Bloomberg, By Tom Schoenberg and Joshua Gallu - Mar 18, 2011
International Business Machines Corp. (IBM), the world’s largest computer-services provider, agreed to pay $10 million to settle U.S. regulators’ accusations that it gave cash and gifts to Chinese and South Korean officials in connection with about $54 million in government contracts.
The company, without admitting or denying wrongdoing, will pay $5.3 million in disgorgement, $2.7 million in interest and a penalty of $2 million to settle a lawsuit filed today by the Securities and Exchange Commission in Washington federal court, according to court papers.
The SEC alleged the bribes, which included travel and entertainment, occurred from 1998 through 2009 in violation of the Foreign Corrupt Practices Act.
“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 SEC said in the complaint.
The improper payments were made by employees at three subsidiaries of Armonk, New York-based IBM, as well as LG IBM PC Co., a joint venture between the company and LG Electronics Inc., according to the lawsuit.
The SEC said cash payments to South Korean officials from 1998 to 2003 totaled $207,000. The payments were connected to contracts worth almost $54 million, the SEC said.
Bags of Money
Some of the money paid to Korean officials was delivered in shopping bags at specific drop-off locations, such as restaurant or apartment parking lots.
In China, the IBM employees created “slush funds” at local travel agencies that were used to pay for overseas excursions by Chinese government officials. IBM employees also gave gifts, such as cameras and laptop computers, to Chinese government officials, the SEC said.
“The misconduct in China involved several key IBM-China employees and more than 100 IBM China employees overall,” the SEC said.
The SEC lawsuit doesn’t say what IBM received from China in return.
“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,” Doug Shelton, an IBM spokesman, said in an e-mailed statement.
The settlement agreement, filed in court today, was signed by IBM’s general counsel on Jan. 6.
No Insurance
IBM agreed in the settlement, which requires approval from a federal judge, not to pay the monetary penalties from any insurance policy.
Alisa Finelli, a Justice Department spokeswoman, declined to comment on whether there’s a criminal investigation of the matter.
IBM expects that revenue from geographic growth markets, including China and South Korea, will be about 30 percent of total sales in 2015, up from 21 percent last year, according to company executives.
The case is SEC v. International Business Machines Corp., 11-cv-00563, U.S. District Court, District of Columbia (Washington).
To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net; Joshua Gallu in Washington at jgallu@bloomberg.net.
To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.
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