Accenture Bid Revives Debate

Posted June 4, 2004 at 6:35pm

A controversial $10 billion contract awarded by the Homeland Security Department last week has reignited a quiet but persistent battle that ties together government contracting, cross-border businesses and one of the last legacies of a late Senator.

When Accenture LLP, an arm of the global consulting giant, was tapped last week to manage a massive contract to screen visitors to the United States, critics immediately blasted a central irony: The company asked to keep suspect foreigners out of the United States was itself based in Bermuda.

What was less widely appreciated when the story broke is how a round of high-stakes, backroom dealings in Congress that took place a year and a half ago has enabled the awarding of sesitive contracts to foreign-incorporated companies.

At issue are eleventh-hour changes — instigated by then-House Majority Leader Dick Armey (R-Texas) — to the November 2002 homeland security law that enabled some offshore corporations to continue to compete for billions of dollars worth of homeland security contracts. The anti-offshoring provision overturned by Armey’s language had been inserted at the behest of Sen. Paul Wellstone (D-Minn.) before his death while running for reelection that year.

As it happens, Accenture’s Byzantine corporate structure means that the company actually may not have benefited directly from Armey’s last-minute legislative amendment.

Even so, critics are leveraging the public attention being given to Accenture’s “US-VISIT” contract to broadcast their concerns about the policy.

They point out that several other Bermuda-based companies — among them Cooper Industries, Foster Wheeler, Ingersoll-Rand, Tyco and Weatherford — were effectively grandfathered into the competition pool for key security contracts.

Also on the list of companies is Noble, a drilling contractor that reincorporated in the Cayman Islands in May 2002, and McDermott International, an energy services firm that moved operations to Panama in 1983.

Together, the companies received defense and homeland security contracts worth almost $900 million in fiscal 2002, according to an analysis by the Ways and Means Democratic staff.

“The inconsistency is breathtaking,” said Rep. Richard Neal (D-Mass.), who has led efforts to exclude foreign corporations from winning government contracts. “The American taxpayer is paying $10 billion for passport inspection to a company that has turned in its U.S. passport. This is simply outrageous.”

Officials at Accenture argue that their company is different from other firms that have reincorporated overseas, usually to pay lower tax rates. While Accenture is headquartered in Bermuda, the company says, it nonetheless contracts all U.S. business through an independent subsidiary in Reston, Va.

As such, the Reston-based entity pays its taxes in the United States, not the popular tax haven of Bermuda, said Accenture spokesman James McEvoy.

McEvoy said the company — formerlyAndersen Consulting — was merely a network of partnerships in 47 countries before it incorporated in Bermuda in July 2001. “Nothing was moved overseas,” McEvoy said. He added that the company “never heard any” flak about the company’s nationality “until after the bidding was finished.”

The story of the offshore companies’ grandfather clause begins with Wellstone. In the wave of sorrow that followed his death, his allies on Capitol Hill vowed to complete his agenda.

What lay most immediately before them was the Homeland Security Act.

Wellstone had long fought to exclude so-called “expatriate” corporations — American companies that closed shop and reincorporated in tax havens overseas — from government contracting. The HSA, which was already considered likely to ban foreign companies from receiving homeland security contracts, seemed an apt vehicle for the Senator’s vision, and the language found its way in.

Enter Armey. A firm believer in free markets, Armey believed that if companies felt they must relocate because of a heavy U.S. tax burden, the fault lay with the Internal Revenue Code, not the company. While Wellstone’s provision survived, Armey inserted language that grandfathered in companies that had reincorporated abroad before the law was to take effect.

In the outcry that ensued, it took a gesture from Speaker Dennis Hastert (R-Ill.), who pledged to revisit the matter in the next Congress, to pacify the critics and get the bill passed. So far this Congress, the issue has not been brought up again.

Hastert’s office did not return a call seeking comment. Nor did Armey, who retired in 2003 to join the free-market and anti-tax advocacy group Citizens for a Sound Economy.