I want to quote more or less verbatim a “litigation release” dated 18th March 2010 from the U.S. Securities and Exchange Commission (SEC) website. On that date it charged International Business Machines Corporation (“IBM”) with
“violating the books and records and internal control provisions of the Foreign Corrupt Practices Act of 1977 (“FCPA”) as a result of the provision of improper cash payments, gifts, and travel and entertainment to government officials in South Korea and China. [Note: there is no comparable provision under the Bribery Act]
As alleged in the SEC’s Complaint, from 1998 to 2003, employees of IBM Korea, Inc., an IBM subsidiary, and LG IBM PC Co., Ltd., a joint venture in which IBM held a majority interest, paid cash bribes and provided improper gifts and payments of travel and entertainment expenses to various government officials in South Korea in order to secure the sale of IBM products.
It was further alleged that, from at least 2004 to early 2009, employees of IBM (China) Investment Company Limited and IBM Global Services (China) Co., Ltd., both wholly-owned IBM subsidiaries, engaged in a widespread practice of providing overseas trips, entertainment, and improper gifts to Chinese government officials.
Without admitting or denying the SEC’s allegations, IBM consented to the entry of a final judgment that permanently enjoins the company from violating the books and records and internal control provisions of the FCPA, codified as Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. IBM also agreed to pay disgorgement of $5,300,000, $2,700,000 in prejudgment interest, and a $2,000,000 civil penalty”.
Previously, in 2004 the former head of IBM Korea and two other high-ranking IBM officials were jailed by a court in Seoul after a corruption scandal there.
Jang Gyeong-Ho was IBM Korea’s executive director until January 2004 when he was dismissed after accusations of bribing government officials. The court found that Jang had helped IBM partner firms LG IBM and Winsol to secure up to 66 billion South Korean won (€44m) of hardware supply contracts to five public agencies, including the tax service.
What would be IBM’s predicament in the UK on these same facts if the Bribery Act had been in force at the time that the offences (or alleged offences) had taken place.
IBM is a huge global company operating in over 170 countries with, according to its website, around 400,000 employees globally and its revenues are approaching $100billion. It has around 20,000 employees in the UK alone. It is therefore doing business in the UK for purposes of Section 7 of the Bribery Act. It is likely that IBM would be found to be doing business both through the parent company and through its UK subsidiary, so both companies are liable to prosecution, in theory anyway. The offences as reported seem to have been perpetrated by employees of IBM’s South Korean subsidiary i.e. through “associated persons”.
It follows, therefore, that unless the company had in place “adequate procedures” under the Bribery Act (that is, a robust anti-bribery compliance programme), it would be strictly liable for the corrupt activities in which it engaged in South Korea, even though they took place outside the UK, due to Section 12 (5) :
“(5) An offence is committed under section 7 irrespective of whether the acts or omissions which form part of the offence take place in the United Kingdom or elsewhere”.
This could mean unlimited fines for the company.
The IBM employees who committed the offence(s) in South Korea would only be liable under the Bribery Act if they were either British or had a close connection to the UK (broadly speaking were usually resident in the UK).
So if these offences had taken place in 2012, for example, (by which time we consider it is safe to assume that the UK’s Ministry of Justice would have brought the Act into force), IBM could well have been facing a third prosecution in the UK on the same set of facts, in addition to the two prosecutions that took place in South Korea and the US respectively, as cited above.
But would the Serious Fraud Office have pursued IBM when it had already been prosecuted/pursued in South Korea and the US already? It is not clear whether the SFO would want to use its resources in this way. Their attitude towards such circumstances may (I say may, not will) become clearer when the government’s guidance is published soon, or in any event when they start to prosecute foreign companies under the Bribery Act. If it doesn’t become clear, we shall invite the SFO to comment, either directly by blogging here if they agree to do so, or we will blog further here on any comments they have made to us or publicly.