How the DoD Bought IBM & Tier 1 Assurance

Arriving for a brief work session one Saturday morning in the office of Deloitte & Touche on the 97th floor of New York's World Trade Center One, in late 1991, an unexpected pile of files lay on my desk. Within minutes, it was clear this was trouble.

Here was a 'Non-Standard Business Partnership Agreement' (BPA) signed in 1989 between IBM and Deloitte & Touch (D&T), under which D&T would receive secret sales commissions for large-scale IBM sales to D&T clients. Yet D&T was supposed to be an independent gatekeeper for clients, managing the probity of IT acquisitions on their behalf.

Also in the pile were financial journals detailing hundreds of millions of dollars in secret commissions paid by IBM to Deloitte & Touche under this BPA, including one at the State Bank of Argentina that would soon escalate into a major scandal, complete with the murder of a key State's witness and an alleged blackmail attempt against the lead Argentine state prosecutor.

From 2003-2011, it would lead to a series of whistleblower lawsuits brought by former D&T partner, Norman Rille, against a dozen major consulting firms and US IT corporations, after he had left D&T for AT&T GIS/NCR and its alliance partner, Accenture. When reluctantly enjoined by the DOJ in 2003, this jointly netted around USD 300 ml in restitution to the US Federal Government.

Strangely, NCR's consulting partner, Accenture, and the other IT vendors sued by Rille and the DOJ for using Accenture, had only adopted secret sales commissions after I faxed the IBM BPA to NCR's CEO in 1993, and after I received advice in 1995 from the FBI in New York, while at KPMG Consulting, that these secret commissions were legal.

Equally strange was that IBM and D&T, the originators of this entire scheme, came off more lightly than Accenture and the rest of the IT companies in the DOJ suit. So much so that the outgoing head of the SEC, Arthur Leavitt, issued IBM with a fine for 'misreporting bribes as consulting fees' in their official filings over the State Bank of Argentina case.

More awkwardly, here I was working illegally in the US, reporting to the Partner In Charge for the NY Metro Region, who had invited me to create an alliance in the US and Japan with IBM's worst nightmare, AT&T GIS, a combination of AT&T's communications resources with their newly acquired massively parallel mainframe and midrange Unix company, NCR-Teradata. Yet here was that partner's signature, along with the US-Japanese partner and other senior D&T partners, on these IBM kickbacks. All at a time when IBM came within two weeks of declaring Chapter 11 because its mainframe sales in 1991-1992 had been stalled by NCR's newly acquired Teradata. In 1992 IBM made zero mainframe sales, the core of its profitability, after much-anticipated upgrades at the Ford Motor Company were delayed by bolting Teradata machines to their existing bank of IBM 3090s.

Worse was to come. So why had Homer Eckerson, the former IBM account executive for Dun & Bradstreet and until yesterday, when he retired, the IBM-Deloitte & Touche alliances manager, co-resident with me in the D&T offices, left this material on my desk?