IBM Korea Scandal Prompts U.S. Inquiries

Reverberations of a scandal involving IBM’s South Korea unit are beginning to be felt in the United States.

The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) are looking into a bribery and bid-rigging allegations raised by South Korean authorities over the weekend, according to a report in the Wall Street Journal.

The U.S. investigations are unofficial, but could lead to formal probes, the newspaper said, citing anonymous sources.

A spokesman for the DOJ would not confirm or deny the report and said the agency usually does not comment “until and unless” a criminal charge is brought.

One area that federal investigators might examine in a case like this is the Foreign Corrupt Practices Act, which outlaws payments to foreign officials to obtain or keep business.

The DOJ and SEC can impose fines or suspend or disbar companies from federal procurement contracts. The DOJ can also bring criminal charges against officers and employees under the 27-year-old law.

“U.S. parent corporations may be held liable for the acts of foreign subsidiaries where they authorized, directed, or controlled the activity in question,” according to a synopsis of the law on the DOJ’s Web site.

Another possibility is that the case could be handled by the government’s Corporate Fraud Task Force, which was established by President Bush in 2002 in response to corporate accounting scandals sapped investor confidence. Headed by the DOJ, the inter-agency group, investigates hundreds of allegations annually and is empowered to bring civil and criminal charges.

A spokesman for Armonk, N.Y.-based IBM declined comment on the matter today. Last week, a spokesman for IBM’s South Korea subsidiary told newspapers there that the company had fired several executives in connection with the case and disavowed knowledge of their activities. He also said the company is cooperating with investigators.

In all, 48 people at several companies and government agencies have been charged after a two-month investigation. South Korean prosecutors said they were involved in illegal deals to land IBM servers and PCs to government agencies. The deals were reportedly worth about $55 million since 2001.

A spokesman with the Securities and Exchange Commission could not be reached for comment.

In addition to the embarrassment, the scandal could hurt IBM’s business in South Korea. Some regulators say there should be a two-year government ban on IBM purchases, according to a report in the Financial Times. IBM has operated in South Korean since 1967.

Investors, however, don’t seem overly concerned about the allegations. In early afternoon trading, shares of IBM were off only 34 cents, less than 1 percent, to $92.70 per share. News of the widening investigation may have been offset by news that IBM won a new semiconductor contract from Taiwan’s VIA Technologies.

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