The best way yet to pro­claim love for a tax cheat

The Pak Banker - - OPINION - Jonathan Weil

ERNST & Young LLP re­ceived the usual kid-glove treat­ment given to too-big-to-fail en­ter­prises when it reached a set­tle­ment with the U.S. Jus­tice De­part­ment over il­le­gal tax shel­ters it sold more than a decade ago. The government chose not to pros­e­cute the Big Four ac­count­ing firm, and Ernst is get­ting off by writ­ing a rel­a­tively small check. The $123 mil­lion that Ernst must pay is equiv­a­lent to the fees it charged for the tax shel­ters in ques­tion. About 200 Ernst clients used the shel­ters to try to avoid more than $2 bil­lion in taxes. The firm doesn't even have to pay in­ter­est on the ill-got­ten pro­ceeds, un­der the deal re­vealed last week.

Two Ernst tax spe­cial­ists were sen­tenced to prison, while two oth­ers had their con­vic­tions re­versed last year on ap­peal. Ernst was re­quired to ad­mit that some of its per­son­nel en­gaged in crim­i­nal wrong­do­ing. All in all, the firm came out fine. The pub­lic had for­got­ten about the in­ves­ti­ga­tion years ago.

Yet there was one area where Ernst made out be­yond all rea­son: A ver­i­ta­ble love let­ter at the bot­tom of the state­ment of facts that Ernst and the U.S. At­tor­ney's Of­fice for the South­ern District of New York agreed to as part of their ac­cord. It said: "The wrong­do­ing in this case by a small group of pro­fes­sion­als at E&Y rep­re­sented a de­vi­a­tion from the more than 100year his­tory of eth­i­cal and pro­fes­sional con- duct by E&Y and its part­ners." To which one can only re­spond: What? I asked Julie Bol­cer, a spokes­woman for the U.S. at­tor­ney, what the fac­tual ba­sis was for the state­ment. She de­clined to com­ment. Amy Call Well, an Ernst spokes­woman, de­clined to an­swer the same ques­tion. The best way to show the sen­tence's prob­lems is with a time­line. My space is lim­ited. So rather than cover 100 years, I de­cided to go as far back as the merger be­tween Arthur Young & Co. and Ernst & Whin­ney that cre­ated Ernst & Young in 1989. The firm has been in trou­ble over eth­i­cal vi­o­la­tions and pro­fes­sional mis- con­duct on a reg­u­lar ba­sis ever since. To wit: 1990. Se­cu­ri­ties and Ex­change Com­mis­sion barred Ernst from ac­cept­ing new pub­lic-com­pany au­dit work in the New York re­gion for 45 days, af­ter ac­cus­ing it of pro­fes­sional mis­con­duct dur­ing its au­dits a decade ear­lier at Nor­walk, Con­necti­cut­based U.S. Sur­gi­cal Corp. 1991

The SEC sued Ernst over au­di­tor-in­de­pen­dence vi­o­la­tions, af­ter find­ing that Repub­licBank Corp., an au­dit client, lent mil­lions of dol­lars to the firm's part­ners and to tax-shel­ter, real-es­tate part­ner­ships in which they in­vested. The case was set­tled in 1995. A judge or­dered Ernst to com­ply with the SEC's in­de­pen­dence rules.

1992 Ernst paid $400 mil­lion to re­solve government claims re­lated to the 1980s sav­ings-and-loan cri­sis. 1999

Ernst paid $335 mil­lion to set­tle in­vestor law­suits over its cer­ti­fi­ca­tions of fraud­u­lent fi­nan­cial state­ments at Cen­dant Corp. The SEC later sus­pended two Ernst part­ners, say­ing they aided the com­pany's se­cu­ri­ties-law vi­o­la­tions.

2003 Doc­u­ments in an Arkansas court case showed that Ernst and other Big Four ac­count­ing firms had rou­tinely over­billed clients for travel ex­penses by charg­ing them full fare for air­line tick­ets while pock­et­ing large re­bates they had ne­go­ti­ated in vol­umedis­count con­tracts with car­ri­ers.

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