Contractor vows to continue work on $10 billion border system

The prime contractor for a multibillion-dollar homeland security program vowed Thursday to continue work despite calls that its contract be canceled because its parent company is based outside the United States.

Accenture LLP plans to begin issuing subcontracts for the U.S. Visitor and Immigrant Status Indicator Technology (US VISIT) program within the next two weeks, said Jim McAvoy, the company's communications director. The Homeland Security Department passed over two U.S.-based companies, Lockheed Martin Corp. and Computer Sciences Corp., in awarding the contract to Accenture, whose parent company, Accenture Ltd., is headquartered in Bermuda.

McAvoy said it is too early to tell whether any work would be affected by an amendment added onto the DHS appropriations bill Wednesday. Introduced by Rep. Rosa DeLauro, D-Conn., and Marion Berry, D-Ark., the amendment would bar the government from contracting with U.S. companies that have moved their corporate headquarters offshore.

The amendment must be approved by the rest of the House, the Senate, and ultimately the president before it becomes law. Similar language approved by the Appropriations Committee last year was eliminated before the bill went to a final House vote.

"We'll continue to monitor the situation and to work with lawmakers on Capitol Hill," McAvoy said.

Accenture incorporated in Bermuda in 2001. The company formerly was known as Andersen Consulting, which had the same parent company as Arthur Andersen, the accounting firm that was convicted in 2002 of obstructing justice in connection with a massive accounting scandal at energy giant Enron Corp.

McAvoy said Accenture has no connection to Arthur Andersen. In fiscal 2003, Accenture had more than 83,000 employees based in 48 countries and about $11.8 billion in revenues.

The US VISIT contract is the largest DHS has awarded to date, valued at up to $10 billion over five years with five one-year options after that. Under the program, nonimmigrant visitors will have two fingerprint scans and a digital photo taken when they enter the country. The information will be entered into a database and compared to terrorist and criminal watch lists.

Lesley Sillaman, a spokeswoman for DeLauro, said U.S. companies are at a disadvantage when competing against offshore companies that pay less in federal taxes. She said the House Rules Committee would decide over the next week whether the amendment could be included as part of the DHS appropriations bill, which is scheduled to go to the House floor for a vote by the end of next week.

DeLauro and Berry sent Homeland Security Secretary Tom Ridge a letter June 3 asking him to reconsider the contract award to Accenture. They argued that the contract "flies in the face of congressional intent" by exploiting a loophole that allows any company that has relocated to Bermuda to remain eligible for government contracts. Reps. Lloyd Doggett, D-Texas, and Louise Slaughter, D-N.Y., also signed the letter.

"By moving overseas in order to reduce their tax burden, Accenture has not only cost the U.S. Treasury millions of dollars which could be put to use in improving our homeland security, but they have placed loyal U.S. companies at a permanent competitive disadvantage," the letter stated.

The lawmakers cited a June 1 Bloomberg News report that Accenture's U.S. earnings increased from $247.3 million in 2002 to $566.9 million in 2003, while the company reduced its U.S. tax liability to $143 million from $382.7 million. At the same time, federal procurement records show that in 2002, Accenture held federal contracts worth about $450 million, of which $250 million was related to military or homeland security functions, the lawmakers wrote.

"At a time when we are facing increasing budget deficits, and are struggling to find the funding to meet both our national security needs at home and to fund a war overseas, we cannot afford to reward companies who move overseas at the expense of loyal American businesses and contractors," the letter concluded.

McAvoy challenged claims that Accenture is avoiding U.S. taxes.

"Accenture was never organized under a U.S. corporation," he said. "Contractually, all of the work on US VISIT will be done in the U.S. and Accenture LLP will pay taxes on that work."

McAvoy said the government has known about Accenture's corporate status for years. For example, the General Accounting Office found in October 2002 that Accenture was one of only four of the top 100 federal contractors that are incorporated in a tax haven country. GAO noted that Accenture was the only corporation that could not be considered an "inversion," or a corporation first formed in the United States that moved overseas.

And, according to company filings with federal regulators, Accenture's U.S. federal tax rate for fiscal 2003 was 35 percent. Comparatively, Lockheed Martin reported a tax rate of 31.3 percent in fiscal 2003.

The company has acknowledged that negative publicity about Bermuda companies may lead to new tax or other legislation that could increase tax burdens.

"It is possible that legislation enacted in this area could reduce the tax benefits of our structure and materially increase our future tax burden, or otherwise adversely affect our business," the company stated. "Other legislative proposals, if enacted, could limit or even prohibit our eligibility to be awarded U.S. government contracts in the future."

The company said another risk is that it could be named in lawsuits related to Arthur Andersen's legal and financial case "based on misconceptions about the nature of our past relationship with Arthur Andersen firms."