AAPL Apple Inc

By Yoko Kubota and Tripp Mickle 

Apple Inc. conducted an investigation in May into possible business misconduct within its supply chain, including possible kickbacks and bribes to employees from suppliers, rattling some of the tech giant's suppliers and staff in China as they geared up to produce the company's newest devices.

In response to The Wall Street Journal's questions, an Apple spokesman said the company found no evidence of bribery or kickbacks, but declined to disclose what prompted the investigation or its findings.

Apple inquired with at least one supplier about possible kickbacks to Apple employees, according to people familiar with the probe.

"We have over 2,300 operations employees in China and, while misconduct issues are rare, we take any allegations very seriously and investigate each one thoroughly," an Apple spokesman said in its statement.

Inside Apple, the supply-management team in China handling nonelectrical components for iPhones experienced some turnover this year. A top procurement executive left in May, and two junior members of the team departed Apple around that time, according to people familiar with the matter. The reasons for their exits aren't clear. Apple declined to comment on the departures.

The companies that were questioned in connection with the probe continue to supply Apple, people familiar with the investigation said. Changing suppliers of key components could disrupt iPhone production.

The probe has been a source of concern for some Apple staff and suppliers amid this year's iPhone cycle, primarily in the segment tied to nonelectrical components, the people said. The company has thousands of suppliers and supply-management employees spread across China and the U.S.

Apple has strict rules for its employees on dealing with suppliers, Apple suppliers and former staff said. Apple employees working on parts procurement cannot accept gifts from suppliers or go out for lavish meals, they said.

It also has strict rules for suppliers. According to its "Supplier Code of Conduct" on the company's website, Apple suppliers "shall not engage in corruption, extortion, embezzlement, or bribery to obtain an unfair or improper advantage."

The possibility of corruption has been a challenge for businesses operating in China, said Daniel C.K. Chow, a professor of business law at Ohio State University who has testified before the U.S. International Trade Commission on Chinese business practices.

For example, Mr. Chow said, the country's pharmaceutical industry long depended on drug-sales executives paying doctors for prescribing their medications, a practice GlaxoSmithKline was found guilty of in China in 2014.

JPMorgan Chase & Co. settled a case with the U.S. government over a scheme to hire relatives of powerful government officials in Asia to win business. JPMorgan agreed to pay $264 million and admitted it violated the Foreign Corrupt Practices Act, which bars U.S. firms from paying bribes to foreign governments to win business.

Apple had a kickback scandal of its own in 2010 involving Paul Shin Devine, a global supply manager, who was accused of receiving more than $1 million in kickbacks from six Apple suppliers in Asia. He was arrested in the U.S. and sentenced to about a year in prison and fined about $4.5 million in restitution after admitting to taking payoffs from suppliers.

--Yang Jie in Beijing contributed to this article.

Write to Yoko Kubota at yoko.kubota@wsj.com and Tripp Mickle at Tripp.Mickle@wsj.com

(END) Dow Jones Newswires

November 30, 2018 19:33 ET (00:33 GMT)

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