Number of New York City eighth-graders deemed “proficient” on last year’s end-of-summer-school reading exam: 0
Percentage of those who took the test who were promoted to the ninth grade: 78
* * *
Rank of the World Wildlife Fund among organizations most trusted by Europeans and Americans, respectively: 2, 8
Rank of Coca-Cola: 8, 2
If the universe had a Director of Ethical Symbolism, he or she would have just concluded a week of near-perfect symmetry. The thrilling design includes two scandals, two trials, two celebrities, two coasts, and two enormous ethical issues common to both. And all of it is hidden in two cases that, on the surface, feel as different as New York and California.
On the East Coast, design doyenne Martha Stewart is on trial over money. She’s charged with lying and conspiring to cover up alleged securities fraud involving her sale of 4,000 shares of ImClone stock in 2001. The setting could hardly be more appropriate: A wintry Lower Manhattan courtroom a few hundred dish-towel-lengths from Wall Street, arguably the financial center of the world.
On the West Coast, pop star Michael Jackson is on trial over sex. He’s charged with performing lewd or lascivious acts with a 13-year-old boy at his Neverland Ranch. Again, the setting seems to fit: The County Superior Court in sunny Santa Barbara, an easy helicopter ride from Hollywood, the global entertainment capital.
Both celebrities are playing studiously to their fans — Stewart with artfully designed television interviews to protest her innocence, Jackson with a deft appearance outside the courthouse. Stewart’s fans include both amateur decorators, whom she’s taught to arrange their lives in beautiful ways, and conservative commentators, who object to governmental (read socialist) intrusion into her entrepreneurial success. Jackson’s fans combine those attracted by his amazing dancing and those who see him as an ingénue harassed by governmental (read puritanical) agents because he chooses to remain childlike.
At heart, each case raises a pair of serious ethical issues. The first concerns freedom of information. In Santa Barbara, Judge Rodney Melville has sealed court documents on the grounds that they contain “sensitive information” that would compromise the privacy of both Jackson and his accuser. In New York, U.S. District Judge Miriam Goldman Cedarbaum has refused to grant media access to the jury selection process, asserting the need to encourage candid responses from potential jurors. Media organizations are fighting both restrictions, claiming they violate First Amendment rights.
But the real concern goes deeper. Is it right for celebrities to get different treatment in court from ordinary people? Were it not for Stewart’s fame, jury selection would be easier and probably more public. And without Jackson’s renown, open access to court proceedings — a distinctive mark of well-developed legal systems — might seem less threatening. The uncomfortable truth, however, is that a nation with one of the finest legal systems is also a leader in creating the celebrity culture. Is that why these two cases have been brought forward by prosecutors — to make public examples of high-profile personalities? That may be an effective strategy, deterring others from similar crimes. But is it an ethical strategy? Does it treat everyone fairly regardless of celebrity status?
The second ethical issue is more troubling. It involves celebrity manipulation of news. Stewart is reportedly spending heavily on public-relation consultants to help her track public opinion about her. She’s then designing calculated responses, right down to her comments on television and her choice of clothes in court, to offset the negatives. With relation to Michael Jackson, the media may have tried to help last year: The New York Times reported last week that NBC allegedly offered to kill a “Dateline” documentary on him prepared by its news division last year if Jackson would let NBC’s entertainment division pay $5 million for a special about him. Jackson declined, selling the rights to Fox instead. The “Dateline” special aired as planned last February, including some damaging material about Jackson.
That raises another uncomfortable truth: That a nation famous for the freedom of its media also tolerates an increased blurring of news and entertainment. When we see Jackson or Stewart on television, what are we seeing? Is it an entertainment interview costing $5 million, designed by prior agreement not to ask the celebrity anything too embarrassing? Or is it a news story, where interviewees are never paid (a hallmark of good journalism) and where reporters can ask anything? The public often has no clue which is which — especially when (as NBC allegedly was offering) news-division interviewers conduct entertainment-side interviews.
It’s a given that this new century will see more, not less, attention paid to celebrities. Will the divide between celebrities and common folk — like the divide between the economic haves and have-nots — continue to widen? Will the media deliberately confuse us on this topic, letting us think we’re getting the news, when all we’re really seeing is the celebrity’s own carefully sketched self-portrait? A definition of celebrity, after all, is “someone who is known for being known.” Celebrities, by definition, draw public attention. Can any news organization risk offending a celebrity who could draw large viewing audiences? In media organizations operating both news and entertainment divisions, will the news side soft-pedal negative coverage of celebrities so that the entertainment side can continue to win interviews with them? Is the only ethical approach to separate news and entertainment into different organizations?
Hairy questions, these, and new to an age whose defining feature may be celebrity itself.
(c)2004 Institute for Global Ethics
“As of this moment, no director has any outside biotechnology or pharmaceutical relationship. Those have been stopped.”
– Dr. Elias Zerhouni, head of the National Institutes of Health (NIH), speaking at a U.S. Senate hearing last week. The NIH has been stung by sharp criticism for allowing NIH scientists to perform undisclosed contracting work for companies whose products they regulate. Following Zerhouni’s announcement of the new policy regarding directors of the agency’s research institutes and centers, he was pressured to extend that same policy to all NIH scientists. That agreement has not yet been reached. (“NIH Directors No Longer Drug Firm Consultants,” Los Angeles Times, Jan. 23)
TEL AVIV
Israeli prime minister Ariel Sharon last week fended off demands for his resignation after prosecutors indicted a businessman for allegedly bribing the prime minister with hundreds of thousands of dollars.
Sharon’s deputy prime minister, Ehud Olmert, also was implicated by last week’s indictment, reported the New York Times.
The indictment accuses real-estate developer David Appel of funneling roughly $700,000, beginning in the late 1990s, to Sharon in exchange for help with two business deals, both of which ultimately fell through.
Prosecutors allege that Appel plied Sharon — then Israel’s foreign minister — with monthly payments channeled through Sharon’s son Gilad, who the businessman hired to promote the development of a Greek resort.
“(Appel) and Gilad agreed to this arrangement despite the fact that the defendant knew that Gilad had no relevant professional qualifications,” the indictment claimed, according to the Associated Press.
As Sharon’s role shifted from foreign minister to parliamentary opposition leader to prime minister, the bribes expanded to cover a re-zoning effort favored by Appel, reported the New York Times.
According to the indictment, the payments, which totaled approximately $690,000, continued until June 2001, three months after Sharon took over as Israel’s prime minister.
Although neither Sharon nor Olmert were charged in last week’s indictment, the allegations are the most specific and potentially damaging to result from a long-running probe into illegal financing for Sharon’s political campaigns.
Both Appel and Sharon fired back last week with denials of wrongdoing.
“There was nobody who gave anything, nor anyone who received anything,” Appel’s lawyer, Moshe Yisrael, insisted.
Sharon, meanwhile, pledged to fight opponents’ calls that he step down, reported the Times.
“I am not about to resign,” Sharon declared. “If the question is whether recent developments are liable to bring about my resignation, the answer is no.”
FRANKFURT
Deutsche Bank chief executive Josef Ackermann went on trial last week for allegedly enriching corporate executives with improper bonuses and severance packages at the expense of shareholders.
The charges center on the takeover of conglomerate Mannesmann by the U.K.-based firm Vodafone in 2000. After Mannesmann executives who had opposed the deal dropped their resistance, they were given $70 million in bonuses and retirement packages.
At first, prosecutors charged that the deal, engineered by Ackermann, amounted to conspiracy, alleging that the payments — high by German standards — were dealt out as kickbacks for approving the buy-out.
Later, those charges were dropped as prosecutors shifted the nature of their complaints, calling the deal illegal because it enriched Mannesmann executives without helping shareholders, reported the New York Times.
Ackermann, widely viewed as Germany’s most powerful banker, has flatly denied any wrongdoing, denouncing the allegations as bizarre and unfair.
“This is the only country where those who succeed in achieving a good price (for a company) are dragged before court for it,” Ackermann told reporters, according to the Associated Press.
The charges have sparked an outcry from many observers, who say that what is essentially a social debate over excessive executive pay instead has been misdirected into a criminal trial.
Ackermann’s actions may raise eyebrows in Germany, they point out, but those same bonuses would hardly warrant a second glance in the United States or in the rest of Europe.
“Germans have to decide, ‘What kind of a system do we want in our country?’” Marcus Lutter, a professor of law and an expert in corporate governance at the University of Bonn, told the Times. “It’s unfortunate that we have to decide this social question in a criminal court.”
Ackermann, who has been backed steadfastly by Deutsche Bank, faces up to 10 years in prison if convicted.
WASHINGTON
Two U.S. senators last week asked Supreme Court Chief Justice William Rehnquist to weigh in on the growing controversy surrounding Associate Justice Antonin Scalia’s recent vacation with Vice President Dick Cheney, who is a litigant in a pending suit before the U.S. Supreme Court.
In a letter to Rehnquist, Senators Patrick Leahy (D-Vt.) and Joseph Lieberman (D-Conn.) asked the head of the Supreme Court to explain when an apparent conflict of interest reaches a level that warrants recusal.
“When a sitting judge, poised to hear a case involving a particular litigant, goes on a vacation with that litigant, reasonable people will question whether that judge can be a fair and impartial adjudicator of that man’s case or his opponent’s claims,” the senators wrote.
The senators’ letter rides growing debate over Scalia’s involvement with Cheney, who has been sued for blocking access to information on how, and with whose help, he formulated the nation’s energy policy.
Plaintiffs in the suit — Judicial Watch, a government watchdog organization, and the Sierra Club, an environmental advocacy group — have asked Scalia to recuse himself in the pending case.
The groups say Scalia and Cheney’s longtime friendship, coupled with two recent trips with Cheney, suggest a strong conflict of interest that could bias Scalia’s deliberations.
According to the Associated Press, Cheney ate dinner with Scalia, along with Secretary of Defense Donald Rumsfeld, in November — two months after asking the Supreme Court to intervene in the case against him.
Shortly after the Supreme Court agreed in December to hear the case, Cheney and Scalia spent several days together duck hunting in Louisiana.
Legal experts seem mixed in their opinions of whether or not Scalia should have avoided his recent socializing with the vice president.
“A judge may have a friendship with a lawyer, and that’s fine,” New York law professor Stephen Gillers told the Los Angeles Times. “But if the lawyer has a case before the judge, they don’t socialize until it’s over. That shows a proper respect for maintaining the public’s confidence in the integrity of the process. I think Justice Scalia should have been cognizant of that and avoided contact with the vice president until this was over.”
Scalia, in a written statement to the Times, disagreed: “Social contacts with high-level executive officials (including cabinet officers) have never been thought improper for judges who may have before them cases in which those people are involved in their official capacity, as opposed to their personal capacity.”
Scalia has recused himself from another upcoming case before the Supreme Court, this one involving the recital of the phrase “under God” in the Pledge of Allegiance. After giving a public speech criticizing the judiciary’s role in deciding the matter, Scalia agreed to step down from hearing the case.
NEW YORK
Banking giant Citigroup last week announced a new initiative aimed at minimizing the environmental damage done by projects bankrolled by the international finance firm.
The new pledge, which comes after strong pressure from the Rainforest Action Network, will bar Citigroup from financing projects “that Citigroup determines could adversely impact a critical natural habitat.”
The deal, which puts a bit of backbone into previous voluntary agreements, means that Citigroup will refuse to fund certain logging operations in tropical forests, reported the Associated Press.
At the same time, Citigroup will fund projects developing renewable energy and sustainable forestry, and will document greenhouse gas emissions from power projects financed by the firm.
“We think this is the most significant environmental commitment to date in the financial services sector … and perhaps in the corporate sector, because of the potential ripple effects,” Ilyse Hogue, global finance campaign director for the Rainforest Action Network, told the AP.
WASHINGTON
The federal government has the right to step in when states fail to adequately enforce environmental laws, the Supreme Court ruled last week in a decision backing the authority of the Environmental Protection Agency (EPA).
The court’s 5-to-4 ruling came in the case of Teck-Cominco Ltd., the nation’s largest zinc supplier, which had pursued more lenient environmental regulations at the company’s Red Dog Mine in Alaska.
Hoping to increase the mine’s zinc production by 40 percent, the company wanted to build a new generator and use cheaper technology on existing generators powering the Red Dog in 1999, reported the Reuters news agency.
Alaska’s Department of Environmental Conservation approved the relaxed environmental permit, saying the mine could use cheaper technology that cut pollutive emissions by 30 percent instead of 90 percent.
At that point, the EPA intervened, overriding the state and blocking the mine’s construction permit, saying Alaska’s assessment of the technology’s cost had been superficial.
Alaska and Teck-Cominco joined forces to sue the EPA, but lost in front of the U.S. Ninth Circuit Court of Appeals in 2002 and in front of the Supreme Court last week, reported the Washington Post.
Countering claims that the ruling undercuts state’s rights, Justice Ruth Bader Ginsburg said the EPA had acted appropriately under its mandate from Congress to enforce the Clean Air Act when states fail to do so.
OTTAWA
U.S. agribusiness giant Monsanto last week took a small-scale Canadian farmer to that country’s highest court in a dispute that has morphed from an argument over allegedly stolen seeds to a widening debate over the corporate patenting of life-forms.
Monsanto Co. has accused farmer Percy Schmeiser of planting more than 1,000 acres with canola seeds engineered by Monsanto to resist the company’s Roundup weed-killer, reported the Reuters news agency.
Schmeiser denies any wrongdoing, saying he is opposed to the genetically altered canola and blaming his biotech plants on pollen and seeds dispersed on his land by wind, animals, and machinery from neighbors’ fields planted with the engineered seed.
Two lower courts have rejected Schmeiser’s explanations, leading to last week’s appeal hearing at Canada’s Supreme Court.
While the arguments until now have centered on property rights — whether Schmeiser has stolen Monsanto’s intellectual property — the debate has been shifting to patent rights, noted the Associated Press.
Schmeiser’s case has become a cause celebre both for activists opposed to the spread of genetically engineered crops and for those opposed to corporate efforts to profit by patenting forms of life.
Such arguments may find friendly ears at the Supreme Court, noted the AP, citing the court’s December 2002 ruling that Canadian patent law could not be used by Harvard University to patent a genetically engineered mouse.
Roughly half of Canada’s 10 million acres of canola now are planted with Monsanto’s engineered seeds, according to the AP report.
A ruling is expected in several months.
Special to Newsline from Canadian correspondent Errol P. Mendes
OTTAWA
The Royal Canadian Mounted Police (RCMP) came under heavy criticism last week for raiding the home of journalist Juliet O’Neill, a reporter with the Ottawa Citizen, carrying away computer files and other personal documents under a sealed search warrant.
Since the incident, it has been revealed that the search and seizure was connected to an attempt to find the source of an RCMP leak who had disclosed to Ms. O’Neill the reason why U.S. authorities had detained Canadian citizen Maher Arar.
Detained in New York, Arar was deported to Syria, where he was allegedly tortured and forced to confess that he had attended terrorist training camps in Afghanistan — something that he now says was untrue and extracted under torture.
On November 8, 2003, Ms. O’Neill had published this information in the Ottawa Citizen, saying it was obtained from an RCMP source.
The search and seizure of the reporter’s documents under the Canadian Security of Information Act has caused outrage among Canadian media circles, civil rights advocates, and the general public.
The Ottawa Citizen, along with many media and civil rights advocates, are alleging that the incident is a major violation of the freedom of the press and an attempt to intimidate journalists into revealing their confidential sources. Even Prime Minister Paul Martin has stated that the RCMP should be looking for the source within their organization, rather than seeking information from a reporter.
WASHINGTON
A U.S. Navy admiral last week ordered a one-day “stand down” of the navy’s surface fleet for a day of ethics training, following allegations of theft by U.S. sailors during an inspection of a vessel in the Persian Gulf.
The order from Vice Admiral Timothy LaFleur affects all ships with teams for boarding, search, and seizure operations — roughly 200 cruisers, destroyers, frigates, and patrol vessels, reported the Virginian-Pilot.
The “ethics, trust, responsibility, and mission stand down” will include a review of appropriate behavior and consequences for breaches by those who board and search other vessels.
The refresher course must take place on all vessels within 15 days, according to a spokesman.
The move follows allegations that two soldiers from the San Diego-based destroyer Higgins stole $200, three cameras, and a watch while inspecting a Singaporean merchant ship passing through the Persian Gulf earlier this month.
The sailors, who were found in possession of the missing items, face possible confinement, extra duty, pay penalties, and possible discharge, reported the Agence France-Presse.
From Business Ethics magazine:
“From new forms of rigorous and honest environmental auditing to ownership structures designed to support social mission, socially responsible business has evolved into a hopeful array of dynamic and diverse forms, each with a different way of addressing social needs. That’s the lesson of this year’s Business Ethics Awards, given by the Minneapolis-based publication Business Ethics for the 15th year in a row. Award winners for 2003 are a balance of large and small, public and private firms.
“The world is governed more by appearances than by realities, so that it is fully as necessary to seem to know something as to know it.”
– Daniel Webster (U.S. statesman and orator, 1782-1852)
Among the instructions coming from the Iowa caucuses, three are particularly encouraging to those who care about the ethics of campaigning. They are: (1) Be nice, (2) don’t be nasty, and (3) be there.
Pundits long will debate the messages to be drawn from Monday’s surprising results: Sen. John Kerry’s definitive win, Sen. John Edwards’ strong surge into second place, the sudden collapse of longtime front-running Gov. Howard Dean into third, and the fourth-place knockout punch to Rep. Richard Gephardt. But one message is clear: Negative campaigning is not a formula for success — not, at least, in Iowa
How else to explain Edwards’ surge? He long ago staked out a positive position. Earlier in the season, when Dean was apparently in irreversible ascendancy, his opponents moved into the attack mode, taking on the front-runner at every turn. It almost seemed as though the other candidates had nothing else on their minds save a commitment to savage and destroy the Vermont outsider. With one exception: Edwards, true to his promise to maintain an uplifting tone, had ample opportunity during the televised debates to lambaste Dean — and refused to do so. “If all we are in 2004 is a party of anger,” he told an audience last month, “we can’t win.”
Iowans liked that. They obviously liked other things about Edwards, too. If he were a mere Pollyanna, he wouldn’t have won the surge in support. But the rapid movement of caucusgoers into Edwards’ camp over the last week suggests a relief that a candidate could still be found who believes in comity, friendliness, and a positive message.
Iowa voters, however, didn’t simply reward the positive. It would appear they also punished the negative. Reporters on the ground in Iowa this past week were particularly struck by the warring television commercials, especially those that pitted Gephardt against Dean. These apparently took their toll as the days passed. In the end, Dean was knocked farther back on his heels than most people would have thought possible. Gephardt was bounced entirely out of the ring. It would seem, in a way, that they ground each other down. That result squares perfectly with some of the survey research we’ve done here at the Institute in prior years. Nationally, we’ve found, the U.S. public is deeply offended by nasty, attack-oriented, scorched-earth politicking. They think that it’s unethical, that it produces unethical officeholders, and that it keeps good people from running for office. Iowa, it seems is no exception.
The national surveys also told us something else: Negative campaigning keeps voters from going to the polls. After all, if the choice is between two slimeballs, why bother to trek down to vote when you could go fishing or read a book? In Iowa, by contrast, great numbers of people — many more than usual — trekked to the caucuses. In part that was because they had some positives they could support, rather than simply some negatives to vote against. But perhaps more importantly, I suspect, they felt they had a stake in something important. They were debating a huge issue, quite possibly affecting the entire course of the world’s leading democracy. The conclusion was by no means foregone. And the debate was taking place in a small state, in intense and sometimes intimate meetings where it wasn’t hard to see how a single vote could make a real difference. Hence the willingness on the part of Iowans to turn out and be there.
Which is the way politics ought to practiced. There’s been lots of hand-wringing about party politics in the United States and its increasing distance from the people. Do people really care? Can you get citizens interested in their candidates? Will they bother to turn out and vote?
That’s still a question. After all, despite the healthy turnout at the caucuses, the great majority of eligible Iowans didn’t show up. Those who did, however, reminded the nation — and the candidates — that ethics and campaigning need not be separated. In an age when ethics so often shows up in the news by its absence, that’s a gratifying sign.
(c)2004 Institute for Global Ethics
“This will send us home and shut the door, just like what happened to women in Afghanistan. The old law wasn’t perfect, but this one would make Iraq a jungle.”
– Kurdish lawyer Amira Hassan Abdullah, protesting a recent vote by the U.S.-backed Iraqi Governing Council to rescind civil family laws in Iraq and replace them with the strict Islamic legal doctrine known as sharia. The shift “of family issues from civil to religious jurisprudence” would upend the relatively modern legal protections for women honored by deposed leader Saddam Hussein, reported the Washington Post. Although Paul Bremer, the chief U.S. administrator in Iraq, can veto the council’s decision, that power will end once control is handed over to local authorities at the end of June, according to the government’s current schedule. (“Women in Iraq Decry Decision To Curb Rights,” Washington Post, Jan. 16)
HOUSTON
Federal prosecutors last week celebrated their biggest win yet in the attempt to hunt down those responsible for the 2001 collapse of Enron: a guilty plea from Andrew Fastow, the firm’s former chief financial officer.
Fastow pleaded guilty to two felonies and now faces up to 10 years in prison and more than $23 million in civil and criminal penalties, reported the New York Times.
Two hours later, Fastow’s wife, Lea, also pleaded guilty to participating in the fraud that felled Enron, entering a guilty plea for one tax felony. Her agreement calls for five months in prison, followed by five months of home detention.
Andrew Fastow’s plea was heralded as a home run for federal prosecutors, according to the Times, which noted that the plea agreement’s tough terms were almost entirely dictated by the government.
Under the deal, Fastow must cooperate completely with regulators in tracking down how Enron’s fraud occurred and who was involved. If the government becomes unsatisfied with his cooperation, Fastow will face prosecution on as many as 96 remaining counts, reported the Times.
According to the Times, prosecutors believe Fastow may be able to trace the path of fraud up the corporate ladder to Enron’s two former chief executives, chairman Kenneth Lay and CEO Jeffrey Skilling, both of whom deny any wrongdoing.
“This is a very significant development,” Leslie Caldwell, the Justice Department’s lead Enron investigator, said last week. “For the first time, the Enron task force has a seat on the 50th floor.”
Both of the Fastows will be sentenced in April, according to the Times.
WASHINGTON
Following a long series of corporate scandals, a coalition of the nation’s top executives last week announced plans to open a new ethics center dedicated to instilling values in both current and emerging business leaders.
The new Institute for Corporate Ethics, which plans to launch executive-level training sessions this year, will make its home at the University of Virginia, the Business Roundtable announced last week.
“This Institute is a bold investment that will bring together the best educators in the field of ethics, active business leaders, and business school students to forge a new and lasting link between ethical behavior and business practices,” pledged Business Roundtable co-chairman Franklin Raines, chairman and CEO of mortgage finance giant Fannie Mae.
The Business Roundtable, which developed the institute, is an association of the nation’s top CEOs, who collectively employ more than 10 million workers and generate $3.7 trillion in revenues, according to a press release.
Business Roundtable chairman Hank McKinnell, chairman and CEO of drug giant Pfizer, added, “As the chief ethics officers at our companies, we know setting and maintaining the highest ethical standards starts at the top.”
News of the planned center follows a recent Harvard Business School move to beef up its MBA program with a semester-long course dedicated to teaching ethics.
NEW YORK
As allegations of wrongdoing continue to plague the $7 billion mutual fund industry, U.S. regulators last week announced a series of reforms meant to speed up reforms currently being considered by Congress.
In an examination of 15 brokerage firms, regulators found that 13 had agreed to push clients toward mutual funds offered by companies that were giving cash or other undisclosed rewards to the brokers.
Regulators suspect that the practice is widespread among brokers, who collectively sold 55 percent of mutual fund shares in 2002, reported the Washington Post.
Taking aim at such abuses, the U.S. Securities and Exchange (SEC) last week announced a series of reforms, including requiring brokers to adopt and enforce codes of ethics, reported the Associated Press.
The codes also would require employees to report their personal trading, including shares in mutual funds managed by their firms.
The SEC also voted unanimously to require mutual fund companies to make their board chairmen and at least 75 percent — up from the current 50 percent — of board members independent from the companies managing the funds.
While some observers caution that such moves may not fix the problem of insider deals and bias, others say the reforms add another firewall to the system.
“We think this is the right thing to do,” Paul Roye, director of the SEC’s investment management division, which oversees mutual funds, told Dow Jones.
The proposals will be subject to a public-comment period before coming up for a final SEC vote in a few weeks, according to the Reuters news agency.
In a related story, last week’s action comes on the heels of a new study that found the number of financial restatements by public companies rose to a record level in 2003 — 206 restatement of annual reports, up from 183 in 2002, reported the New York Times.
WASHINGTON
In the midst of an increasingly acrimonious dispute with the U.S. government over allegedly abusive tax shelters, accounting firm KPMG last week announced a shake-up of its tax services department.
In November, KPMG angered some members of a U.S. Senate panel by evading questions about tax shelters used by the company to help clients escape $1.4 billion in U.S. taxes. KPMG made $124 million in fees off those shelters.
A month later, the Justice Department accused KPMG of trying to keep papers from federal investigators, accusing the firm of engaging in “a concerted pattern of obstruction and noncompliance,” reported the Associated Press.
Last week, KPMG said its tax services division, the focus of the government’s increasing ire, would undergo leadership changes — an announcement many see as a move signaling a change in KPMG’s behavior.
KPMG deputy chairman and former vice chairman of tax services Jeff Stein will retire at the end of the month. Richard Smith, current vice chairman of the firm’s tax services, will be given different responsibilities.
Jeff Eischeid, a KPMG tax partner whose evasive congressional testimony particularly outraged Sen. Carl Levin (D-Mich.), was placed on administrative leave for unspecified reasons, reported the New York Times.
“These changes are consistent with our ongoing consideration of the firm’s tax practices and procedures, and reaffirm KPMG’s commitment to the highest standards of professional practice and responsibility,” the company said in a statement released last week.
Sen. Carl Levin welcomed news of the shake-up with one eyebrow raised, reported the Times.
“A change in culture at KPMG is absolutely critical. Our investigation revealed a culture of deception inside KPMG’s tax practice,” Levin charged. “If the changes announced by KPMG today represent a real reform of that culture, they are welcome.”
