IBM today resolved civil charges brought by the SEC for violating the books and records and internal control provisions of the Foreign Corrupt Practices Act.
The company admitted making improper cash payments to government officials in South Korea and China, and giving gifts and paying travel and entertainment expenses that violated the FCPA.
IBM will disgorge $5.3 million and pay prejudgment interest of $2.7 million, and pay a $2 million civil penalty.
From 1998 to 2003, the SEC said, employees in Korea of a wholly-owned subsidiary, IBM Korea, Inc., and of a majority-owned joint venture called LG IBM PC Co., Ltd., "paid cash bribes and provided improper gifts and payments of travel and entertainment expenses to various government officials in South Korea in order to secure the sale of IBM products." The bribes, improper gifts, and payments totaled $207,000.
And from at least 2004 to early 2009, employees of IBM (China) Investment Company Limited and IBM Global Services (China) Co., Ltd., both wholly-owned subsidiaries, "engaged in a widespread practice of providing overseas trips, entertainment, and improper gifts to Chinese government officials." The gifts included cameras and computers.
The FCPA includes an affirmative defense that allows payment or reimbursement of expenses of foreign officials that are directly related to “the promotion, demonstration, or explanation of products or services." 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A). Many of IBM's payments, however, were not directly related to legitimate business purposes and were not recorded accurately in its books and records.
The SEC's complaint describes bribes to government officials in Korea consisting of bags stuffed with up to $20,000 in cash, and of slush funds at travel agencies in China that IBM used to pay for unauthorized overseas trips by government officials.
The SEC's civil complaint charged IBM with violating the books and records and internal control provisions of the FCPA, Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.
The company trades on the NYSE under the symbol IBM.
View the SEC's Litigation Release No. 21889 and Accounting and Auditing Enforcement Release No. 3254 (both dated March 18, 2011) in Securities and Exchange Commission v. International Business Machines Corporation, Civil Action No. 01:11-cv-00563 (RJL) (D.D.C.) here.
Download the SEC's March 18, 2011 civil complaint against IBM here.