A&O Shearman FCPA Digest | SEC v. International Business Machines Corporation (D.D.C. 2011)

Source Documents

Nature of Business
International Business Machines Corporation (“IBM”) is a New York corporation that manufactures and develops computer and information technology products and services. IBM-Korea is a South Korean corporation that sells IBM products in South Korea. IBM-Korea is an indirect subsidiary of IBM International Group B.V., which in turn is wholly-owned by IBM. IBM-China Investment Company Limited and IBM Global Services (China) Co., Ltd. (collectively “IBM-China”) are owned by IBM China/Hong Kong Limited, a Hong Kong company and wholly-owned subsidiary of IBM. LG IBM PC Co., Ltd. (“LG-IBM”) is a joint venture formed by IBM-Korea and LG Electronics to sell personal computers in South Korea. IBM holds a majority interest in LG-IBM.

Influence to be Obtained
The SEC complaint alleges that, between 1998 and 2003, employees of IBM‑Korea and LG‑IBM made cash payments totaling $207,157 and provided entertainment, travel and gifts to South Korean government officials at 16 South Korean government entities in exchange for confidential bidding information and sales contracts for mainframe and personal computers.

The complaint further alleges that two key managers of IBM‑China, and 100 IBM‑China employees overall, provided trips, entertainment, and improper gifts to Chinese government officials from at least 2004 to early 2009. According to the SEC, IBM‑China employees created slush funds to pay for the travel and entertainment expenses of these officials. In exchange, IBM‑China was awarded contracts with government‑owned or government‑controlled entities for the provision of hardware, software, and other services. The SEC purported to identify at least 114 instances of invoices being fabricated, trips improperly documented, unapproved sightseeing activities, trips funded involving little or no business content, and provision of per diem payments and gifts to officials.

The complaint alleges that IBM failed to accurately record these payments in its books and records and lacked sufficient internal controls to detect and prevent these alleged violations.

Enforcement
On March 18, 2011, 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 control provisions of the FCPA. IBM also agreed to pay $5,300,000 in disgorgement, $2,700,000 in prejudgment interest, and a $2,000,000 civil penalty. U.S. District Judge Richard Leon, however, refused to approve the settlement unless it included a requirement that the company submit periodic reports to the SEC and the court regarding its efforts to comply with the FCPA, as well as any future violations of the FCPA and any new criminal or civil investigations. IBM and the SEC initially resisted, but ultimately consented to the additional requirement. The amended settlement was approved by Judge Leon on July 25, 2013.

Amount of the Value
$207,157 in cash payments; entertainment, travel, and gifts of unspecified total value.