On March 18, 2011, the Securities and Exchange Commission ("SEC") and International Business Machines Corporation (“IBM”) resolved civil charges against IBM for violating the books and records and internal control provisions of the FCPA as a result of the provision of improper cash payments, gifts, and travel and entertainment to government officials in South Korea and China. In total, IBM will pay $10 million in civil fines and penalties.
The SEC’s Complaint alleges that from 1998 to 2003, employees of IBM Korea, Inc., an IBM subsidiary, and LG IBM PC Co., Ltd., a joint venture in which IBM held a majority interest, paid approximately $207,000 in 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 SEC Complaint also alleges that from at least 2004 to early 2009, employees of IBM (China) Investment Company Limited and IBM Global Services (China) Co., Ltd., both wholly-owned IBM subsidiaries, engaged in a widespread practice of providing overseas trips, entertainment, and improper gifts to Chinese government officials. According to the Complaint, the misconduct in China involved several key IBM-China employees and more than 100 China employees overall.
The Complaint states that despite its extensive international operations, IBM lacked sufficient internal controls to detect the wrongful conduct, and while it had corporate policies prohibiting bribery, "deficient internal controls allowed employees of IBM's subsidiaries and joint venture to use local business partners and travel agencies as conduits for bribes or other improper payments to South Korean and Chinese government officials over long periods of time.
Without admitting or denying the SEC’s allegations, IBM consented to the entry of a final judgment that permanently enjoins the company from violating the books and records and internal controls provisions of the FCPA. IBM also agreed to pay disgorgement of $5,300,000, $2,700,000 in prejudgment interest, and a $2,000,000 civil penalty, for a total of $10 million.