S. Korea IBM Unit Is Target of Probe
IBM Corp. said Tuesday that it was being investigated by the Justice Department and Securities and Exchange Commission after three fired executives were charged with bribery in South Korea.
The U.S. Foreign Corrupt Practices Act prohibits U.S. firms from paying bribes to win overseas contracts. Former IBM executives Jang Kyung Ho, Lee Jeong Woo and Kim Ki Yong were accused of paying bribes or colluding with other firms to win $55 million in government contracts in South Korea.
Armonk, N.Y.-based IBM fired the three Monday after they were indicted.
IBM, which got $1.5 billion of its $81.2 billion in 2002 sales from South Korea, could continue to sell products through partnerships with South Korean firms if the company was banned from bidding on government work, investors and analysts said.
“From an earnings point of view, it’s going to be pretty minimal,” said Sunil Reddy, who helps manage $30 billion including IBM shares at Fifth Third Bank in Cincinnati. “It’s more of an embarrassment than anything else.”
The company is investigating its South Korea unit, which was created in 1967, has 16 offices and employs 2,483 workers.
Customers include Samsung Electronics Co., the world’s third-largest mobile-phone company.
“We are reviewing and reinforcing our already strict code of business conduct, and any deviation from our strict standard for business operations will not be tolerated,” said Edward Barbini, a spokesman for IBM. He declined to elaborate.
An SEC spokesman declined to comment on the investigation. A spokeswoman for the Justice Department didn’t immediately return a phone call.
IBM agreed in 2000 to pay $300,000 to settle charges related to bribery allegations at its unit in Argentina. The SEC said IBM Argentina paid $4.5 million to an Argentine bank in a successful bid for a $250-million contract. The subsidiary hid the payment, which was made through a subcontractor, from overseers.
The IBM case is part of a larger crackdown on corruption in South Korea by President Roh Moo Hyun. Roh said last month that he would resign if an investigation found that his aides took illegal campaign contributions during the 2002 presidential election campaign. Two of his aides have been arrested in the probe.
IBM shares rose 1 cent to $93.06 on the New York Stock Exchange.
