KPMG will defend any criminal charges laid against the firm over its alleged promotion of illegal tax shelters by arguing that use of the schemes was part of a general climate of abusive tax avoidance in the UK and US in the late 1990s.

It emerged last week that the US Justice Department was considering charges against KPMG over the sale of tax schemes in the late 1990s, raising fears that the firm could be threatened with extinction, like Andersen in relation to Enron, if it was convicted.

Senior figures at KPMG believe the firm may be taking the rap for a culture of widespread tax avoidance that prevailed in the late 1990s, Accountancy Age has learnt.

That trend even spread to the UK. ‘Some of the schemes in the UK went too far,’ sources close to the firm said.

The news of a possible indictment was first published by the Wall Street Journal on Thursday in an apparent leak by the US authorities.

Sources claim none of the facts involved in the case is new. An insider said that ‘large amounts of money were being made on equities’ in the late 1990s and clients were demanding the schemes.

KPMG only became involved quite late on. It is currently briefing clients and partners that there is no threat of meltdown, after investigators in the US threatened it with criminal charges.

‘KPMG is in very good shape financially and has no major cases outstanding against it globally. It has a fantastic reputation, particularly in the UK,’ the source said.

Privately, senior figures have been telling clients that KPMG feels it may have been treated more aggressively because it was initially unco-operative with US authorities. Reports in the US also suggested that KPMG’s statement in response to the allegations, which admitted to ‘unlawful conduct’ by former partners, might be used in civil action against KPMG’s clients.

The firm is looking to settle with the US Department of Justice.

Reports at the weekend suggested that KPMG may have to pay a penalty of between £50m and £150m to resolve the dispute.