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IBM Scandal Is Equal Parts Spectator Sport and Lesson

Argentina: The firm denies wrongdoing as corruption probe widens. Case illustrates perils of doing business in developing nations.

August 11, 1996|SEBASTIAN ROTELLA | TIMES STAFF WRITER

BUENOS AIRES — The lineup of defendants in Argentina's politically charged IBM scandal resembles the guest list for an exclusive gathering of the financial and governmental elite.

The 30 defendants include ousted top executives of IBM Argentina, the entire former board of directors of state-owned Banco de la Nacion, Argentina's largest bank, and a former aide to the nation's president.

They all face charges of fraud and bribery in connection with a $250-million contract awarded to IBM in 1994 to computerize Banco Nacion.

It was a dream project--the stuff that corporate and government careers are made of. But after the disappearance of $21 million paid by IBM to a subcontractor, an alleged front for bribes, the dream disintegrated--along with several illustrious careers. In the aftermath, IBM has taken an unseemly public pounding.

Three high-ranking IBM Argentina executives were forced out after an internal inquiry, though the company says its investigation found no evidence of law-breaking. The bank canceled the contract. Argentine and U.S. investigators are looking into whether IBM executives in the United States committed crimes. And now Argentines are questioning other IBM contracts, worth hundreds of millions of dollars, with federal and provincial government agencies here.

"The relationship between IBM and the national government is not at all clear," said Carlos "Chacho" Alvarez, a leader of the congressional opposition who has alleged criminal misconduct in a separate IBM contract with the federal tax agency. "IBM gained contracts that were very beneficial for the company and very damaging to the Argentine state."

In a nation where scandals seem as frequent and popular as soccer games, the IBM affair has attracted rapt and gleeful interest. It offers irresistible ingredients: the predicament of a prestigious U.S. corporation, political intrigue and, according to some analysts, a lesson in how corruption persists and evolves in developing nations as they try to modernize and reform.

The case shows how the globalized economy creates fertile ground for bribery wherever corporations compete for emerging markets, said Luis Moreno Ocampo, a former federal prosecutor and anti-corruption specialist. Moreno's consulting firm does a thriving business advising government agencies and corporations on how to fight graft.

To Moreno, the characterization of IBM by its defenders--as a hapless victim of an Argentine culture permeated by bribery--distorts the reality of corruption in the developing world. Corporations and governments from industrialized nations must shoulder much of the blame, he said.

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"This idea that you can only do business in these countries by paying bribes is false and serves as a justification," Moreno said. "Countries that export technology are the ones that pay bribes. The problem of corruption is the economic problem of today's world. We have a global economy without a global law, a global judge or a global citizenry."

Moreno is the Argentine representative of Transparency International, a worldwide anti-corruption organization. Corruption worsens the inequality between developed and undeveloped nations, according to Transparency.

In contrast to some European nations that tolerate corporate crime overseas, the U.S. does not. It enforces its Foreign Corrupt Practices Act of 1977. Convictions under the law are rare because of the inherently difficult nature of the cases, but prosecutions have caused considerable legal headaches for numerous blue-chip U.S. companies.

U.S. federal prosecutors, the FBI and the Securities and Exchange Commission are looking into the IBM-Banco Nacion case. Their objective is to determine if a U.S. citizen or an employee of a U.S. company bribed an Argentine government official.

In Argentina, the cases related to IBM keep multiplying. On July 31, a magistrate charged 18 suspects--including IBM executives and provincial bankers--in an alleged fraud related to a contract in the province of Santa Fe.

The troubles engulfing IBM show how far Argentina has to go in eradicating dishonesty in business and government, according to Alvarez.

As have other Latin American nations, Argentina has pursued a neoliberal program of cutting a bloated bureaucracy, privatizing public services and modernizing the technology used by the government. This approach is described as the long-term structural cure for graft. And certain forms of official rapacity--it used to take a year and $1,000 under the table to get a phone installed--have faded.

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But here and in other Latin American nations, notably Mexico, the very process of selling off state-run companies and services generates lucrative new opportunities for illegal enrichment, critics say. Argentines reacted with a mix of disgust and I-told-you-so relish to a recent international poll of executives in which Argentina leaped 20 spots this year on a ranking of corrupt places to do business.

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