IBM Korea Offered Bribes to Government Officials

IBM Korea’s indiscriminate lobby - According to the prosecution, IBM Korea lobbied government offices including the National Tax Office, Ministry of Information and Communication (MOCT) and other public companies to get priority in supply biddings of computer servers and personal computers.

In addition, the company has made three billion won-worth of slush funds by way of leaving out a part of its sales profit since 2001 for the purpose of supporting its affiliates such as LG-IBM and Winsol with necessary funds for lobbying activities.

Institutions involved in the lobby include the National Tax Office, the Supreme Prosecutors Office, the MOCT, the Army and the Navy, Korea Electric Power Cooperation, Korea Broadcasting Systems (KBS), Korea Telecom and the Association of the Korean Federation of Community Credit Cooperatives. The 11 people indicted on charges of offering priority at biddings and receiving bribes were mostly officials and people in the working-level positions in the computer industry. The bribe amount confirmed by the prosecution reached 290 million won.

In terms of amount, Assistant Deputy Director of the National Tax Office, Han Doo-hyun, topped the list by receiving 80 million won. Han was followed by Kim Nam-ki of the Association of the Korean Federation of Community Credit Cooperatives with 40 million won and Kim Dae-hwi of the KBS supply department with 25 million won.

However, two personnel of the Prosecutors’ Office allegedly received 5.5 million won and 2.5 million won each as those who received vacation expenses were not indicted but only submitted for disciplinary measure, which raises controversy in the area of fairness.

An official of the prosecution said, “These employees were not indicted because they received hundreds of thousands of money separately over several occasions, and the amount was not that large.”

Maintain the supply price by pre-agreement - IBM Korea also previously arranged for a “to-be-bidder” and “tentative competitor” status among its affiliates and cooperative companies in order to keep the bidding price high. After the bidding, IBM Korea allegedly distributed the margin to the “tentative competitor.”

In August 2001, Winsol, LG Electronics, SK C&C and Sima.com awarded 2.6 billion-worth of servers during the bidding to introduce a knowledge-based administrative system to the MOCT. As a result, Winsol won the bidding and the rest of competitors were offered 310 million won respectively as a price for giving up.

Chang was charged for having assisted Winsol from 2001 to 2003 in winning the bids for computer devices worth 43 billion won and received 340 million won from Winsol as a payback.

Having proved that 15 companies, including LG Electronics and SK C&C, received a total of 1,570 million won from IBM Korea as a price for bidding abandonment, the prosecution proceeded with the indictment of those companies and notified the Fair Trade Committee (FTC). Those companies will receive restrictions in participation from one month to two years based on the decision of the FTC.

Regarding this, Lee Yong-shik, the managing director of IBM Korea said, “Collecting slush funds is beyond the company’s issue, and IBM Korea has never approved nor overlooked the illegal actions. We issued severe measures and dismissed the involved personnel.”

Jin-Young Hwang buddy@donga.com