Arik Hesseldahl

Recent Posts by Arik Hesseldahl

IBM Contends With Angry Judge in Bribery Case

Simpsons_Judge_SnyderWhat was supposed to have been a straightforward settlement of old bribery charges with the U.S. Securities and Exchange Commission has for IBM turned into a peculiar battle of wills with a U.S. District Court Judge.

Last year, you may remember, Big Blue agreed to a $10 million fine to the SEC to settle a civil lawsuit charging that it paid bribes to government officials in China and South Korea during a period from 1998 to 2009.

Now the judge reviewing the settlement is demanding some onerous reporting requirements that the company says are too burdensome, according to a Bloomberg report. And the SEC is taking its side.

Richard_J._Leon_Judge Richard Leon (pictured from his Wikipedia bio), who has been reviewing the case for 22 months, says he wants IBM to report on a significantly wider range of issues, some of which aren’t connected to the substance of the original bribery complaint against it.

Most of the time, judges sign off on these settlements. Companies come clean and agree to show that they’re staying clean by not doing what they’ve been accused of. But apparently Leon’s blood is up over this. He has told IBM that he wants annual reports on its compliance with the Foreign Corrupt Practices Act, the law that governs bribery overseas, and he wants the reports to cite all potential accounting violations. IBM has so far agreed only to report on matters related to bribery, which is what the original complaint is about. The next hearing is set for Feb 4.

In the original complaint, the SEC said that IBM made payments to “secure the sale of IBM products through IBM-Korea and LG-IBM’s business partners,” referring to IBM units in South Korea and China. IBM was accused of paying $207,000 in bribes to South Korean officials, including cash, gifts, travel and entertainment expenses and free computers.

In 1998, the SEC says, a territory manager for IBM-Korea met the head of operations for a South Korean government agency and gave him a shopping bag filled with 20 million Korean won, about $19,000. Over time, the same official received payments totaling about 80 million won, or about $76,000, by 2001. What did IBM supposedly get in return? Designation as a preferred supplier for mainframe computers, and an agreement to place orders at higher prices.

From 2004 through early 2009, it “engaged in a widespread practice of providing overseas trips, entertainment and improper gifts to Chinese government officials,” the SEC said, adding that the misconduct involved as many as 100 employees of IBM China.

In China, the SEC says, IBM China employees created what it describes as “slush funds” with local travel agencies that were used to pay the travel expense incurred by local government officials. Other slush funds, it says, were created with business partners to provide cash payments and gifts like cameras and notebook computers.

IBM is not alone in getting caught in these bribery cases. In August, Oracle, paid $2 million to settle an SEC case brought against it over allegations of misconduct in India. In 2010, Hewlett-Packard faced bribery charges in Russia, in a case that’s now being investigated by a court in Germany.

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