Hewlett-Packard today agreed to pay a total of $108 million to the Securities and Exchange Commission to settle civil and criminal charges over violations of the Foreign Corrupt Practices Act.

On April 9, H-P agreed to pay $29 million in disgorgement, including $26.4 million to the SEC, and $2.5 million to satisfy an IRS forfeiture as part of the criminal matter. H-P also agreed to pay the SEC $5 million in prejudgment interest, and fines totaling $74.2 million in the criminal case, bringing the total amount in disgorgement and penalties to more than $108 million.

The settlement resolves charges that H-P's subsidiaries in three different countries made improper payments to government officials to obtain or retain lucrative public contracts.

“Hewlett-Packard lacked the internal controls to stop a pattern of illegal payments to win business in Mexico and Eastern Europe,” said Kara Brockmeyer, chief of the SEC Enforcement Division's FCPA Unit. “The company's books and records reflected the payments as legitimate commissions and expenses.”

Case Details

According to the SEC's order, H-P's subsidiary in Mexico paid a consultant to help the company win a public IT contract worth approximately $6 million. At least $125,000 was funneled to a government official at the state-owned petroleum company with whom the consultant had connections.

Although the consultant was not an approved deal partner and had not been subjected to the due diligence required under company policy, H-P Mexico sales managers used a pass-through entity to pay inflated commissions to the consultant, the SEC stated.

In Russia, H-P's subsidiary from 2000 to 2007 paid more than $2 million through agents and various shell companies to a Russian government official in exchange for a multi-million dollar contract with the federal prosecutor's office for computer hardware and software. 

According to the SEC, employees within the subsidiary and elsewhere raised questions about the significant markup being paid to the agent on the deal and the subcontractors that the agent expected to use. “Despite the red flags, the deal went forward without any meaningful due diligence on the agent or the subcontractors,” the SEC stated.

In Poland, H-P's subsidiary, acting primarily through its public sector sales manager, provided gifts and cash bribes worth more than $600,000 from 2006 to 2010 to a Polish government official to obtain contracts with the national police agency. The official received a percentage of net revenue earned from the contracts, and the bribes were delivered in cash from off-the-books accounts.

“Companies have a fundamental obligation to ensure that their internal controls are both reasonably designed and appropriately implemented across their entire business operations,” said Brockmeyer, “and they should take a hard look at the agents conducting business on their behalf.”

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