The Irish Independent reports that one of the most powerful business lobby groups in the country is urging members to ratchet up the pressure on politicians to ensure the Groceries Order is retained.
In a memo sent to members, Ibec says that in addition to continued lobbying of the Government it wants its members to increase pressure on all TDs before a decision is made on the Order by Enterprise Minister Micheal Martin.
The Order bans below cost selling and has been blamed for keeping grocery prices high.
The memo from the Food Drinks Industry Ireland (FDII) division of Ibec lists the dates and venues for special party meetings of Fianna Fail, Fine Gael and the Labour Party next month and says: "It is VITAL that in advance of these meetings that all FDII members contact TDs of the relevant parties to stress the importance of the Groceries Order to the future of their business."
The memo, sent by the director of the FDII Rosemary Garth, goes on to say that "contacts from a large number of TDs indicate that all contact must be direct (i.e. via telephone or ideally meetings, not letters)."
Asked about the request not to use letters, Ms Garth said FDII members had already made written submissions and sent letters to TDs and the feedback they got was that given the volume of mail sent to TDs, it was better that further lobbying be confined to direct contact.
"We are running a major campaign on an issue that impacts upon all our members. Everything in that memo has been in the public domain and I have publicly argued the issues. We are lobbying TDs and government on an issue that is vital to our members," she said.
Her memo provides a list of TDs and urges members to let her know as soon as possible which TDs they are contacting to make sure all TDs are contacted as part of the lobbying campaign.
It calls on members to adopt a coordinated strategy with RGDATA, which represents small grocers.
The memo also says the FDII is considering an "independent audit" to undermine the Competition Authority stance and Ms Garth claims the Competition Authority figures on the impact of the Groceries Order on prices are false.
Her memo accuses the Competition Authority of "massaging" figures from the Central Statistics Office to suit its case.
The authority, in a submission to Mr Martin, urged the scrapping of the Groceries Order, arguing it would result in lower prices.
Mr Martin is expected to be given an 'options' paper by his officials next month and the issue is then likely to be subject to negotiation between Fianna Fail and the PDs before a final decision is reached.
Competition Authority chairman Dr John Fingleton said last night he is ready to stand over its figures.
"We have been totally transparent and open about the figures we used and how we used them," he said.
Arguing that the authority's figures are unsubstantiated, the memo from Ms Garth cites a number of reasons that she claims supports this position.
She says the comparison between food prices and clothing and household consumer durables used by the authority is misleading and that the authority's comparison stops in 2004 just before food prices here started to fall.
The memo also argues that the authority has not accounted for the impact of sterling on food imports to this country.
The Oireachtas Enterprise Committee, chaired by Fianna Fail TD Donie Cassidy, will tomorrow question officials from the CSO about the figures used in calculating the impact on prices of the Groceries Order.
The Irish Independent also reports that tax advisers have a "fundamental difficulty" with a proposal which would see Revenue sharing confidential information on taxpayers with the Financial Regulator in order to assess directors of banks and financial services companies.
The Irish Taxation Institute (ITI) has said that IFSRA should not get involved in deciding if directors of financial services firms are tax compliant.
This should not be the responsibility of the employer either, states an ITI submission to the financial watchdog.
"The Financial Regulator should rely on the detailed process and significant powers available to Revenue to identify serious and persistent tax evaders," it states.
Following a number of banking scandals, IFSRA is consulting on how to test "the probity and competence" of directors and managers of financial firms and institutions.
Institute president Philip Brennan wrote that it "could not support in any circumstances" confidential information being shared between IFSRA and Revenue.
He said it could undermine the voluntary disclosure system, as taxpayers would fear that information given to the taxman in confidence would get into other hands.
"The voluntary disclosure mechanism has proved to be a very effective way of encouraging taxpayers who have made an error or omission to come forward voluntarily with the information and pay any tax, interest and penalties agreed with Revenue," wrote Mr Brennan.
He called for any proposal of sharing information on confidential taxpayers to be withdrawn.
The body also believes that a proposed IFSRA question, asking if taxpayers had been subject to "penalties for tax evasion", would lead to ambiguities.
The submission states that a settlement figure may be referred to as a penalty payment by Revenue, although a taxpayer may not have conceded any wrongdoing.
The ITI also said that using tax clearance certificates for senior appointments could be prone to delays.
The Irish Times reports that shares in Jurys Doyle barely budged yesterday as pressure built on Precinct to make a firm bid for the hotel group or walk away from the process.
The consortium must cross a number of substantial hurdles over coming days if it is to have a chance of making a bid before Friday evening, the deadline set by the Takeover Panel.
Chief among these is the readiness of its equity backers - the London-based Reuben brothers - to bid for Jurys without Precinct's assistance. Sources say Simon Reuben, the most involved of the two brothers, is seeking an independent meeting with the Doyle family, who together own about 23 per cent of Jurys and effectively control its destiny.
The Reubens are thought to have no interest in making a hostile bid, however. They would also need to be released from their alliance with Precinct before being allowed to proceed with their own approach.
Precinct must also make provision for the stance of Sean Dunne, the developer who has spent about €205 million building an 18.23 per cent blocking stake in Jurys Doyle.
Mr Dunne is thought to have made contact with the Jurys board yesterday to discuss his position. A spokeswoman for the company declined to comment last night on any meeting, but she said Jurys had made it known that it was prepared to meet any of its shareholders.
Mr Dunne has built up his stake in Jurys at an average price of €17.80 per share, 30 cent more than Precinct has indicated it will pay. This suggests that the consortium will need to revise its approach higher if it is to have a chance of success.
Alternatively, Precinct may need to assure Mr Dunne that he will be given the chance to buy some of the hotel group's key sites in the event of a successful takeover.
It is understood that Precinct's new debt backing, secured from HBOS, is based on a bid of €17.50 per share being made in conjunction with the Reubens. Precinct's approach is also conditional on winning a recommendation from the Jurys board, which has so far not formally considered the new debt funding.
The board withdrew an earlier recommendation last week after Anglo Irish withdrew its support for Precinct's €1.1 billion approach. Due diligence was also suspended at that stage, thus making this Friday's deadline even tighter for Precinct than it was before. It is possible that the group could seek a new extension from the Takeover Panel to take account of this.
Shares in Jurys closed five cent stronger at €17.10 after a day of very weak trade.
The Irish Times also reports that Tánaiste and Minister for Health Mary Harney has instructed the Health Service Executive (HSE) to delay the development of some new hospital facilities.
The Irish Times has learned that at the end of June, the Minister wrote to the HSE advising that it should not go ahead with the development of new facilities, including wards and theatres, at Longford/Westmeath general hospital in Mullingar pending an audit of the running costs.
The Tánaiste also instructed the HSE that it should not proceed with plans to tender for the construction of the major redevelopment of the Mater hospital without specific sanction from her department.
The Mater development, which will include a new children's hospital to replace Temple Street children's hospital, is expected to cost nearly €500 million and will be the most expensive healthcare project in the history of the State.
Ms Harney's move forms part of a deal on overall capital funding for the health services with the Department of Finance, which had raised concerns about the future cost of staffing and running new hospital units to be constructed under the Government's €600 million healthcare capital programme for this year.
In June, after months of wrangling, the Tánaiste announced a €600 million capital programme for the health sector.
However official correspondence reveals that Minister for Finance Brian Cowen had agreed to sanction the investment only on the basis that the Longford/Westmeath development be delayed and that the Mater project go to tender only with the specific approval of his department.
The Department of Finance had expressed concern at the cost of staffing and operating some of the new facilities which were planned to go to tender or construction later this year under the capital plan.
In late May the Tánaiste asked the then interim chief executive of the HSE, Kevin Kelly, to review the additional revenue costs of some of these projects.
"The level of additional revenue costs is considered high and may not be sustainable in the context of future non-capital funding requirements of the health services generally," she wrote.
In late June, following receipt of sanction from the Minister for Finance, the Tánaiste wrote again to Mr Kelly and set out the conditions under which the capital programme had been approved.
"The Mater and Children's hospital development project will not proceed to tender in 2005 without my department's specific sanction.
"The Longford/Westmeath Phase 2b project will not proceed pending a full audit by an outside firm engaged by my department to establish the scope for minimising staff and revenue consequences, including the scope for securing offsetting savings within the existing hospital," she wrote.
It is understood that the Mater project was scheduled to go to tender next month with a view to having construction started by February.
The Irish Examiner reports that the bitter clash between powerful business lobbies and two Government agencies over the controversial ban on below cost-selling has intensified following the runaway success of Eddie Hobbs’s Rip-Off Republic.
With Enterprise Minister Michael Martin due to make a decision on the Groceries’ Order in October, IBEC and the body representing the grocery industry, RG-DATA, have stepped up intensive lobbying of TDs to retain the order.
A letter circulated by IBEC advises members it is “crucial that we increase the pressure on all TDs” in advance of the decision.
The circular also says that it is vital that members directly contact TDs by telephone or “ideally meetings” rather than by letters.
Rosemary Garth, director of Food and Drink Industry Ireland which is part of IBEC, yesterday described as unfounded the suggestion that this was a means of bypassing the Freedom of Information Act with “under-the-radar” lobbying.
“That sentence has been taken completely out of context. We have nothing to hide. In fact, we are trying to get as much publicity as possible,” she said. The deep divisions between IBEC, the National Consumer Agency (NCA) and the Competition Authority (CA), is also evident from the circular. Both favour scrapping the order.
The circular states that assertions made by the CA on food prices in Ireland are false. It alleges that the authority has “massaged” Central Statistics Office data to support its views.
The CA yesterday said it was standing over its methodology.
“The data we have used is that used by the CSO. These are fairly serious allegations but are not unexpected, such is the fervour of the IBEC campaign,” said a spokesperson.
A spokesperson for the NCA said that it fully stood over its figures and findings. “Our only remit is to put forward the case for the consumer,” he said.
However, Ms Garth yesterday said that IBEC stood foursquare behind its claims. She said CA’s comparisons between prices for food with those for clothing and durables were misleading, the CA had not taken currency fluctuations into account, and the comparisons ended in 2004, just as food prices started to fall.
The Irish Examiner also reports that the profitability of Irish banks would not be greatly affected by a downturn in the property market, according to a new report from Davy Stockbrokers.
The report says that though Irish banks are increasingly reliant on the property market (both home loans and commercial real estate) the rise in indebtedness would not see their profits tumble if the market declined.
Based on its analysis of the major banks and their exposure to property lending, it found that if the institutions were to double their provision for bad debts in the event of credit quality, the decline in profits would still be in single digits.
It estimates that profits at Anglo Irish Bank would slip by 5%, AIB would lose 7% of its pre-tax profits and Permanent TSB would also see a 7% decline (its parent Irish Life & Permanent would be down 3% at group level). The hardest hit would be Bank of Ireland, which would see 9% shaved off annual profits.
The Financial Times reports that Hurricane Katrina could result in insured damages of more than $9 billion, making it perhaps the costliest storm since Hurricane Andrew in 1992, according to Risk Management Solutions, which assesses catastrophes and is based in Newark, Calif. The storm disrupted maritime traffic and trade, as well as caused losses at port and shipping facilities.
Crude oil prices on the New York Mercantile Exchange closed at $67.20 a barrel yesterday, up 1.6 percent, after touching a high of $70.80 a barrel in earlier electronic trading.
Natural gas futures soared 11 percent after operations at a major hub in Louisiana were temporarily halted. They closed at $10.85 a thousand cubic feet, after reaching a high of $12.07. Disruptions at refineries also pushed futures for gasoline and heating oil to record highs on Nymex. Gasoline contracts closed up 6.9 percent at $2.06 a gallon while heating oil gained 3.9 percent, to $1.91 a gallon.
Producers are currently pumping as much oil as they can and have little spare capacity left to make up for any shortages. While that leaves no margin for major disruptions from hurricanes and other disasters, most analysts cautioned that it would be days before a full assessment of the damage to pipelines, refineries and offshore platforms was completed.
The Gulf of Mexico, which produces 27 percent of the nation's oil and a fifth of its natural gas, is dotted with nearly 4,000 platforms linked by 33,000 miles of underwater pipelines. Over the weekend, oil companies withdrew their workers from 615 platforms and 96 drilling rigs in the gulf.
Oil production was reduced by about 1.4 million barrels yesterday and gas production by 8.3 billion cubic feet, according to the Minerals Management Service, a unit of the Department of the Interior. Since Friday, oil output has been cut by a total of 3.1 million barrels. Along the coast, at least nine refineries were closed in anticipation of the storm. These have a total refining capacity of about two million barrels a day, or 10 percent of the nation's refining output.
Oil companies now have to wait until heavy winds and rain die down before they can dispatch helicopters to survey their deepwater facilities and get an idea of the destruction. That is unlikely to happen before today at the earliest. But in one of the earliest indications of the damage from the storm, Royal Dutch Shell said that tracking devices onboard two offshore drilling rigs showed that they had shifted out of location yesterday. The rigs are contracted to Shell and owned by two companies, Nobel and Transocean. Shell, the company with the largest operations in the Gulf of Mexico, also said yesterday that it would dispatch an aircraft to review the status of its assets in the area.
Valero, the nation's largest independent refiner, indicated that it might be two weeks before it could restart its St. Charles refinery in Louisiana. The refinery was under three feet of water and sustained "minor damage" to its cooling tower, the company said.
Hurricane Katrina is the most severe storm to affect the oil industry since Hurricane Ivan tore through the gulf last September. That storm destroyed seven offshore platforms and cut 7 percent of the region's yearly oil production and 4 percent of its total gas output. It also caused huge damage to the underwater pipeline network, requiring as much as six months to repair.
The ability of refineries to resume production quickly will be another factor likely to weigh on oil markets this week. The largest refinery shut by the storm has a capacity of 493,500 barrels of oil a day and is run by Exxon Mobil in Baton Rouge.
"The crunch is on refineries," said Roger Diwan, a managing director at PFC Energy, an oil consultancy in Washington. "Restarting a refinery is a very delicate operation. These things can blow up. They are complicated, old and cranky.
"If refineries don't start by Wednesday or Thursday, the stock draw is going to be dramatic," he said. "Already, gasoline stocks are low. This will further tighten the market."
The storm forced the temporary closing of crucial oil terminals, including the Louisiana Offshore Oil Port, the largest oil-importing port in the United States. The shutdown, which also stopped pipeline deliveries of oil from the port, could prevent about a tenth of the nation's oil imports from reaching refineries.
To make up for any shortfall in supplies, the Department of Energy said yesterday that it would consider lending crude oil from the nation's emergency stockpiles if refiners asked for it. So far, no such call has been made.
Last year, after Hurricane Ivan disrupted production, the Energy Department agreed to lend more than five million barrels to refiners from the strategic reserve, which currently stocks 700 million barrels.
President Bush alluded to the energy situation today during a appearance in El Mirage, Ariz., where he was speaking on Medicare.
"You just got to understand that the situation we got ourselves into, dependency on foreign sources of oil, took a while to get there, and it's going to take a while to become less dependent," Mr. Bush said.
Senate Democrats have pressed the president to use the reserve to help bring prices down.
"If there was ever a time for the Strategic Petroleum Reserve to be tapped, it would be now," said Senator Charles E. Schumer of New York.
In response to the storm - and rising prices - Saudi Arabia's oil minister, Ali al-Naimi, said his country, the world's top oil producer, would make sure no one would run out of oil.
"Saudi Arabia stands ready to increase crude oil production immediately to 11 million barrels per day and sustain that level to replace any shortages in the crude oil market," Mr. al-Naimi said in a statement carried by the Saudi Press Agency. "We continue to be in close contact with all our customers, especially, those in the U.S., to assist them with any shortfall in oil supplies."
Refineries might prove more resilient in recovering from the storm than other energy infrastructure, like undersea pipelines or floating oil and natural gas platforms, according to some refining experts.
"This was a big and severe storm and it hit where a substantial portion of our production and refining capacity is concentrated," said Edward H. Murphy, the general downstream sector manager for the American Petroleum Institute, an industry trade group. "Refineries are built to withstand storms."
Almost all refineries in the Gulf Coast area were designed for protection from very high winds, according to S. Frank Culberson, chief executive of the Rimkus Consulting Group, a forensic consulting company that examines energy installations after they are hit by natural disasters.
"Usually the refineries fare pretty well, as long as they batten down the hatches and wait it out," Mr. Culberson said. "There might be damage to some storage or marginal operations, but the main refining units should remain shut down only temporarily."
Some airlines were also concerned about the rising premium they have to pay for jet fuel. Airports in a swath from Atlanta to Dulles outside Washington depend, at least in part, on one refinery in Memphis. Some analysts said that with the Louisiana terminal closed and imports curtailed, the refinery might run out of crude oil stocks within the next couple of days.
Even part of the Strategic Petroleum Reserve in Louisiana was shut down, with workers in New Orleans evacuated and operations in Bayou Choctaw, where 72 million barrels of oil are stored near Baton Rouge, closed and evacuated. Other locations of the reserve, in Texas and Louisiana, remained in operation yesterday, the Department of Energy said.
Oil refinery officials, meanwhile, remained cautious yesterday as they waited for an opportunity to send employees back to Louisiana to assess the effects of the storm. Mindy West, a spokeswoman for Murphy Oil of El Dorado, Ark., which operates a refinery in Meraux, La., with normal capacity to process 125,000 barrels of oil a day, said that today would be the earliest the company could examine the refinery.
Adam E. Sieminski, the chief energy economist at Deutsche Bank in New York, said: "The real story is not going to be known until workers can get back on the platforms and assess the damage. Are the platforms still there? Have they been damaged? Are the pipelines still there? Have they moved?"
Hurricane Katrina on Monday unraveled parts of the delicately balanced US oil and gas market, as analysts estimated roughly 12 per cent of total US crude oil production and 10 per cent of US refining capacity had to be shut down. That, however, was only the beginning.
"The story for the market is the longer-term impact of rig, platform or pipeline damage," said Katherine Spector of the Global Energy Strategy team of JPMorgan Chase Bank. She noted that 2004's Hurricane Ivan, the last such damaging storm to hit the US, "proved that the vulnerability of offshore infrastructure is powerful mudslides and churning water below the surface that moves pipes and platforms that are either buried or anchored to the Gulf floor".
On the gas side, she said, the Henry Hub, the delivery point for the Nymex future contract and the biggest, most liquid trading point in North America, also had to be shut down.
Henry Hub managed to avoid a hit, however, and was reopened later in the day, preventing a crisis in natural gas markets. Nonetheless, it will take several days to determine overall damage to the sector.
"That a significant percentage of natural gas production in the Gulf of Mexico is currently shut in due to the impact of Hurricane Katrina is a given," Ms Spector said. "But damage to offshore pipelines and production facilities now becomes paramount to the gas market."
Mark Flannery, of equity research at Credit Suisse First Boston, said almost 10 per cent of US refining capacity had been directly affected by the storm, meaning refined product supply was likely to remain tight in the coming weeks.
"The direct impact of Katrina will be yet higher gasoline prices," said Paul Sankey of Deutsche Bank. The hurricane was downgraded from a Category 5 the top designation to a Category 4, and then a Category 3, with sustained winds near 125mph and faster gusts being reported.
Damage was, nonetheless, expected to be extensive, with warnings of hurricane-force winds spreading as far as 150 miles inland along the path of Katrina.
The National Weather Service reported coastal storm flooding up to 20 feet above normal tide levels, along with "large and dangerous battering waves". It also warned that up to 15 feet of flooding was still possible in the greater New Orleans area, bringing water near the tops of the levees.
As much as 15 inches of rain was expected in some areas, and tornado warnings were issued for Mississippi, Alabama and Florida.
New Orleans is considered the heart of Gulf of Mexico oil and gas production. Leading oil and gas companies issued lists of production and refining facilities they shut as the storm pounded south-east Louisiana and southern Mississippi.
About 70 companies were expected to report to the Minerals Management Service on the hurricane's impact on their Gulf production. Royal Dutch/Shell, for example, said it had closed all its daily production in the Gulf of Mexico, equal to about 420,000 barrels of oil and 1.3bn cubic feet of gas, and that two drilling rigs it has under contract are adrift.
``Drifting rigs are an ominous sign for an already panicky market since moorings and anchors can potentially be dragged by drifting facilities and do damage to subsea pipes,'' Ms Spector said. Shell and BP said it was impossible to speculate on the possible damage.
The bigger fear was about what impact the hurricane would have on longer-term production and refining. "The full effect of the storm will likely not be seen until refiners are able to return to facilities to assess damage," said Mr Flannery.
Late on Monday, some refineries reopened, yet still others remained closed.
Last September, Ivan caused huge disruption to oil production for several months after pipelines were damaged by mudslides in the Mississippi delta. It also destroyed seven platforms and severely damaged six others but the impact of the pipeline damage was more serious.
Production from the Gulf of Mexico was still 200,000 barrels a day below normal two months after Ivan devastated the coastline. Speculation has centred on whether President George W Bush should release some of the nation's 700m barrels of strategic oil reserves, after the Bush administration said it would consider doing so if asked to by US refiners. Citgo Petroleum was the first to admit doing so, after filing a request for 250,000-500,000 barrels.
``We are just trying to ensure we have crude supply,'' said a company source. Analysts said this was unlikely to help in the short term.
Adam Sieminski, oil analyst at Deutsche Bank in New York, said: "Use of the strategic reserve is not really appropriate for an event such as this. The SPR is crude oil, but the big problem we have at the moment is gasoline and the impact from the hurricane on capacity in refining. Where the SPR might become useful is if there is damage to pipelines like we saw with Ivan."
Deborah White, senior oil analyst at Société Générale in Paris, said: "The big concern is refinery operations. We have been building crude stocks for ages, but the industry is short of product stocks, particularly gasoline. And we have no refinery spare capacity to compensate for the Louisiana refinery shutdowns."
There are 17 petroleum refineries with a combined crude oil distillation capacity of more than 2.7m barrels a day in Louisiana, the second highest in the US after Texas. Ivan at its peak shut 1.4m b/d of production, sank several off-shore platforms, damaged over 100 underwater pipelines, and disrupted refinery operations.
The FT also reports that Nokia, the world’s largest maker of mobile phones, on Monday reached a deal with the Turkish government, enabling it to recover claims against Telsim, Turkey’s second-biggest mobile operator, once that business is sold.
Under an agreement with Turkey’s Savings and Deposit Insurance Fund (TMSF), which controls and manages Telsim, Nokia will receive a payment following the sale, due in December, with the final amount depending on how much is raised by the TMSF sale.
Telsim was taken over by Turkey from the bankrupt Uzan family along with many other assets. TMSF claims the Uzans owe it nearly $6bn and it is planning to recoup part of this through the sale.
Nokia and US rival Motorola lent Telsim an estimated $3.4bn in 2000 to help the Turkish group build its mobile network.
Since then, Telsim has defaulted on loan repayments, leading Nokia to write down €669m ($818m) for its exposure.
The Finnish group said on Monday: “Nokia sees this as a positive step in a consistent and co-operative approach to resolving the issue and also trusts that it will facilitate a successful sale of Telsim’s assets.”
Motorola is also in negotiations with TMSF for its Telsim claims. Murat Ongor, country manager in Turkey for the US telecoms equipment group, said it hoped to reach an agreement soon.
“We prefer to agree with [TMSF] rather than go through other legal channels round the world,” Mr Ongor said.
Meanwhile, Motorola in the US said it was “pursuing and would continue to pursue all lawful means” available to recover more than $2bn owed by Telsim, plus a fraud judgment against the Uzans.
In December, Motorola won a judgment in the English courts allowing it to pursue and seize assets from two members of the Uzan family. That followed similar decisions in the US.
The ruling by Mr Justice Cooke effectively “domesticated” a US district court judgment last year. That found that the Uzans had committed a “massive fraud” in obtaining loans from Motorola and Nokia, and awarded the companies more than $2bn in damages, compensation and interest.
Motorola had previously sought various freezing orders against the Uzans in the English courts and won contempt orders when members of the family failed to appear for hearings.
The English jurisdiction is relevant because Cem Uzan, the Turkish businessman-turned-politician, previously lived in the UK.
Monday’s agreement with Nokia takes TMSF a step nearer to being able to auction Telsim. The sale is expected to attract substantial interest from European and other international telecoms operators because of the fast-growing market for mobile services in Turkey.
The TMSF set a minimum bidding price of $2.8bn for Telsim.
The New York Times reports that eight former partners of KPMG, the accounting firm under investigation for its role in creating and selling questionable tax shelters, were named by federal prosecutors in an indictment unsealed yesterday in federal court in Manhattan.
The indictment is the long-anticipated next step in prosecutors' broadening investigation into shelters that from 1996 through 2002 helped wealthy investors evade billions of dollars in taxes. It is also strong evidence that the government is prepared to pursue the accountants, financial advisers, lawyers and bankers who had a hand in the transactions.
The indictment refers to unnamed foreign banks and other entities, which suggests that the government may file other criminal charges at some later date. While the banks are not identified, a 2003 report by a Senate subcommittee said that Deutsche Bank, UBS of Switzerland and HVB of Germany among others had roles in the questionable KPMG shelters. And this month, a former executive in the New York office of HVB pleaded guilty to conspiracy to commit tax fraud and is presumably assisting prosecutors in their investigation.
The indictment, which names an outside lawyer along with the former partners, accuses the nine of conspiring to defraud the government by concocting "tax-shelter transactions and false and fraudulent factual scenarios to support them"; by preparing "false and fraudulent documents to deceive" the Internal Revenue Service; by preparing "false and fraudulent" tax returns that included the false tax losses; and taking steps to conceal the shelters from the I.R.S.
The former KPMG partners named in the indictment are Jeffrey Stein, John Lanning, Richard Smith, Jeffrey Eischeid, Philip Wiesner, John Larson, Robert Pfaff and Mark Watson. The lawyer is Raymond J. Ruble, a former partner at Sidley Austin Brown & Wood. The arraignment of the nine men is scheduled for Sept. 6 before Judge Lewis Kaplan of the United States District Court in Manhattan.
Nearly all the defendants' lawyers who could be reached for comment yesterday said their clients intended to fight the charges vigorously; some had not had a chance to read the indictment yesterday afternoon and could not comment.
A spokesman for HVB and a spokeswoman for Deutsche Bank declined to comment on the investigation; a spokesman for UBS told Bloomberg News over the weekend that the bank was not under investigation in connection with the tax shelters.
The indictment was unsealed as a federal judge approved a $456 million settlement between KPMG and the Justice Department that allows the firm to avoid a criminal indictment, which would have been a near-certain death knell for the firm. As part of a deferred-prosecution agreement that remains in effect until Dec. 31, 2006, the firm admitted wrongdoing, accepted an outside monitor, and pledged to limit severely its tax practice.
"The message we want to send is that if you engage in fraud, if you participate in providing false statements, you're going to be prosecuted," Alberto R. Gonzales, the attorney general, said at a news conference held in Washington to announce the agreement yesterday. "We want to be very, very clear: there is no company that is too big or too important an industry that will escape prosecution if they in fact engage in wrongdoing."
The agreement allows KPMG to begin to put the criminal investigation, which has been under way for more than a year and a half, behind the firm, said Timothy P. Flynn, KPMG's chairman and chief executive.
"We regret the past tax practices that were the subject of the investigation," Mr. Flynn said in a statement. "The resolution of this matter allows KPMG to confidently face the future as we provide high-quality audit, tax and advisory services to our large multinational, middle market and government clients."
But for individual former partners, the ordeal begins now in earnest - and under the terms of the agreement with prosecutors, the firm is allied against them. What strategy the partners may pursue - and to what extent they will coordinate their defense - is not clear.
According to the indictment, one defendant, Mr. Eischeid, gave "false, misleading and evasive" testimony to the I.R.S. in 2002 about certain tax shelters. The indictment cited an e-mail message from one KPMG partner who wrote that the firm's general counsel and outside lawyer "determined that the best strategy was 'the less said the better.' " As a result, the e-mail message continued, "the record will reflect repeated 'I don't knows,' 'I don't recalls,' and 'I was out of the loops' - the rope-a-dope/Enron defense."
As part of its agreement with the government, KPMG issued a strongly worded acknowledgment of wrongdoing, which can be used by prosecutors in their criminal case against the individual partners, as well as against the firm in the event it violates the terms of the deferred- prosecution agreement. Lawyers for the former partners criticized the firm's statement as meaningless.
"The government held a gun to KPMG's head and said, 'Say what we want or we will put you out of business,' " said Robert H. Hotz Jr., a lawyer at Akin Gump Strauss Hauer & Feld who is representing Mr. Lanning. "KPMG's statements in court were the product of extreme duress and are not worth the paper they are printed on."
In the statement of facts, KPMG acknowledges that the firm's partners "assisted high-net-worth United States citizens to evade United States individual income taxes on billions of dollars in capital gain and ordinary income by developing, promoting and implementing unregistered and fraudulent tax shelters."
The firm goes on to say that partners prepared false representations for purchasers of the shelters, then based opinion letters approving the transactions on those representations. Some opinion letters also were fraudulent in that they misrepresented the nature of the shelter transactions, according to the statement.
The admissions will bolster the prosecutors' case, which charges that the shelters were improper from the beginning because they were based on falsehoods.
As Mark W. Everson, the commissioner of the I.R.S., said in Washington, "The only purpose of these abusive deals was to further enrich the already wealthy and to line the pockets of KPMG partners."
So far, no court has ruled that the shelter transactions themselves were improper - a fact that lawyers for the accused former KPMG partners were quick to emphasize.
"The government is attempting to criminalize the type of tax planning that tax professionals engage in on a daily basis," Robert S. Fink, a lawyer at Kostelanetz & Fink who is representing Mr. Smith, one of the former KPMG partners, said in a statement. He added, "If the government wants to put an end to these types of transactions, the proper response is for Congress to change the law, not to scare professionals away with indictments."
Perhaps aware of the potential negative effect that news of the indictments could have on the accounting firm's business, prosecutors and regulators offered words of support in statements they released yesterday. The Public Company Accounting Oversight Board "remains confident in KPMG's ability to perform high-quality audits of public companies," the agency said in a statement.
In a separate statement, Donald T. Nicolaisen, the chief accountant at the Securities and Exchange Commission, said the firm's deferred- prosecution agreement with prosecutors "addresses tax-shelter activities outside KPMG's audit practice and does not require or call for commission action."
And the Justice Department noted that KPMG was its auditor - a relationship that, in spite of all the criticism leveled by prosecutors at the firm, the government said would not change.
The NYT also reports that the region that produces and refines a major portion of the nation's oil and natural gas was largely shut down by Hurricane Katrina yesterday, further tightening strained energy markets and sending prices to new highs.
As oil companies evacuated offshore operations throughout the Gulf of Mexico, oil production in that region was reduced by 92 percent and gas output was cut by 83 percent.
The latest interruptions in oil supplies are likely to send retail gasoline prices even higher than the current average of $2.60 a gallon. They have prompted the Bush administration to say it would release emergency oil stocks from the Strategic Petroleum Reserve if needed.
"We are still in the soap-opera phase where everyone is still wondering what is going on," said Dan Pickering, the president of Pickering Energy Partners, a Houston-based energy research firm. "The next 24 to 48 hours, as the companies get out to see if there has been any damage, are really going to determine how significant this is."
Halfway through the hurricane season, the storm hit at an especially bad time for consumers, who have seen gasoline prices climb to their highest level in a generation, and adds to worries that oil prices might be hurting the American economy.
