6 January 2004 IBM is facing a two year exclusion from bidding for government contracts in South Korea following allegations that managers at the company’s subsidiary offered bribes and other incentives to win contracts worth $55 million.
Over the weekend South Korean authorities served indictments for corruption on 48 government officials and IBM managers. In advance of the charges, IBM fired three top executives from its regional operations and a further three from LG IBM, its majority-owned venture with local companies LG Electronics.
The indictments centre on an alleged bid-rigging scheme that operated during 2001 and 2002 and involved the sale of PCs, servers and related services to the South Korean army, the country’s tax office, the state telephone company and broadcasting agency.
Reports in the Wall Street Journal also suggests that the US Securities and Exchange Commission, as well as the Justice Department, are looking into whether there has been any breach of US laws prohibiting American companies from bribing foreign officials.
IBM, which achieved sales of $1.15 billion in Korea during 2002, said that it regretted “some individuals’ violations of the company’s regulations. Such activity was neither approved nor condoned by IBM Korea.”
If the corruption allegations are proven, South Korean trading laws could ban IBM from participating in any new state contracts for hardware for up to two years. Currently IBM leads the server market in the country with a 40% market share.