Hewlett-Packard’s (NYSE: HPQ) future dealings with the Canadian government may be in danger following the conviction for bribery of the company’s Russian subsidiary in a United States Court.
Early this month, HP Russia pleaded guilty to felony violations of the U.S. Foreign Corrupt Practices Act and was sentenced for its role in bribing Russian government officials to secure a large technology contract with the office of the Prosecutor General of the Russian Federation, according to a statement by U.S. Attorney’s Office for the Northern District of California.
According to court documents, HP Russia executives created a multi-million dollar secret slush fund, part of which was used to bribe Russian government officials who awarded the company a contract valued at more than €35 million (US$44.6 million)
The court ruled that HP Russia must pay US$58. 7 million for violating the anti-bribery and accounting provision of the FCPA.
The ruling could have dire consequences for HP Canada because new integrity rules introduced by the Public Works and Government Services Canada stipulate that businesses face disqualification from bidding on government contracts for up to 10 years. if they or their affiliates are convicted of certain crimes, even if the crimes were committed outside Canada. Among the crimes on the list is bribery.
Public Works and Government Services is now reviewing the U.S. court decision, according to Marcel Poulin, spokesperson for Min. Diane Finley.
“We are currently reviewing the trecent U.S. court decision regarding HP Russia and are examining the impact of this court decision on our current and future business with HP Canada,” Paulin said.
This would be a crucial test case for the new integrity rules laid down at Public Works and Government Services Canada this year and may impact not only HP but other companies which do business with the government as well, according to Alison Brooks, research director for the public sector with analyst firm IDC Canada.
“This is certainly bad news for HP Canada becausethey have a good number of Canadian federal government contracts,” she said “But everybody will be more alert and looking over their shoulder now.”
She said it’s still too early to to tell if the government will move against HP Canada, she said the situation puts Publics Works and Government Services if an odd position.
“On one hand, they have to back their reform initiative, but shutting the doors on HP for 10 years is extreme,” she said. “It means dropping one of their biggest vendor and that could mean losing a pricing advantage when they are at the table with other businesses.”
Meanwhile a spokesperson for HP Canada said it is aware of the new guidelines from Public Works and Government Services.
“HP is aware of the new guidelines, and we are working to fully understand them,” she said. “In the meantime, we will continue to provide best-in-clas products, services and software to all our customers, including the Canadian government.”
Shared Services Canada, which consolidates more of the federal governments IT services procurement and delivery, indicates in its Web site that HP Canada provides a wide variety of computer equipment, servers, software and technology consultation services to the government. Public records show that HP sold some $37 million worth of technology products and services to the federal government in 2013.
HP Russia executives engaged in their bribery activities for more than a decade, according to the U.S. court statement.
“HP Russia created excess profit margins to finance the slush fund through an elaborate buy-back deal scheme, “ a court statement said. “HP subsidiaries first sold the computer hardware and other technology products called for under the contract to a Russian channel partner, then bought the same products back from an intermediary at a nearly €8 million mark-up and an additional €4.2 million in purported services, then sold the same products to the Office of the Prosecutor General of the Russian Federation at the increased price. “
The payments to the intermediary were then transferred through multiple layers of shell companies, some of which were directly associated with government officials. Proceeds from the slush fund were spent on travel services, luxury automobiles, expensive jewellery, clothing, furniture and various other items, the document said.