American tech giant Hewlett-Packard has been slammed with fines by the U.S. Justice Department for corrupt activities in three countries. And, because of that, it may be blocked from another one of its key markets, Canada.
This, after the company, commonly known as HP, pled guilty last month in U.S. federal court to engaging in felony violations of the Foreign Corrupt Practices Act (FCPA).
The court action finalized an agreement HP reached in April with Justice Department officials regarding its Russian subsidiary. It admitted that it paid significant bribes to Russian officials in return for large contracts collectively worth more than $44 million.
The U.S. Federal Bureau of Investigation (FBI) released a statement coinciding with that court action.
“In a brazen violation of the FCPA, Hewlett-Packard’s Russian subsidiary used millions of dollars in bribes from a secret slush fund to secure a lucrative government contract,” Principal Deputy Assistant U.S. Attorney General Marshall Miller said in a statement. “Even more troubling was that the government contract up for sale was with Russia’s top prosecutor’s office.”
The FBI news release said HP Russia created a secret slush fund (a pool of money used for illicit purposes) by selling computer equipment and peripherals to a so-called “Russian channel partner.”
HP Russia then bought them back at a significant markup, and then sold these products at that inflated price to the Office of the Prosecutor General of the Russian Federation.
The excess cash was then transferred by HP Russia through layers of shell companies through which the Russian officials could collect their cash.
In announcing a fine of nearly $59 million against HP in the Russian case, and because of other fines for bribery in other countries, the U.S. government’s actions put the Palo Alto, California, company under the regulatory sights of Canada’s Department of Public Works and Government Services.
Canada, according to the Toronto Globe and Mail newspaper, may impose a 10-year ban on Hewlett-Packard doing business with the Canadian government and its agencies.
The Globe and Mail report said that Canada imposed new anti-corruption debarment rules in March.
Under the debarment rules, “companies face an automatic ban on future government contracts if they, or any of their affiliates [subsidiaries] are convicted of a list of various crimes such as bribery, even if those crimes occurred outside Canada,” the newspaper said.
Canada’s regulations differ from those in the United States and the European Union, in that companies caught acting illegally cannot earn reinstatement as a provider to the Canadian government by dismissing employees involved in the improper behavior.
"I don’t think it’s an oversight,” Paul LaLonde, a partner in the Dentons Canada law firm, told the Globe and Mail. “They [the regulations] mean what they say.”
Transparency International Canada President Peter Dent said that Canada’s new anti-corruption stance, by possibly making an example of HP, puts every company engaged with the government business on notice.
“If a company the size of HP ends up being unable to do business with the [Canadian] federal government,” he told the paper, “then a lot of companies are going to be sitting up and taking much more notice.”
Along with the $58.8 million Russia bribery fine are ones for similar actions by HP in Poland and Mexico, the three totaling nearly $77 million.
HP subsidiaries in the two countries admitted to criminal FCPA violations in April in separate agreements with the Justice Department.
U.S. officials said that HP’s subsidiary in Poland won contracts between 2006 and 2010 by bribing the director of information and communications technology at Poland’s National Police agency.
The U.S. Justice Department said HP Poland gave that official more than $600,000, laptop and desktop computers, mobile devices, and other gear.
U.S. officials said HP Poland also took that official on a junket to Las Vegas.
In its agreement with U.S. officials, HP also admitted to misconduct by its Mexico subsidiary involving business with that country’s state oil entity, Pemex.
The Department of Justice complaint against HP said it agreed to pay $1.4 million to a “consultant” with connections to senior Pemex officials. The complaint said HP tried to hide its actions by paying that consultant through third parties.
Along with fines, penalties, and forfeitures by HP for actions by the three subsidiaries involved, the company has also agreed to pay an additional $31.5 million in settlement with the Securities and Exchange Commission.
In the FBI’s statement on Hewlett Packard’s settlement, top official Miller said, “Tech companies, like all companies, must compete on a level playing field, [and] not resort to secret books and sham transactions to hide millions of dollars in bribes."
Miller added, “[HP’s] conviction and sentencing are important steps in our ongoing efforts to hold accountable those who corrupt the international marketplace.”
HP said in April that it was cooperating with the Justice Department but had no comment in September on the actions related to Russia.