How the DoD Bought IBM & Tier 1 Assurance

Why has the Department of Justice had such a fraught history wrangling IBM, right back to a 1910 NCR anti-trust case, that it became known as the graveyard of prosecutors? Herein lies a complex and entertaining story.

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Little is known of the extraordinary tripartite entanglements between IBM, US Military Intelligence (MI), and Tier 1 assurance firms, extending back many decades into the Cold War. Entanglements which intensified, rather than decreased, with the fall of the Soviet regime in 1991.

Essentially, IBM has always comprised a huge part, indeed the very heart, of US electronics intelligence and intelligent warfare systems. The former of which the assurance and consulting firms have complemented with human intelligence, and geopolitical strategy initiatives, linked back to IBM's big commercial computing and communications systems. The unintended consequence of this crossover between defense and commercial interests has been murder and mayhem in the big systems end of the IT world, coincidentally ending the career of any public prosecutor unwise enough to peer too closely, the commercial viability of numerous computer industry competitors, and the lives of a few state's witnesses.

At the heart of it all was an IBM-Defense technology R&D alliance centered on the Defense Advanced Research Projects Agency (DARPA), which had taken off in 1958 after Sputnik, and runs to the present day. From the 1950s, IBM and DARPA collaborated on projects from ICBM guidance chips to supercomputers and real-time language translation for signals intelligence.

Then from the 1970s, a more structured partnership emerged between IBM and key international Assurance and consulting firms, in which the assurance firms secretly signed up to receive large sales commissions, comparable to IBM's own sales executives, to sell big commercial IT projects into US and foreign government departments, as well as to public and private banks, manufacturing and service corporations. This was formalized at assurance firms such as Deloitte & Touche, KPMG and PwC, under a 'Non-Standard Business Partnership Agreement' (BPA) that was organized and administered by IBM's International Competitive Intelligence team, and Fred Fassman's Media Division, out of Manhattan. A program vastly enlarged in the Eastern Bloc and China with the collapse of the Soviet regime in 1991, and associated ambitions to topple the Chinese CCP.

So, what was the purpose of these kickbacks to assurance and consulting firms?

The self-evident commercial aim was to secure massive revenues for IBM and the consulting firms, with the additional purpose of maintaining IBM's solvency, essential to MI and DARPA, in the face of sometimes grueling US and foreign competition that would have sent IBM bankrupt on more than one occasion, whether from Germany's Siemens, the highly effective Japanese mainframe companies, or Unisys. Or most perilously, in 1991-1995, the conglomeration of NCR and Teradata into AT&T GIS in the US. Whereupon in the recession of 1991-1992, IBM failed to sell a single mainframe, and came within two weeks of declaring Chapter 11 bankruptcy, with its share price tanked and the banks unwilling to lend more. The mainstay of US Defense systems and Defense Intelligence was about to collapse.

The less obvious aim was to underwrite the basis on which IBM and the US assurance firms could be used for intelligence purposes.

Add to the mix that the Gartner Group, supposedly an independent IT consulting firm, founded by former head of IBM's Global Competitive Intelligence operations, Gideon Gartner, was initially housed in the office of the former International Partner-In-Charge of Deloitte & Touche (D&T), Don Snyder, formerly IBM's Director of Sales in NY, and funded 100% by IBM in its early years, and we start to get an interesting picture of quasi-official, national defense-rationalized racketeering.

Such entanglements, obscure by nature, have made IBM so difficult to prosecute for actual crime, even in the outrageous Banco de la Nación Argentina (State Bank of Argentina) IBM bribery case, that an exasperated Arthur Leavitt, chairman of the SEC, on the eve of retirement, filled the void left by a reluctant DOJ with a droll fine against IBM for 'misreporting bribes as consulting fees' in its financial filings.

While IBM has been an excellent resource for national security, serious crime can emerge unchecked when national interest fuses with commerce, as exposed in the Normal Rille-Neal Roberts-DOJ cases, or more insidiously, the fraught State Bank of Argentina bribery case, which spawned dozens of national press stories, all rapidly hosed down. With a key NYT journalist who broke the story being given plum position as head of a DoD-sponsored agency, after IBM placed an unprecedented blizzard of full-page advertisements in the Times.

https://www.latimes.com/archives/la-xpm-1998-oct-10-mn-31039-story.html

https://www.nytimes.com/1996/06/29/business/international-business-argentine-cloud-over-ibm-grows-darker.html

https://www.wsj.com/articles/SB896818231704926000

https://www.wsj.com/articles/SB977440372530767305

https://www.washingtonpost.com/archive/opinions/2003/05/25/the-need-to-come-clean-in-argentina/c4559a46-663a-4cfb-afb6-a8114d274a87/

https://www.irishtimes.com/business/witness-in-ibm-scandal-dead-1.200775

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?