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IBM: Feeling Blue in Argentina
Multinational Monitor / October 1996

By Larry Luxner

BUENOS AIRES -- In a so-called "corruption index" compiled earlier this year by the Berlin-based nonprofit group Transparency International, half a dozen Latin nations -- Bolivia, Mexico, Ecuador, Brazil, Colombia and Venezuela -- rank worse than Argentina when it comes to corrupt policemen, private executives and politicians.

Yet that's little consolation for International Business Machines Corp., whose Argentine subsidiary is embroiled in one of the most embarrassing scandals involving a U.S. company to hit Latin America in years.

IBM -- ironically listed as among Transparency International's biggest corporate benefactors -- is being accused of bribery in connection with a $249 million contract to modernize and install computers at all 525 branches of state-owned Banco de la Nación, Argentina's largest commercial bank.

On April 30, following six months of investigations, a Buenos Aires judge indicted 30 former officials of IBM Argentina S.A., Banco de la Nación and associates of President Carlos Menem on charges of defrauding the Argentine government. Separately, the U.S. attorney for the Southern District of New York and the Securities and Exchange Commission are investigating whether IBM violated the Foreign Corrupt Practices Act, which prohibits U.S. companies from paying bribes abroad.

The charges stem from a routine audit by the Argentine tax agency DGI, which uncovered a $37 million payment by IBM to two local software companies, CCR and Consad, neither of which had reported those revenues. Argentine authorities say the money was used as a bribe to secure the huge contract.

Not long after that, Swiss authorities have lifted banking secrecy from an account where investigators suspect money from the IBM contract was deposited, and IBM -- which denies any wrongdoing -- nevertheless dismissed its top three officials in Argentina, including its president and the vice-president of operations. Other heads rolled, including Aldo Dadone, president of Banco Nación, and Juan Carlos Cattaneo, a senior aide to Menem cabinet member Alberto Kohan.

"We're not commenting because the issue is in litigation," spokesman Fred McNeese said in a Sept. 15 telephone interview from corporate headquarters in Armonk, New York, adding that "IBM continues to do business in Argentina."

It also continues to face tough questioning. In June, Argentine prosecutors launched an investigation into a $513 million contract that DGI had awarded IBM for the upgrading of the tax agency's computer system. This followed accusations by former Argentine Economy Minister Domingo Cavallo, who has since been replaced by Menem, that the opposition Radical Civic Union (UCR) was somehow involved in the "informatics mafia" during the 1980s, and that IBM's activities since that time be investigated.

UCR Senator Leopoldo Moreau, for his part, accused James Cheek, the U.S. ambassador to Argentina, of hiding information on the IBM case in order to protect American interests. He said the United States "claims it is struggling against corruption, but when the time comes to implement this struggle, it fails to come through."

Until recently, the whole IBM affair had produced no more than legal wrangling and political mudslinging. In August, however, the scandal turned violent when an Argentine journalist who had criticized the U.S. multinational was beaten by three knife-wielding men in the streets of Buenos Aires. The reporter, Santiago Pinetta, was later found with the letters "IBM" carved into his chest. In early 1994, Pinetta had published a book, La Nación Robada (The Stolen Nation), in which he accused IBM of paying kickbacks to secure its controversial contract.

Separately, IBM Argentina has filed suit against Banco de la Nación, seeking payment of $86 million for work performed, plus costs incurred and other unspecified damages stemming from the bank's "wrongful" revocation of the contract.

"IBM has worked hard to complete this project and to meet the bank's changing requirements," said Wilmer Guecaimburu, president and general manager of IBM Argentina, in a prepared statement. "We would have much preferred to reach an amicable agreement with the bank in which we would meet its information technology needs. The decision by the bank's board of directors to revoke this contract unfortunately leaves us with no alternative but to go to court to protect our legal rights."

Said McNeese: "We attempted to work out various issues with the bank. Regrettably, we had to file suit against them. They did not provide the necessary support we needed to get the job done." Since then, Banco Nación has countersued IBM, enriching lawyers for both sides in the process.

IBM is hardly the first U.S. company to get embroiled in an Argentine business scandal. In 1990, according to Latin Trade magazine, Swift-Armour -- a subsidiary of Campbell Soup Co. -- denounced Menem's then-brother-in-law for demanding a bribe to clear the company's Argentine investment plans. In addition, the 1991 sale of state-owned Aerolineas Argentinas to Spain's Iberia was clouded with corruption. On its acquisition sheet, reported the magazine, Iberia reported $80 million in expenses under "costs associated with the sale" -- an amount that allegedly covered bribes paid by the Spaniards to corrupt Argentine government officials.

Yet the IBM case is clearly more serious, not only because of the attack against journalist Pinetta but also because of the implications it has for U.S. businesses operating throughout Latin America, where bribery is in some countries almost a necessary cost of doing business. In Argentina, that sorry state of affairs continues to be the case despite a 1994 declaration by Carlos Ruckhauf, Argentina's interior minister at the time, that "this government has completely overcome" the problem of corruption.

While no officials have openly accused Big Blue of involvement in the attack, IBM -- concerned about its 1,100 Argentine employees and the loss of one of its most lucrative computer contracts in the region -- is keeping a very low profile. So are its allies in the local business community.

Felix E. Zumelzu, executive director of the American Chamber of Commerce in Buenos Aires -- which counts IBM among its 420 members -- absolutely refused to discuss the issue when asked whether the worsening scandal has had any impact on local attitudes towards U.S. firms operating in Argentina.

"That's in the hands of the courts and the justice system, and we won't comment on it," he said adamantly. "It's my privilege not to comment."

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