updated 6/16/2005 8:22:34 AM ET 2005-06-16T12:22:34

Big Four accounting firm KPMG LLP, which has been under investigation by the federal government for selling questionable tax shelters, said Thursday that there was unlawful conduct by some former KPMG partners, but that is has taken steps to prevent it from happening again and is cooperating with the Department of Justice’s probe.

In a statement, KPMG said it has taken action ”to ensure that those responsible for wrongdoing have been separated from the firm.” It did not say in the statement how many people were involved, but said the firm takes “full responsibility” for the unlawful conduct.

It said it no longer provides the tax services in question and that it has taken steps to make sure such unlawful conduct doesn’t happen again. That includes “firm-wide structural, cultural and governance reforms” to ensure “the highest ethical standards,” KPMG said.

The announcement came after The Wall Street Journal reported in Thursday’s editions that federal prosecutors have built a criminal case against KPMG for obstruction of justice and the sale of abusive tax shelters. The newspaper said top Justice Department officials are debating over whether to seek an indictment at the risk of killing one of the four remaining big accounting firms.

The firm said that since February 2004, the Justice Department has been investigating certain tax services that were offered by KPMG from 1996 to 2002. It said the inquiry was part of a larger tax shelter investigation into the role of accounting firms, law firms, large banks and taxpayers who participated in the development, promotion and implementation of tax shelters.

KPMG said it remains in discussions with the DOJ and continues to cooperate fully with the investigation, stating that it “looks forward to a resolution that recognizes the significant reforms the firm has already made in response to this matter while appropriately sanctioning the firm for this wrongdoing.”

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