E&Y’s deal with a US district attorney ensures the firm will not face prosecution and brings a long-drawn tax scandal to an end

Ernst & Young has agreed to pay $123m (£82m) in a settlement with criminal prosecutors in the US, admitting that some of its most senior tax partners had been involved in developing, marketing and defending tax avoidance schemes between 1999 and 2004 to dodge taxes worth $2bn faced by about 200 wealthy individuals.

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The deal, which ensures the international accountancy firm will not face criminal prosecution, marks the end of a tax avoidance scandal that hung over E&Y for several years. The episode saw four former employees sentenced in 2010 to between 20 and 36 months in jail for involvement in tax evasion and obstructing the US Internal Revenue Service (IRS). Two last year had their convictions overturned on appeal.

The four had been core members of a small E&Y unit called Viper – Value Ideas Produce Extraordinary Results – set up in 1999 to devise tax strategies to market to wealthy individuals looking to shelter incomes of more than $20m from the taxman.

E&Y admitted that products developed from the Viper division – one of which was called Currency Options Bring Reward Alternatives, or Cobra – had been designed to appear to the IRS as genuine investments when, in reality, the products were designed and marketed to clients as a series of pre-planned steps that would defer, reduce or eliminate tax bills for millionaire clients.

In order to trick the IRS, E&Y admitted its former tax experts went to great lengths not to create documents that would make clear the tax motives behind their complex strategies.

The $123m penalty agreed with Manhattan US attorney Preet Bharara is the same amount as E&Y received in fees on the four admitted avoidance structures it developed and marketed in conjunction with law firms, banks and investment advisers.

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E&Y said it was: “pleased to put this matter from a decade ago behind us” and gave undertakings not to get involved in such schemes again.

© Guardian News and Media 2013