IBM Pays $10 Million To Settle SEC Allegations of Bribery in China, South Korea

IBM has agreed to pay $10 million to settle civil lawsuit from the US Securities and Exchange Commission that it paid bribes to officials in China and South Korea during a period beginning in 1998 and ending in 2009.

The purpose of the payments, the SEC said was 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. During the 1998 through 2003 it says IBM paid about $207,000 in bribes to officials of the South Korean government in cash, gifts, and travel and entertainment expenses and free computers. And from 2004 through early 2009 it “engaged in a widespread practice of providing overseas trips, entertainment and improper gifts to Chinese government officials.” The misconduct in China involved as many as 100 employees of IBM China, the SEC said. The actions constitute a violation of the Foreign Corrupt Practices Act of 1977, the SEC says.

The payments described sound like they come straight out of a bad screenplay. 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 full for 20 million Korean won or 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.

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. The SEC says it found 114 instances where IBM-China employees and a travel agency created fake invoices to match approved travel requests but for trips that had nothing to do with legitimate business purposes. The trips were accounted for as “training services” on IBM-China’s books.

IBM just sent me the following statement: “IBM has agreed to settle an enforcement action with the US Securities and Exchange Commission relating to activities by employees of IBM Korea and IBM China during the period from 1998 through 2009. IBM 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.”