A federal judge has agreed that $10 million will settle a corruption case between International Business Machines Corp. (IBM) and the U.S. Securities and Exchange Commission. A Department of Justice investigation of IBM’s overseas business practices remains open.
Neither admitting nor denying wrongdoing, the company nonetheless agreed to pay $5.3 million to the SEC to make up for any profits it may have reaped from alleged violations of the Foreign Corrupt Practices Act in China and South Korea. The FCPA is the same law the discount retailer Walmart is accused of having violated in Mexico in the early 2000s.
The charges against IBM entail payment of cash bribes, plus gifts, entertainment and travel, in exchange for sales and business contracts with foreign governments.
The charges against IBM entail payment of cash bribes, plus gifts, entertainment and travel, in exchange for sales and business contracts with foreign governments.
Prejudgment interest of $2.7 million and a $2 million civil penalty bring the total settlement to $10 million. The deal was reached between the parties in 2011 and approved by U.S. District Judge Richard J. Leon on July 25.
IBM also must file annual reports by Dec. 1 for two years, “describing its efforts to comply” with foreign business regulations and notifying the court of any new investigations it’s aware of by any federal agency.
The technology company established a presence in Essex Junction, Vt., in 1958. That plant, along with scores of others around the world, underwent another in a string of layoffs this summer.
The Essex Junction facility is not implicated in the SEC case. The ongoing Dept. of Justice investigation is closed to public inspection.
A spokesman from IBM did not return VTDigger’s request for comments by publication time.
SEC
The most recent SEC case charges IBM on three main counts: 1. that IBM employees paid bribes to government officials in exchange for sales and business contracts in those countries; 2. that the international corporation lacked sufficient internal controls to prevent corruption; and 3. that the publicly traded firm’s inaccurate bookkeeping allowed the bribes to be covered up.
Alleged corruption in South Korea took place between 1998 and 2003, while accusations stemming from business practices in China span from 2004 to 2009. The allegedly “deficient” internal controls and inaccurate bookkeeping cover all those years.
An IBM envelope stuffed with cash, free notebook computers, overpayment for services, payment for services never rendered and travel agency slush funds to cover unapproved or fraudulent business trips comprise but a few of 35 specific allegations.
The employees implicated in the case worked for the subsidiaries IBM-Korea, IBM (China) Investment Company Limited and IBM Global Services (China) Co., Ltd. The South Korean holding was a joint venture in which IBM held majority interest, and the Chinese subsidiaries were wholly owned by the parent company.
An earlier SEC case against IBM also was settled, without the company admitting or denying wrongdoing. In 2000, IBM agreed to pay $300,000 as a penalty for allegations of similar illicit payments to foreign officials in Argentina that may have violated the Securities and Exchange Act of 1934.
The SEC had claimed that at least $4.5 million was transferred to several bank directors as part of a $250 million contract to modernize the computer system of a government-owned bank.
Justice Department and other investigations
Argentina also plays a role in an ongoing investigation of IBM by the U.S. Department of Justice. According to the company’s April quarterly filing with the SEC, IBM learned that month that the agency was scrutinizing transactions in Argentina, Bangladesh and Ukraine.
“The DOJ is also seeking information regarding the company’s global FCPA compliance program and its public sector business,” IBM reported. “The company is cooperating with the DOJ in this matter.”
IBM said in the same filing that it’s also cooperating with Polish authorities looking into a former Polish IBM employee’s allegedly illegal activity there.
Business continues
Despite the allegations of foreign wrongdoing by U.S. law enforcement, domestically the company has won its largest-yet contract with the American government, according to Bloomberg News.
Along with Lockheed Martin Corp. and eight other technology suppliers, IBM will help the Interior Department transition to cloud-based information management. The award, with a maximum value of $1 billion, would cover 10 years.
Bloomberg also reports that IBM has agreed to buy Trusteer, Inc., for more than $800 million. The Israeli company makes security software.
