HP Execs Embroiled in Bribery Investigation

This article originally appeared on Professor Koehler’s FCPA Professor website (www.fcpaprofessor.com) and is reprinted with his permission.

An international Fortune 500 company is currently being investigated by foreign officials accusing said company of paying bribes to win a lucrative contract.

Stop me when we get to something you haven’t heard before.

(And if you need a quick refresher at just how common a story like this is, take a quick look at Mike Koehler’s FCPA Compliance column here on CCI.)

hp-bribery-scandalSince this story basically is “color-by-number”, let’s fill in some of the blanks.

From the Wall Street Journal this morning:

German and Russian authorities are investigating whether Hewlett-Packard Co. executives paid millions of dollars in bribes to win a contract in Russia, according to people familiar with the matter.

German prosecutors are looking into the possibility that H-P executives paid about €8 million ($10.9 million) in bribes to win a €35 million contract under which the U.S. company sold computer gear, through a German subsidiary, to the office of the prosecutor general of the Russian Federation. The office handles criminal prosecutions in Russia, including many corruption cases.

Russian investigators raided H-P’s Moscow offices Wednesday in connection with the probe, the people familiar with the matter said. The search was requested by German authorities, according to a statement posted on the Russian prosecutor’s Web site.

See how neatly this fits?

Let’s break down the opening line of this post again (which I am beginning to think should be included as a post template for CCI; you know, just to make things easier on us all).

  • An international Fortune 500 company – HP…check!
  • is currently being investigated by foreign officials – German and Russian authorities…check!
  • accusing said company of paying bribes – Almost $11 million…check!
  • to win a lucrative contract. – Worth 35 million pounds…big check!

Now, before we throw HP too far under the bus, let’s get their response to the investigation out there. Through a spokesperson, the company told the Journal that the allegations are in reference to something that happened seven years ago and that the employees in question no longer work with the company.

Three suspects were arrested this past December without any charges formally being filed. They have since been released on bail. According to a Reuters report, nine people with ties to HP are being investigated for their alleged involvement in the bribery scandal.

HP would obviously like for this case to go away quietly and not be taken up here in the States. However, those four letters that we talk about here at CCI from time to time – FCPA – are sure to rear their ugly (at least in HP’s viewpoint) head at some point.

As the Journal reports, the probe by German and Russian authorities into the HP bribe could very well result in a parallel investigation here in the States by the SEC.

The first reason for such an investigation would be, of course, because the FCPA prohibits companies from attempting to influence foreign officials through the paying of bribes.

The second reason why the SEC may start sniffing around HP’s purported bribery practices overseas is that the company has yet to disclose the investigation in its official SEC filings. The FPCA requires that companies do so.

HP, for its part, says that it has submitted its filings according to the law.

Then again, until a settlement is announced or punishment is levied, most companies say exactly what HP is saying now. So listen to them in the interest of getting a balanced viewpoint on the story, but understand that where there is smoke there is usually fire, and by all accounts there are plumes of FCPA smoke leaking out of the HP chimney.

In possibly related news (okay, in certainly related news), HP’s stock price dropped approximately $0.40 per share today, according to SmartMoney.com, after news of the bribery scandal broke. Here is what Collins Stewart earnings analyst Louis Miscioscia had to say:

“These issues are very serious. However, in general, the market still focuses on operating earnings and we would not expect something like this to affect the continuing operating earnings of the company, especially given that trends for tech are pretty positive right now.”

If there is some kind of misunderstanding, HP will undoubtedly fight the charges. However, as we’ve seen in many recent FCPA cases, their best course of action may be to execute a quick settlement that allows them to, as Mike Koehler puts it, agree to the much more palatable “charge” of “bribery, yet no bribery.

Koehler has been critical of the FCPA’s oftentimes toothless enforcement; time will tell if anything is different with HP.

**********

* – HP image courtesy: Library.Thinkquest.org

2 Comments

  1. Saturnin
    April 15, 2010

    HP is not the only one… CA with its Middle-East operation is heavily involved in the same kind of practice