IBM Violates the Foreign Corrupt Practices Act

The bribery of foreign government officials by US companies is alive and well and the latest culprit to get caught is IBM. According to an article in the Wall Street Journal on March 19 by Jessica Holzer and Shayndi Raice (see:  http://online.wsj.com/article/SB10001424052748704608504576208634150691292.html), U.S. regulators accused IBM of a decade-long campaign of bribery in Asia, saying employees handed over shopping bags stuffed with cash in South Korea and arranged junkets for government officials in China in exchange for millions of dollars in contracts. ‘Big Blue,’ IBM’s nickname, agreed to pay $10 million to settle the civil charges, which allege "widespread" payment of bribes by more than 100 employees of IBM subsidiaries and a joint venture from 1998 to 2009. In exchange for the payments, the Securities and Exchange Commission said, IBM received contracts for computer gear. While IBM did not admit to the charges, the company did feel compelled to pay a $10 million penalty and it did say that it had taken appropriate remedial action to address the issues raised in the lawsuit.

IBM violated provisions of the Foreign Corrupt Practices Act. The Act was passed by Congress and signed into law on December 19, 1977, a result of US Securities and Exchange Commission investigations in the mid-1970s that found over 400 U.S. companies made questionable or illegal payments in excess of $300 million to foreign government officials, politicians, and political parties. The Act was amended in 1998 by the International Anti-Bribery Act of 1998 which differentiates between bribes, such as those made by IBM that violate the Act, and so-called “facilitating or grease payments.” The latter do not violate the Act because the payments are small in amount and are designed to grease the wheels to get things done in a foreign country that might not otherwise occur (i.e., payments to off-load merchandise in a foreign port). Sometimes it is not clear cut where a facilitating payment starts and a bribe begins.

IBM’s motto is ‘T-H-I-N-K.' I guess that means to IBMers to think of a way to gain business in a foreign country, instead of your competitors, by paying off the right people.

Blog by Steven Mintz, aka Ethics Sage, March 30, 2011

Cartoon reproduced with permission.