Read The Washington Post's January 5 article on the prosecution of IBM's (NYSE:IBM) South Korean subsidiary too fast, and you might find yourself coming down with a serious case of déjà vu.

The facts of the South Korean prosecution are suspiciously similar to the facts of a scandal that IBM got itself involved in with Argentina's Banco de la Nación Argentina back in the mid-1990s. (Read more about the Securities and Exchange Commission's "administrative action" on that one at the Department of Justice's website. Look for the entry titled In re IBM, Inc.)

In both cases, local prosecutors in the IBM subsidiary's host country charged the subsidiary with paying bribes to government officials or employees of state-owned companies to help the subsidiary win state procurement contract. The major difference between the two cases seems to be the size of the infractions -- in Argentina, bribes allegedly totaling about $25 million yielded roughly $250 million in new contracts, whereas in South Korea, IBM's subsidiary reportedly netted just under $50 million in new contracts for the comparatively small investment of about $300,000 in (alleged) bribes.

In both cases, IBM claimed that it had fully complied with the requirements of the U.S. Foreign Corrupt Practices Act (FCPA) by putting into place "internal business controls and procedures" designed to prevent the possibility of their subsidiaries bribing government officials without approval from the home office. And in both cases, IBM produced signed copies of "I will not bribe government officials" pledges by the executives in question.

Finally, in both cases, IBM responded to allegations of bribery by its local executives by promptly firing the executives.

While in Argentina it seems the IBM subsidiary was never convicted of wrongdoing by the local authorities, the scandal was high profile enough that it soon attracted the attention of the U.S. government. IBM's stateside office dodged a bullet on a Department of Justice (DOJ) investigation, which was closed without action. But the Securities and Exchange Commission (SEC) imposed a cease and desist order on IBM in conjunction with a consent decree requiring the company to pay a $300,000 civil fine.

And I suspect that history may repeat itself now with the South Korean scandal. The news is already in the papers and IBM will likely be characterized as a "repeat offender" by the press. So, even though the scale of the bribery is considerably less than we saw in Argentina, the DOJ and SEC will be under some pressure to pursue the case regardless of the size of the alleged offense.

If you are wondering why both the DOJ and SEC would get involved, then read on.

You see, when you ponder the FCPA (as I am sure we all do from time to time), you tend to think "Foreign Corrupt Practices Act" -- this must be the law that says you are not supposed to bribe foreign officials. And you would be right, in part. Bribing foreign officials is definitely a bad thing. Says so right there at 15 USCA §78dd-1.

But that is just what we in the legal biz fondly refer to as "the first prong of the FCPA." The problem with it (or the advantage of it, depending on whether you are a U.S. attorney or a white collar criminal defense lawyer) is that the DOJ has to prove that whomever it is prosecuting knew, or really ought to have known, that it was bribing someone or allowing one of its employees or agents to bribe someone, in order to make the charges stick. That may not sound hard in the case of a majority-owned subsidiary of a computer company handing over cash to officials at a government agency that is in the process of requesting bids on a computer contract. But it still apparently stumped the DOJ in the Argentina case.

So, to minimize the chance of companies playing Sergeant "I know nothing!" Schulz, the FCPA also contains a second prong (the so-called "books and records test"). The gist of this one, located at 15 USCA 78m(b)(2) is that a publicly traded U.S. company has to set up a system for controlling its internal accounting. The system has to be sufficient to ensure that the company knows pretty well where all of its money is and what that money is being used for.

It is partly due to this rule that, when you open up IBM's latest 10-K, you see such easy-to-understand entries as "Assets: Current Assets: Notes and accounts receivable -- trade, net of allowances" on the Balance Sheet and "Cash Flow from Operating Activities from Continuing Operations: Noncash portion of special actions" on the Cash Flow Statement. (If for some reason you do not find these entries easy to understand, consider taking a couple credits at our Fool School -- might I suggest the Read Financial Statements Like a Pro How-To Guide.)

Yet as many times as I have read IBM's Balance Sheet, I have yet to find the entry for "Assets: IBM Korea: Slush Fund." I am having similar trouble locating the Cash Flow Statement entry for "Outlay of Bribes to South Korean National Tax Service." This is just a hunch, but I suspect the SEC is going to have trouble finding those entries as well. And if the SEC has trouble, it is a safe bet that IBM is going to be in for some trouble too.

Long-time Fool Rich Smith ordinarily limits his legal practice to advising on Russian and Ukrainian law. But wonder of wonders, that kind of practice acquainted him with the U.S. Foreign Corrupt Practices Act pretty darn quick. Rich owns no interest in any of the companies mentioned in this article, and he thinks that if more companies modeled their behavior on the Fool's disclosure policy, the world would be a much less corrupt place -- and not just the foreign world.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.