SEC accuses IBM of misconduct in providing gifts to Korean, Chinese officials

By David S. Hilzenrath
Saturday, March 19, 2011; 12:06 AM

The Securities and Exchange Commission accused IBM on Friday of bribing government officials in South Korea with cash payments and free laptop computers.

One payment was delivered in a shopping bag in the parking lot of a Japanese restaurant, the SEC alleged. Another was deposited in the bank account of a "hostess in a drink shop."

The bribes helped IBM win Korean contracts worth millions of dollars, the agency charged.

IBM was also charged with creating slush funds to bestow gifts such as cameras, laptops and overseas trips on government officials in China.

The misconduct in China alone involved two key managers of IBM's China operation and more than 100 IBM-China employees, the SEC said.

IBM agreed to pay $10 million to settle the civil charges. The company neither admitted nor denied wrongdoing.

IBM spokesman Douglas O. Shelton said by e-mail that the company "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."

The charges are part of a federal crackdown on overseas bribery by U.S. companies that has in recent years brought charges against such well-known companies as Tyson Foods, Halliburton, ABB and Daimler.

Together, the cases suggest that the payment of bribes can be a routine part of doing business abroad.

The SEC said that IBM's misconduct occurred from 1998 to 2003 in South Korea and from 2004 to 2009 in China. The bribes in South Korea totaled $207,000, the agency said.

"Despite its extensive international operations, IBM lacked sufficient internal controls designed to prevent or detect these violations," the SEC said in a lawsuit filed in U.S. District Court for the District of Columbia.

The SEC charged that IBM recorded improper payments as legitimate business expenses, violating the requirement that it maintain accurate books and records.

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