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IBM execs, S. Korea officials face charges

Some 48 South Korean government officials and corporate executives, mainly from IBM ventures, have been charged with bribery in a case involving state contracts for computer parts and servers, prosecutors said on Monday.
/ Source: Reuters

Some 48 South Korean government officials and corporate executives, mainly from IBM ventures, have been charged with bribery in a case involving state contracts for computer parts and servers, prosecutors said on Monday.

Fourteen government officials were bribed a total of 290 million won ($240,000) and an IBM Korea executive received golf memberships worth 98 million won from a subcontractor, prosecutors said.

IBM Korea, a unit of International Business Machines Corp, said it did not condone the activities and that it had fired some staff involved in the case.

President Roh Moo-hyun has pledged to clamp down on corruption and shady business practices, with prosecutors spearheading a series of probes to cut collusion between politicians, bureaucrats and businessmen.

The indictments followed an investigation into allegations that executives of IBM's wholly owned IBM Korea and LGIBMPC Corp -- a joint venture 51 percent owned by IBM and 49 percent owned by LG Electronics Inc -- had bribed government officials to get deals.

The Seoul District Prosecutor's Office said in a faxed statement that IBM Korea had won orders for servers and PC parts worth 51 billion won ($42.7 million) and LGIBMPC Corp had won orders worth 870 million won through illegal actions.

"IBM Korea and LGIBMPC Corp had bribed computer-related department officials at state-run corporations and colluded with them in auctions to supply servers and PC parts," the prosecutor's office said in the statement.

IBM Korea said in a statement that the action of some employees violated the firm's strict code of business conduct.

"Such activity was neither approved nor condoned by IBM Korea," the company said. "IBM Korea has taken action against these individuals, including termination of employment."

The prosecutors office said that in return for bribes officials at the National Tax Office and the Information Ministry gave high marks for these companies' technology when they bid for government contracts.

Fourteen government officials provided auction information in advance, including a 49-year-old tax official, who is alleged to have received 80 million won in bribes from IBM Korea, prosecutors said.

The prosecutors office said the bulk of the 290 million won in total bribes was in cash with 25 million won paid in shares in a firm due to go public soon.

The office said Chang Kyoung-ho, the head of IBM Korea's public sector team, masterminded the scheme.

Chang was arrested for taking bribes from a subcontractor after prosecutors said he received 98 million won in golf membership fees and 30 million won in shares from the subcontractor in return for helping it to win a state contract.

IBM Korea formed slush funds by omitting part of its profits or expensing services to subcontractors to lobby government officials, prosecutors said.

Executives at LG Electronics and SK C&C, an unlisted system network firm in the SK Group, and other subsidiaries of South Korean conglomerates were also involved in collusion, it added.

The government would prevent these companies from participating in any state auction for servers and PC purchases for two years, the office said.

Seoul's stock market shrugged off the news with the main index ending at a 19-month closing high on Monday. However, shares in LG Electronics fell 0.2 percent to 58,500 won.

IBM Korea began operating in 1967 and is one of the longest operating foreign companies in South Korea.

The company leads South Korea's server market with a share of 39.4 percent, while LGIBMPC ranks fourth in Korea's PC and notebook market with a 10 percent share. IBM Korea had 1.37 trillion won in sales in 2002. (US$1=1,195.0 won)