In the summer of 2010, a global supply manager at Apple was charged with wire fraud, money laundering and unlawful transactions in an alleged kickback scheme that involved multiple Apple suppliers. In our Supply Chain Matters commentary in August of 2010, we highlighted the alleged scope of the conspiracy along with a report indicating that the kickback scheme was believed to have dated back as far as 2006. The elaborate scheme was believed at the time to have involved at least three Apple suppliers where confidential information would allow such suppliers to negotiate on more favorable terms with Apple.  The suppliers in question provided mechanical parts, tooling and fixtures related to the manufacture of Apple iPads and iPhones. Information allegedly shared included Apple’s planned sales volumes, product specifications, competitors target prices and bids, which in essence provided overall intelligence on how to best bid for Apple’s business.

In late February of 2011, Paul Devine, a now former Apple manager, pleaded guilty to 23 counts of felony fraud and conspiracy charges in connection with this incident.  Mr. Devine admitted receiving kickbacks from six different Asia based suppliers in exchange for Apple related confidential information. Devine was further ordered to turn over $2.3 million in money and property acquired from the conspiracy.

This week provided news that Mr. Devine has now been sentenced to one year in prison, three years of subsequent probation and fined $4.5 million for his role in the former conspiracy. Devine will begin serving his prison term in late February 2015.

The halls of justice indeed run slow.

According to a published report on Computerworld, Devine’s activities were discovered after Apple reviewed personal email messages from his Hotmail and Gmail accounts on his company-provided notebook. The report further speculates that Devine’s relatively light prison sentence “may have been because he cooperated with authorities in their pursuit of others including Chua (Jacky Chua, former managing director of Singapore based Jin Li Mould Manufacturing) and Ang (Andrew Ang, an employee of Jin Li and a relative of Devine by marriage).”

In a separate posting this week on the appleinsider blog, at the time Devine plead guilty in 2011, “he was ordered to forfeit some $2.3 million in property and money. The federal government had seized $150,000 in cash from Devine’s home — which he reportedly stashed in shoe boxes — alongside nearly $1 million from various bank accounts in both his and his wife’s name.” That posting has thus garnered 50 Comments by today’s count, most of which focused on the greed of an individual who worked for a great employer, seemed to be well compensated by that employer, and chose to pursue unsavory business behavior instead. 

We suppose that these are understandable reactions.

But, as Supply Chain Matters noted in a separate 2010 commentary, this incident should have provided a wake-up call on the state of ethical procurement practices when business pressures and various outside cultures collide.  While some may deflect such remedies toward this being an isolated incident or the moral principles or motivations of the individuals involved, hiring policy has little to do with the underlying root cause of this and other related episodes. It would seem that within today’s business culture, some select firms and individuals within these firms continue with the belief that presumes that all confidential or proprietary information can be had with certain methods.  After all, isn’t business about what is portrayed in today’s reality television programming such as Survivor or the Bachelor?

We should not kid ourselves that such practices exist just in certain financial hedge funds or increased cases of insider stock trading. Once more, information leaks throughout the global supply chain appear to be fair game, and it’s not just a problem solely related to Apple. It is a cross-industry, global-wide problem manifested by different degrees in various geographies.

Firms will continue to scrutinize hiring and procurement business practices and augment such practices with audits and controls.  However, there needs to be heightened visibility and consequences for selling confidential or proprietary information to the highest bidder.

Bob Ferrari