| Tax havens |
Haven sentSeveral leading American law firms are facing serious criticism from the US Senate, having provided tax advice that proved too good to be true. Now the spotlight is being turned on UK advisers. By James Lewis
The dramatic collapse of prominent Texas law firm Jenkens & Gilchrist is a cautionary tale. In 2001, the Dallas-headquartered firm was one of America’s largest – and fastest expanding – with 600 lawyers in eight offices across the country. By the end of March this year, the firm was forced to wind up its business after paying $76m as part of a non-prosecution agreement with the US Department of Justice (DoJ) and Internal Revenue Service (IRS), having admitted to the promotion of fraudulent tax schemes. The DoJ and the IRS have spent four years examining Jenkens and its promotion of schemes used to shield billions of dollars from taxes. The US authorities’ action against the firm marks an expansion of the crackdown on professional advisers facilitating abuse of the tax system. In August 2005, in what has been described as the largest criminal tax case in US history, KPMG agreed to pay $456m in a deferred prosecution agreement with the DoJ in which it admitted to fraudulent conduct in the design and marketing of tax shelters. The DoJ and IRS told Legal Business that they could not discuss details of ongoing investigations, but stressed that the criminal inquiry of Jenkens’ tax-evasion deals continues. The settlements end the investigation of the law firm itself. But the US Attorney’s announcement states that the deal didn’t end ongoing investigations of Jenkens’ people, past or present. It was the hiring of Paul Daugerdas and the opening of a Chicago office in 1998 that proved a turning point. David Deary, name partner at Dallas law firm Deary Montgomery DeFeo & Canada, who led the class action against Jenkens over its tax advice, says he thinks greed drove the decision to hire the Chicago people (see box, ‘Profits now, lawsuits later’, p62). According to The New York Times, Daugerdas alone received $93m in fees from 1999 to 2003 from the tax letters, and the Chicago office generated $267m from those fees, an extraordinary amount for any law firm. ‘The revenue that they could generate was so enticing to a few people over there at Jenkens that my impression is they were blinded,’ Deary says. To read the rest of this article subscribe to Legal Business.  |
