SEC Charges Hewlett-Packard with FCPA Violations (with Campbell Comment)
On April 9, the Department of Justice ("DOJ") and the Securities and Exchange Commission ("SEC") announced that Hewlett-Packard Company ("HP") had agreed to pay approximately $108 million to settle criminal and civil charges that the company's foreign subsidiaries violated the anti-corruption, internal controls, and books and records provisions of the FCPA. The DOJ and SEC settlement papers are available for download below. The settlements involved approximately $2.7 million in payments made by the company's foreign subsidiaries to government officials in Russia, Poland and Mexico.
The DOJ and SEC alleged that, between 2000 and 2007, HP's subsidiary in Russia paid approximately $2 million to officials in the Office of the Prosecutor General of Russia through a series of agents, consultants and offshore shell companies. The DOJ and SEC also alleged that, between 2006 and 2010, HP's local subsidiary in Poland provided over $600,000 in cash, gifts, travel and entertainment, funded through off-the-books accounts, to an official in the Polish National Police agency. Finally, the DOJ and SEC alleged that, in 2009, HP's subsidiary in Mexico used a local channel partner to funnel commissions to a Mexican consultant who made cash payments of at least $125,000 to an official at Mexico's state-owned oil company. Although staff at HP's U.S. headquarters were apparently unaware of these transactions, according to the U.S. government, the company earned approximately $29 million in profits that were tied to the payments.
HP subsidiaries in Russia, Poland and Mexico resolved criminal charges through three separate agreements with the DOJ. The Russian and Polish subsidiaries entered into a plea agreement and a deferred prosecution agreement, respectively, that included combined fines of $74.2 million. The Mexican subsidiary entered into a non-prosecution agreement that included a $2.53 million forfeiture payment. HP resolved the SEC's investigation through an administrative cease and desist order, and agreed to pay approximately $26.5 million in disgorgement and $5 million in prejudgment interest.
Campbell Comment: The HP settlement highlights the challenges facing companies operating in high-risk jurisdictions, even in situations where the company has implemented enhanced controls around transactions with third parties such as consultants, subcontractors and channel partners. According to the settlement papers, HP had implemented robust, corporate-level anti-corruption controls around third-party interactions that successfully raised red compliance flags during the proposed transactions.In each case, however, employees outside the U.S. were able to circumvent these controls and avoid oversight by the company's managers and compliance professionals. For example, in Russia, the initial request to utilize a clearly unqualified U.S. subcontractor was identified through HP's due diligence processes and rejected by employees in headquarters. However, once the focus of the Russian project moved from the U.S. to Germany, the Russian employees were able to retain a similarly unqualified German subcontractor to funnel payments to government officials over the objections of a Russian credit officer.This case demonstrates the continued importance of implementing anti-corruption control systems that flag compliance problems and mandate diligent follow-ups and analyses of any issues raised. In addition, because the success of a company's anticorruption controls is dependent on the employees in their compliance departments, companies should ensure that their compliance professionals outside the U.S. have been trained adequately to understand the importance of effective compliance and monitoring. A risk-based approach that enhances controls around the use of third parties (e.g., consultants, agents and channel partners) in countries with known corruption issues should be part of every company's response to this area of potential FCPA exposure.
See: HP's Russian Plea Agreement; Poland DPA; Mexico NPA; SEC Order.