties as part of an agreement to defer prosecution of the firm, according to the US Justice Department and the Internal Revenue Service. In addition to the agreement, nine individuals, including six former KPMG partners and the former deputy chairman of the firm, were to be criminally prosecuted. As alleged in a series of charging documents, the fraud relates to the design, marketing, and implementation of fraudulent tax shelters.
2006
American real estate financing firm Fannie Mae sued KPMG for malpractice for approving years of erroneous financial statements.
2007
In February, KPMG Germany was investigated for ignoring questionable payments in the Siemens bribery case. In November 2008, the Siemens Supervisory Board recommended changing auditors from KPMG to Ernst & Young.
In February, KPMG Mauritius was sued by a group of South African pensioners who lost millions when investing in Leaderguard Spot Forex (LSF), a foreign exchange investment scheme backed by KPMG and Denmark-based Saxo Bank. The suit against KPMG was just for the portion lost during their involvement.
2008
In March, KPMG was accused of enabling "improper and imprudent practices" at New Century Financial, a failed mortgage company, and KPMG agreed to pay $80 million to settle suits from Xerox shareholders over manipulated earnings reports.
In December, it was announced that two of Tremont Group's Rye Select funds, audited by KPMG, had $2.37 billion invested with the Madoff "Ponzi scheme". Class action suits were filed.
In March 2008, KPMG employees in the UK and South Africa were accused of bribing and recruiting employees of commercial structures to collect trade secrets for a monetary reward.
2010
In August, it was reported by the Swedish Financial Supervisory Authority to the Swedish accountancy regulator after HQ Bank was forced into involuntary liquidation after the Financial Supervisory Authority revoked all its licences for breach of banking regulations.
2011
In August, KPMG conducted due diligence work on Hewlett-Packard's $11.1 billion acquisition of the British software company Autonomy. In November 2012 HP announced an $8.8 billion write off due to "serious accounting improprieties" committed by Autonomy management prior to the acquisition.
According to an independent panel formed to investigate irregular payments made by Olympus which reported in December, KPMG's affiliate in Japan did not identify fraud at the company.
2013
In April, Scott London, a former KPMG LLP partner in charge of KPMG's US Los Angeles-based Pacific Southwest audit practice, admitted passing on stock tips about clients, including Herbalife, Skechers, and other companies, to his friend Bryan Shaw, a California jewelry-store owner. In return Shaw gave London $70,000 as well as gifts that included a $12,000 Rolex watch and concert tickets. On 6 May, Shaw agreed to plead guilty to one count of conspiracy to commit securities fraud. He also agreed to pay around $1.3 million in restitution, and to cooperate with the government as part of a plea deal with federal prosecutors. This scandal led KPMG to resign as auditor for Herbalife and Skechers.
The Office of Counter-Terrorism and Financial Intelligence of the US Department of the Treasury accused KMPG, Ernst & Young and PwC of collaborating with British intelligence services to provide analytical information on financial transactions and reports of British organizations operating in the United States with contract agreements with government agencies.
2015
KPMG was accused by the Canada Revenue Agency of abetting tax evasion schemes: "The CRA alleges that the KPMG tax structure was in reality a 'sham' that intended to deceive the taxman."
2016
The Canada Revenue Agency offered an amnesty to KPMG clients caught using an offshore tax-avoidance scheme on the Isle of Man.
2017
KPMG US terminated five partners in its audit practice, including the head of its audit practice in the US, after an investigation of advanced confidential knowledge of planned audit inspections by its Public Company Accounting Oversight Board (PCAOB). This followed criticism about KPMG's failure to uncover illegal sales practices at Wells Fargo or potential corruption at FIFA, the governing international body of football. It was reported in 2017 that KPMG had the highest number of deficiencies, among the Big Four, cited by its regulator in the previous two years. This includes two annual inspections that were compromised as a result of advanced access to inspection information. In March 2019, David Middendorf and Jeffrey Wada, co-defendants in the scandal, were convicted.
The UK accounting regulator, the Financial Regulation Council (FRC), has opened an investigation into KPMG's audit of the financial statements of British aerospace company Rolls-Royce plc for the year ended December 2010.
In August, KPMG US paid a $6.2 million fine to the US Securities and Exchange Commission for inadequacies in its audit of the financial statements of oil and gas company, Miller Energy Resources. It also found KPMG guilty of a long list of violations with regard to its audits, including "lack of competence" and "highly unreasonable conduct."
In November, 91 partners of KPMG Hong Kong faced contempt proceedings in Hong Kong High Court, as China Medical Technologies (CMED) liquidators investigating a $400 million fraud took action against KPMG with regard to its refusal to honor a February 2016 court order to produce Chinese working papers, correspondence, and records to the liquidators. The liquidators are asking that 91 defendants be held in contempt of court, which could result in criminal penalties, or weekly fines. KPMG had issued written audit reports for CMED from 2003 to 2008, and was replaced by PwC Zhong Tian in August 2009. "Perhaps locking up 91 KPMG partners over Christmas may spur the firms to find a solution to this problem", said Professor Paul Gillis of Peking University's Guanghua School of Management.
2018
In July, KPMG came under criticism for its role in the bankruptcy of Dubai-based private equity firm Abraaj Group after it was determined that KPMG Lower Gulf Chairman and Chief Executive Vijay Malhotra's son had worked at Abraaj and that an executive named Ashish Dave alternated between stints at KPMG and as Abraaj's chief financial officer, a job he held twice.
Also in July, the Financial Reporting Council (FRC) announced an investigation into KPMG’s work for Conviviality, the British drinks supplier that collapsed into administration during April 2018.
Also in July, KPMG paid HK$650 million (US$84 million) to settle legal claims after failing to identify fraud at a Chinese timber company, China Forestry. The liquidators of China Forestry claimed KPMG was negligent when it failed to detect serious false accounting by some of the company’s top management ahead of its listing in 2009.
In August, Chile's Comision Para El Mercado Financiero (CMF) sanctioned KPMG Auditores Consultores Limitada (KPMG LLP's local affiliate) 3,000 UF (~$114,000), and Joaquín Lira Herreros, its partner, for offences incurred in the audit made to the financial statements of the Aurus Insignia Fondo de Inversión, managed by Aurus Capital S.A. Admnistradora General de Fondos Management (AGF), corresponding to the year 2014.
In November, the Sultanate of Oman's Capital Market Authority (CMA) suspended KPMG from auditing entities regulated by the CMA for a period of one year after discovering major financial and accounting irregularities in the entities' records.
In December, KPMG South Africa published an open apology for its participation in various scandals in South Africa, including publishing a misleading report that led to the resignation of the South African Finance Minister, involvement with the Gupta family who have been implicated in corruption scandal with former President Jacob Zuma, and acting as the auditor of VBS Mutual Bank that collapsed due to fraud. Its top eight staff resigned during 2017 and its workforce shrank from 3,400 to 2,200.
2019
KPMG were fined £5 million by the Financial Reporting Council for misconduct shortly after the takeover of the Britannia Building Society by The Co-operative Bank, particularly relating to the valuation of Britannia's commercial loans and other liabilities. The takeover led to the near collapse of The Co-operative Bank.
KPMG was fined $50 million by the U.S. Securities and Exchange Commission for illicit use of PCAOB data and cheating on training exams.
In June 2019, KPMG was fined $50 million for altering its past audit work after receiving stolen data from accounting industry watch dog PCAOB. KPMG admitted to its mistakes and as a part of its settlement, it also agreed to hire an independent consultant to review its internal controls.
2020
During April, KPMG UK was fined £455,000 and a senior partner, Nicola Quayle, was fined £29,250 by the Financial Reporting Council for failing to challenge what a client was telling them about certain complex supplier arrangements.
In June, KPMG resigned from the auditor role of British fashion firm Ted Baker plc after the company admitted accounting errors resulting in overstatement of its inventory by up to £58 million.
2021
In February, the liquidators for the South African bank VBS Mutual Bank sued KPMG for 863.5 million rand (~US$59 million) over its audit opinion on the now defunct bank.
In March, KPMG US agreed to pay $10 million to settle a 10-year gender discrimination lawsuit in a New York Federal Court that alleged claims by 450 women that its culture was rife with gender discrimination, sexual harassment, and retaliation.
During May, members of the Canadian Parliament's House of Commons finance committee re-launched a probe into offshore tax evasion by interviewing Lucia Iacovelli, managing partner at KPMG.
