Hewlett-Packard in Palo Alto (Jason Doiy)
SAN FRANCISCO — Hewlett-Packard Co. will pay more than $108 million to resolve allegations that it bribed foreign officials in Russia, Poland and Mexico to win lucrative government contracts.
The Securities and Exchange Commission and the Department of Justice announced sweeping settlements with HP on Wednesday that address alleged violations of the Foreign Corrupt Practices Act in the three countries. As part of the deal, HP’s Russian subsidiary admitted it paid bribes to land a technology contract with the Russian government and will plead guilty to violating the FCPA. The company’s subsidiaries in Mexico and Poland also admitted wrongdoing in exchange for nonprosecution and deferred prosecution agreements, respectively.
HP will shell out nearly $76.8 million in criminal penalties and forfeiture. The company will also pay almost $31.5 million to settle administrative proceedings brought by the SEC. HP and its subsidiaries netted about $29 million from the schemes, according to the SEC’s order.
“Today’s resolution with HP reinforces the fact that there is no double standard: U.S. businesses must respect the same ethics and compliance standards whether they are selling products to foreign governments or to the United States government,” U.S. Attorney Melinda Haag said in a statement.
Washington, D.C.-based partner F. Joseph Warin and others at Gibson, Dunn & Crutcher served as lead counsel for HP in the investigation and negotiations. Fenwick & West partner Christopher Steskal, chairman of the firm’s white-collar and regulatory group, also represents the company.
Both the SEC and the DOJ have invested heavily in cracking down on corruption overseas, generating a healthy amount of work for attorneys specializing in white-collar defense and government investigations. The DOJ has filed six cases involving the FCPA and related charges so far this year, and the SEC has launched two enforcement actions, according to the agencies’ websites. The average settlement in 2013 was more than $80 million, nearly four times the previous year’s average, according to a Gibson Dunn study.
Other Valley companies have drawn scrutiny from the agencies. Oracle struck a $2 million settlement with the SEC for alleged violations of the FCPA in 2012, and Juniper Networks disclosed last fall that it is under investigation by the SEC and the DOJ for foreign corruption.
As the agencies continue to hire more attorneys dedicated to FCPA work and enlist more cooperation from foreign governments, enforcement is bound to intensify, said Dan Shallman, a white-collar partner at O’Melveny & Myers in Los Angeles.
“All signs point to the DOJ and the SEC approaching allegations of corrupt payments to foreign officials even more aggressively than they have done in the past,” he said.
HP General Counsel John Schultz said in a statement that the company cooperated fully with the SEC and DOJ and agreed to implement additional compliance and reporting procedures in the future.
“The misconduct described in the settlement was limited to a small number of people who are no longer employed by the company,” Schultz said.
Trial attorneys Ryan Rohlfsen and Jason Linder of the Criminal Division’s fraud section handled the Justice Department’s case with Assistant U.S. Attorney Adam Reeves in the Northern District of California. The SEC investigation was handled by David Berman and Tracy Davis, who work in the agency’s FCPA unit in San Francisco.
Although Washington is still the epicenter of FCPA enforcement, Main Justice has partnered more with local outposts on the cases in recent years, with the U.S. attorney’s offices in both Los Angeles and San Francisco joining the charge, said Shallman.
“It provides the government extra weight in going up against big companies with well-funded defenses,” he said.
Documents filed by federal prosecutors on Wednesday in San Francisco detail a decade of alleged misconduct by HP overseas.
“Hewlett-Packard subsidiaries created a slush fund for bribe payments, set up an intricate web of shell companies and bank accounts to launder money, employed two sets of books to track bribe recipients, and used anonymous email accounts and prepaid mobile telephones to arrange covert meetings to hand over bags of cash,” Deputy Assistant Attorney General Bruce Swartz said in a statement.
In 1999, the Russian government announced it would automate the infrastructure of the Office of the Prosecutor General, a project worth more than $100 million that HP Russia officials thought could be the “golden key” to up to $150 million in additional work, according to court papers. In pursuit of the contract, HP Russia employees allegedly funneled more than $2 million to a Russian official through agents and shell companies.
HP Poland allegedly gave a government official cash bribes and gifts worth more than $600,000 to win technology contracts with the Polish National Police Agency. After setting its sights on contracts with a state-owned petroleum company, HP Mexico allegedly paid $1.41 million in commissions to a consultant, who later handed some of the funds to a government official.
Wednesday’s deals settle the matter for HP, but its employees may not be in the clear. Both the SEC and the DOJ have vowed to go after individuals in recent years, and FCPA cases are no exception, though the prosecutions can be tricky to carry out, lawyers say.
“I think that if they can make cases against individuals, they will,” said Timothy Crudo, who heads the white-collar defense and government enforcement practice group at San Francisco’s Coblentz Patch Duffy & Bass. “But these kinds of cases often by definition involve folks in far-off countries.”
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