CASE 5.4
IPOC INTERNATIONAL GROWTH FUND, LTD.
Synopsis
Guy Enright, a KPMG employee, unwittingly became a pawn in an international chess match of
corporate espionage. Representatives of Diligence, Inc., a London–based “business intelligence”
firm, persuaded Enright to give them copies of “confidential audit documents” obtained during a
KPMG audit of IPOC International Growth Fund, a Bermuda-based company with ties to an
important Russian bureaucrat who was also a close ally of Vladimir Putin. Those documents and
other information that Enright provided regarding IPOC were relayed to a Russian company, Alfa
Group. At the time, IPOC and Alfa were battling each other in court to acquire a 25 percent
ownership interest in MegaFon, one of Russia’s largest cell phone companies.
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IPOC International Growth Fund, Ltd.—Key Facts
1. In late 2003, IPOC, a Bermuda-based investment company, and Alfa Group, a Russian
conglomerate, became involved in a legal battle to gain control of a 25 percent ownership interest in
MegaFon, a large Russian cell phone company.
2. Leonid Rozhetskin, an American citizen of Russian descent and an outspoken critic of Russian
3. As a result of allegations stemming from the conflict between IPOC and Alfa Group, the
4. Diligence, Inc., a London-based “business intelligence” firm, recruited Guy Enright, an auditor
5. Enright, a British citizen, was led to believe by Nick Day, the founder of Diligence, that he was
being recruited by a British intelligence service to participate in a mission that had national security
implications for Great Britain.
7. When KMPG learned of the “sting operation” used to persuade Enright to give IPOC audit
8. The Bermuda government forced IPOC to disband its operations in Bermuda after various
9. During the same time frame that the details of the covert sting operation used by Diligence to
10. IPOC and Alfa Group mutually agreed to end their legal battle over the 25 percent ownership
interest in MegaFon in July 2007.
12. In September 2012, Rozhetskin’s skeletal remains were discovered in a remote region of Latvia.
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Instructional Objectives
1. To identify the moral, ethical and professional responsibilities that CPAs owe their clients with a
particular focus on the obligation to maintain the confidentiality of client information.
firms.
Suggestions for Use
This case provides a unique set of circumstances in which to examine the client confidentiality
obligation of auditors and other CPAs. This is also another case that you can use to convince your
students of the importance and far-ranging impact of professional audit and audit-related services.
Suggested Solutions to Case Questions
1. Although the various media outlets reporting on this case and the parties involved in it
commonly used the phrases “audit” and “auditors,” KPMG’s IPOC engagement was not an
independent audit. The media reports used in developing this case did not comment on the
contractual details of the KPMG engagement, but it appears that we could best characterize the
engagement as a non-audit attestation service. (Of course, because all attestation services are also
assurance services, KPMG’s IPOC engagement qualified as an assurance service engagement as
2. Note: Because Enright was a British Chartered Accountant, he was subject to the Code of Ethics
of the ICAEW (Institute of Chartered Accountants in England and Wales). As you might expect,
that code is fairly consistent with the AICPA’s Code of Professional Conduct. For comparison
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Integrity, Objectivity, Professional Competence and Due Care, Confidentiality, and Professional
Behavior (this latter principle refers to the responsibility of Chartered Accountants to “comply with
relevant laws and regulations and to avoid any action that discredits the profession”). [Notes: I will
answer this question by relying principally on the AICPA’s Code of Professional Conduct despite
the fact that Enright was a Chartered Accountant. You might consider having your students research
and report on the commonalities shared by, and the differences between, the AICPA and ICAEW
codes.]
Listed next are examples of key responsibilities that were imposed on Enright during the IPOC
engagement by his profession’s moral, ethical, and professional framework:
a) A responsibility to uphold the overall credibility of his profession and the public’s
The question in this context is which of the above responsibilities did Enright “violate” and
which did he “uphold.” You might consider placing this list, or a comparable list that you or your
students develop, on the overhead and then having your students discuss each item. Following are
some observations regarding each of the “responsibilities” in my list.
a. One could certainly argue that Enright violated item “a” by causing some third
parties familiar with the case to doubt the commitment of professional accountants to
uphold the confidentiality of their clients’ business records and other private
information.
d. Because only Enright was privy to the given circumstances, it is impossible for us to
have a complete understanding of those circumstances or to evaluate how
“believable” was the scenario and alleged facts presented to him by Nick Day. It
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may very well be that he truly believed that his actions were necessary given the
national security implications presented to him by Day. That is, he was being
“intellectually honest” with himself.
3. Before deciding which individual (Enright or Day) was most ethical (or least unethical) it seems
that we should first consider the contextual circumstances faced by each person. For example,
because Enright was a professional accountant, it was incumbent on him to consider the constraints
imposed on his decision by his profession’s ethical principles and other professional standards.
Likewise, we should consider what ethical or professional or moral responsibilities Day was subject
4. In addressing this question, I typically ask a few students to indicate how they would have dealt
with the set of circumstances faced by Enright. Another approach that I have used in addressing
5. This is a question is best suited for an attorney since it deals with legal issues. Nevertheless,
from a layman’s perspective, it appears that Diligence engaged in a “tort” or wrongful act when it
perpetrated the sting operation on Guy Enright and KPMG. The aggrieved party in such
circumstances generally has the right to recover the economic damages that it suffered as a result of