July 5, 2006
Deloitte & Touche LLP
Dear Mr. Curry:
The staff has reviewed your letter of July 5, 2006 concerning the sale by Deloitte & Touche LLP, a Delaware limited liability partnership ("D&T"), Deloitte Tax LLP, a Delaware limited liability partnership ("Deloitte Tax"), and Deloitte & Touche Acquisition Company LLC, a Delaware limited liability company ("D&T Acquisition," and together with D&T and Deloitte Tax, the "Sellers") of (1) all the membership interests in Deloitte & Touche Tax Technologies LLC, a Delaware limited liability company ("DT3"), which conducts a business of developing, marketing, and licensing certain software products (the "DT3 Business"), and (2) Deloitte Tax's Tax Technology Services division, which implements, customizes and offers assessment and training services with respect to customized income tax compliance and planning solutions, including implementation services related to CORPTax software, CORPTax ETS software, CORPInternational software and CORPTax ETS MART, and tax process optimization (TPO) services (the "TTS Business" and together with the DT3 Business, the "Business") to an indirect subsidiary of Warburg Pincus Private Equity IX L.P. ("WPIX"), a private equity investment fund sponsored by Warburg Pincus LLC, a global private equity firm. Your letter details key terms of the transaction and conditions that Sellers, Deloitte Touche Tohmatsu ("DTT") and other DTT Entities (as defined in your letter) have complied, or will comply, with in connection with the completion of the transaction. Your letter concludes that, based on compliance with those terms and conditions, WPIX should not be considered an associated entity of D&T or any other DTT Entity and that neither D&T nor any other DTT Entity should be considered to have a "mutuality of interest" or a "direct or material indirect business relationship" with, or a "direct financial interest or material indirect financial interest" in, any of their audit clients as a result of the activities of WPIX, or any officer, director, employee or other affiliated persons (which activities include, without limitation, licensing any Business assets or providing services to, entering into any business relationships with and making or receiving investments in or from third parties).
As you are aware, the Sarbanes-Oxley Act of 2002 (the "Act") expressly prohibits any registered public accounting firm, or any associated person or entity of that firm, from providing certain non-audit services to its audit clients that are "issuers" as defined in the Act. The representations set forth in your letter indicate that the following steps have already been taken to divest the Business: (1) Sellers have agreed to transfer all of their interest in the Business to WPIX, and no WPIX officer, director, employee or other affiliated person of WPIX will receive or retain any equity interest in any DTT Entity, nor will any DTT Entity or any partner or principal thereof, receive any equity interest in WPIX; (2) the DTT Entities have no corporate governance, or management role in WPIX or direct or indirect financial ties with WPIX (other than the transitional service arrangements); (3) WPIX does not and will not use any variant of the "Deloitte" name; (4) the DTT Entities do not and will not pay to or receive from WPIX any royalty, interest, dividend or other payment (other than payments contemplated by the Licenses, as defined in your letter); (5) the DTT Entities and WPIX have not and will not enter into joint marketing, advertising or similar arrangements with each other; (6) the DTT Entities and WPIX are under no obligation to refer clients to one another and there will be no referral fees or other forms of compensation to each other for referrals; (7) Sellers will not compete against WPIX for certain services under a five year non-compete covenant; (8) shared services and subcontracting arrangements between the DTT Entities and WPIX are limited and transitional in nature and are for a period of no more than 18 months; and (9) WPIX has no obligation to the DTT Entities in connection with any retirement obligation, and the DTT Entities have no obligation to WPIX in connection with retirement benefits to continuing or former partners, principals, or employees of the DTT Entities.
Assuming that the representations set forth in your letter are and continue to be accurate, and further assuming that the DTT Entities continue to comply with each of the terms and conditions set forth in your letter, the Office of the Chief Accountant ("OCA" or the "staff") will not recommend an enforcement action asserting that either D&T or any other DTT Entity lacks independence as a result of non-audit services provided to audit clients of DTT Entities by WPIX or its employees. Of course, the DTT Entities otherwise remain fully subject to the Commission's independence requirements, as well as the provisions of the Act, with respect to matters not expressly covered by your letter and this response. OCA has taken this position based on the specific facts and circumstances represented in your letter. Also, as represented in your letter, Sellers will consent to any review deemed necessary by the staff, or the Public Company Accounting Oversight Board to ascertain compliance. If the divestiture is found not to have satisfied the terms and conditions represented to the staff or if any of the remaining terms or conditions in your letter are not met, the staff's position will be vitiated, and the staff may recommend an enforcement action. Further, OCA has taken this position based on its evaluation of the relevant policy considerations and does not thereby adopt or endorse the analysis or conclusions set forth in your letter. This response expresses OCA's position only on these particular facts and circumstances and does not purport to express any legal conclusions on this or any other matter.
Scott A. Taub