IBM resolved an enforcement action brought by the SEC, which alleged the company violated the FCPA’s books and records and internal controls provisions. SEC alleged IBM subsidiaries and an IBM join-venture made illicit payments and provided gifts, travel and entertainment to Chinese and South Korean government officials for improper purposes. IBM did not admit nor denied the allegations.
Specifically, the SEC alleged IBM Korea, Inc., an indirectly wholly owned IBM subsidiary, and LG IBM PC Co., Ltd., a joint-venture in which IBM had a 51% interest, bribed South Korean government officials with approximately $207,000 in cash, gifts (including personal computers), travel and entertainment. The bribes were made to influence or induce South Korean government officials to assist the IBM-related entities with obtaining and retaining business and directing business to other IBM business partners. The business advantages included: securing IBM Korea’s status as a preferred supplier of computers, related technologies and services; securing and maintaining the sale of various other products by IBM Korea and LG IBM; helping an IBM Korea business partner win bids to supply computers and related equipment; and obtaining confidential procurement information to which LG IBM was not entitled.
The SEC also alleged employees of indirectly owned IBM subsidiaries IBM (China) Investment Company Limited and IBM Global Services (China) Co., Ltd., (collectively, “IBM China”) improperly provided (directly and indirectly) Chinese government officials with gifts (such as cameras and computers), travel and entertainment.
Further, the SEC alleged IBM’s internal controls allowed employees of IBM’s subsidiaries and joint-venture to use local business partners and travel agencies as conduits for improper payments as well as sources of slush funds, which were used to fund improper activities. For example, in the case of IBM China, the SEC alleged at least 114 instances of internal controls failures between 2004 and 2009, which enabled: IBM China employees to create fake invoices for unapproved travel to match approved customer travel; unapproved sightseeing activities to occur; and per diem payments and gifts to be provided to Chinese government officials.
Finally, the SEC alleged the payments described above were not recorded properly and, instead, were recorded as legitimate business expenses.
IBM agreed to pay a $2 million civil penalty, disgorge $5.3 million in ill gotten profits and $2.7 million in prejudgment interest.
In 2009, IBM stated that both the SEC and DOJ had contacted the company regarding the matters described above. At present, it is unclear whether the DOJ has closed its investigation or whether it continues.
Also in 2009, IBM described the prosecutions brought by Korean authorities against IBM Korea, LG IBM, and employees of those entities for violations similar to those described above. Many individuals were subsequently found guilty and sentenced while IBM Korea and LG IBM paid fines.