Apple Investigated Possible Business Misconduct in Its Supply Chain -- 2nd Update
November 30 2018 - 7:48PM
Dow Jones News
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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