Apple Suppliers Start Kickback Investigation: Report

Two of Apple’s Asian suppliers have launched their own investigation into an Apple manager’s alleged kickback scheme, according to Reuters, while another protested its innocence in the matter.

Paul Shin Devine, a global supply manager for Apple, was arrested Aug. 13 and charged with 23 counts related to the supposed $1 million worth of kickbacks. The charges include wire fraud and money laundering. The federal grand jury indictment also named Andrew Ang, a Singapore-based employee of an Apple supplier; Ang’s location remains unknown.

According to the indictment, Devine offered six unnamed Asian suppliers confidential information on Apple’s purchasing plans for product components. In return, he allegedly received more than $1 million in bribes and kickbacks, filtered through a network of U.S. and offshore bank accounts.

While the Asian suppliers went unnamed in the indictment, three of them have come forward to either protest their innocence or claim they’ve launched investigations of their own. South Korea-based Cresyn, which manufactures earbuds for the iPod, admitted paying fees to Devine but said the interaction was strictly above-the-board. 

“Devine approached us first and offered to give us business consulting to help advance into the U.S. market,” an unnamed official at Cresyn told Reuters on Aug. 17. “We accepted his offer and received general information about U.S. markets, and in return we offered him a small consulting fee. But this was based on a legal contract we made with him in 2007.”

Meanwhile, Pegatron and JLJ Holdings—from Taiwan and Singapore, respectively—announced they had launched investigations into their own alleged involvement. The indictment names Kaedar, a Pegatron acquisition later spun off into its own entity, as a kickback source.

“We are investigating the case now and feel sorry about this,” Jonathan Chang, a deputy spokesperson for Pegatron, told Reuters.

Both federal investigators and Apple allege that the kickbacks continued for at least three years, with suppliers using the information as leverage in their negotiations with Apple. Devine pleaded not guilty to the charges Aug. 16, and is currently in custody of the U.S. Marshals Service. The case is being heard in U.S. District Court, Northern District of California (San Jose).

Apple’s booming success with many of its product lines represents a potential windfall for components suppliers—but that popularity also comes with its own pressure. Over the past few months, manufacturers such as LG Display have complained that demand for parts have strained their inventories.

“We can’t meet it all,” Kwon Young-soo, LG Display CEO, told reporters from Reuters and other media outlets July 22. “Apple may have to delay launches of the iPad for some countries due to tight component supplies and strong demand.”