IBM Pays $10M to Settle Foreign Corrupt Practice Complaint

IBM has agreed to pay $10 million to settle a complaint its employees bribed South Korean and Chinese officials with cash, gifts and entertainment in return for business for more than a decade.

The U.S. Securities and Exchange Commission alleged employees of IBM Korea and a local joint venture with LG Electronics paid bribes to South Korean government officials, according to a court document.

One manager in Korea twice handed over shopping bags full of cash, totaling 40 million Korean won ($38,186), in parking lots, while another paid into the bank account of a “hostess in a drink shop” to win business, the SEC said.

IBM employees in China also provided gifts, overseas trips and entertainment to government officials, it said, adding that the misconduct involved over 100 local employees, including some key IBM-China employees.

Local employees created slush funds to pay for improper gifts such as cameras and laptop computers to Chinese government officials, the SEC said.

These violations of the Foreign Corrupt Practices Act (FCPA), which bans payments of bribes to foreign officials, took place between 1998 through 2009, it said.

The two sides, however, settled with International Business Machines Corp paying a civil penalty of $2 million plus $8 million in other payments, according to a separate court document. IBM did not admit or deny the allegations, it said.

The case comes as the United States is ramping up its enforcement of the FCPA. Last year, a record number of enforcement actions were brought under the FCPA.

Avoiding corruption in Asia is notoriously tricky, as facilitation payments to speed up procedures such as licensing are common across the region.

Some say tough enforcement of the FCPA by the SEC and the Justice Department may be making U.S. businesses less competitive overseas. Last week, the U.S. Chamber of Commerce hired former U.S. Attorney General Michael Mukasey to lobby Congress to amend the act.

IBM issued a statement saying it “insists on the highest ethical standards in the conduct of its business.”

(Reporting by Ritsuko Ando; Editing by Matthew Lewis and Richard Chang)