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IBM Settles Bribery Complaint

March 19, 2011

International Business Machines Corp. (IBM) has agreed to pay $10 million to settle a complaint that its employees gave cash and other gifts to Chinese and South Korean officials for more than a decade in connection with some $54 million in government contracts.

The agreement with the U.S. Securities and Exchange Commission (SEC) calls for the world’s largest computer-services provider to pay disgorgement of $5.3 million, interest of $2.7 million and a civil penalty of $2 million.

Under the agreement, IBM neither admits nor denies allegations it violated the Foreign Corrupt Practices Act (FCPA). 

The deal was announced Friday by the SEC, and is now subject to court approval.

The complaint, which was filed by the SEC in the U.S. District Court for the District of Columbia, included allegations that IBM Korea employees gave envelopes filled with cash to South Korean officials in parking lots, provided them with notebook computers, fraudulent bid sheets and made payments to the bank account of a “hostess in a drink shop.”

The complaint also alleged that employees of IBM’s subsidiaries and a majority-owned joint venture had given cash, travel, entertainment and improper gifts to Chinese and South Korean government officials between 1998 and 2009.

According to the document, employees of IBM Korea and joint venture LG IBM PC Co. paid $207,000 in cash bribes and gave improper gifts between 1998 and 2003 to South Korean government officials to secure the sale of IBM products.

From 2004 to 2009, employees of IBM China provided international travel, entertainment and improper gifts to Chinese government officials, according to the complaint.

“The misconduct in China involved several key IBM China employees and more than 100 IBM China employees overall,” the document read.

IBM China employees “created slush funds at local travel agencies in China that were then used to pay for overseas and other travel expenses incurred by Chinese government officials.”

“In addition, IBM China employees created slush funds at its business partners to provide a cash payment and improper gifts, such as cameras and laptop computers, to Chinese government officials.”

“Deficient internal controls allowed employees of IBM’s subsidiaries and joint venture to use local business partners and travel agencies as conduits for bribes or other improper payments to South Korean and Chinese government officials over long periods of time,” the complaint read.

Improper payments were recorded as “legitimate business expenses,” the SEC said in the complaint.

IBM issued a statement acknowledging the settlement, saying it “insists on the highest ethical standards in the conduct of its business and requires all employees to follow its policies and procedures for conducting business.”

Shares of Armonk, NY-based IBM’s stock were up $1.71, or 1.11 percent, on Friday, closing at $155.89.

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