In the Matter of Hewlett-Packard Company (2014)

• Case Name
• In the Matter of Hewlett-Packard Company (2014)

• Date Filed
• 04/09/2014

• Enforcement Agency
• SEC

• Countries
• Russia, Poland, Mexico

• Foreign Official
• Russian officials responsible for awarding the GPO project (Federal prosecutor’s office); Officials of Mexico’s state-owned petroleum company (Petroleos Mexicanos); Polish official from the Polish National Police Agency and the Polish Ministry of the Interior and Administration.

• Date of Conduct
• 2003 to 2010

• Nature of Business
• Hewlett-Packard Company (“HP Co.”) is a Delaware corporation with its principal place of business in Palo Alto, California, and with subsidiaries around the world, most relevantly in Russia, Poland, and Mexico.  HP Co. manufactures personal computers, printers, and software and provides related information services and maintains its common stock pursuant to Section 12(b) of the Exchange Act.

• Influence to be Obtained
• According to the SEC, between 2003 and 2010, HP Co.’s wholly owned subsidiaries in Russia, Poland, and Mexico engaged in a series of improper business practices, including making unlawful payments to foreign government officials to gain and maintain business.
  
  Russia
  In Russia, the SEC alleges that in December 2000, the Russian government announced a project to automate the telecommunications and computing infrastructure of the Office of the Prosecutor General (“GPO”).  To win the contract, Zao Hewlett-Packard A.O. (“HP Russia”) allegedly agreed to partner with a series of third-party intermediaries who had close ties to the Russian officials administering the contract.  In particular, HP Russia agreed to pay one intermediary as much as $1.2 million for the contract and agreed to use the intermediary as the principal contractor in the future if the agent secured the GPO project.  According to the SEC, HP Russia was awarded the GPO contract worth over $35 million in January 2001 as a result of this agreement. 
  
  Later in 2003, regulatory issues in the United States forced HP Russia to obtain financing from a German bank.  As a result of German content requirements, the Russian government threatened to re-open the tender on the GPO project.  Afraid that the company might lose the project, the SEC claims that HP Russia executives agreed to funnel approximately €8 million to a Russian official through a German intermediary and various shell companies.  According to the SEC, as a result of the additional illicit payments, HP Russia (through the HP Co.’s German subsidiary Hewlett‑Packard ISE GmbH) was awarded the GPO project once again.  Over the course of the GPO project, the SEC alleged that HP Russia funneled more than €21 million through the German agent to Russian officials, earning more than $10.4 million in illicit profits.
  Finally, in 2005, HP Russia paid approximately $2.5 million to a distributor for services to a state-owned enterprise in Russia, but there are no records of the work performed by the distributor for these payments.
  
  Poland
  In Poland, officials from Hewlett‑Packard Polska, SP. z.o.o. (“HP Poland”) invited a Polish official responsible for reviewing and awarding technology contracts to a conference in San Francisco in October 2006.  Before the conference began, HP Poland allegedly paid for dinners, gifts, and sightseeing for the Polish Official as well as a personal trip to Las Vegas that occurred in the middle of the conference.  In late 2006, the HP Poland officials also allegedly began providing the Polish Official with HP Poland products for personal use.  In 2007, SEC documents state that HP Poland agreed to give the Polish Official 1.2% of HP Poland’s net revenue on any contract awarded.  Around this time, HP officials are accused of giving the Polish Official bags of cash totaling more than $600,000 and gifts worth over $30,000.  The SEC argues that in exchange for these bribes, HP Poland was awarded several contracts valued at approximately $60 million.
  
  Mexico
  In Mexico, to obtain software contracts worth approximately $6 million dollars, the SEC alleges that Hewlett-Packard Mexico, S. de R.L. de C.V. (“HP Mexico”) hired a Mexican consulting company that was closely affiliated with senior officials of Mexico’s state-owned petroleum company.  HP Mexico is alleged to have agreed to pay the Mexican consulting firm an “influencer fee” equal to 25% of the licensing and support components of the software agreement.  To facilitate the payments, HP Mexico arranged for an approved written channel partner (to comply with HP Co. internal controls) to receive the commission and pass it on to the consulting company, keeping a fee for itself.  In accordance with this plan, HP Mexico transferred approximately $1.66 million to the pass-through entity, which then transferred $1.41 million to the consulting company.  Thereafter, the consulting company allegedly paid $125,000 to an entity controlled by a government official.  As a result of the bribes, HP Mexico earned approximately $2.5 million on the software deal.
  
  Other Conduct
  The SEC alleges that some of HP’s European subsidiaries invited government customers to attend a marketing event in connection with the FIFA World Cup in Germany in 2006.  They paid thousands of dollars in travel and entertainment expenses for their guests.

• Enforcement
• On April 9, 2014, the SEC announced that it settled charges with HP Co. through an administrative proceeding for the acts of its subsidiaries in Russia, Poland, and Mexico.  As part of the settlement, HP Co. agreed to pay $29 million in disgorgement, $2,527,750 of which was deemed satisfied as part of the criminal proceedings against HP Co., and an additional $5 million in prejudgment interest.  These penalties were in addition to the DOJ’s $74.2 million sanction in the criminal case against the company.

• Amount of the Value
• Not Stated

• Amount of Business Related to Payment
• Not Stated

• Intermediary
• Consultants/Agents; Subsidiaries; Shell Companies.

• Citizenship of Parent Entity
• United States

• Total Sanction
• $ 34,000,000

• Compliance Monitor
• No

• Reporting Requirements
• Yes (3 Years)

• Case is Pending?
• No

• Total Combined Monetary Sanction
• $ 108,222,474

• Related Enforcement Actions
• United States v. Zao Hewlett‑Packard A.O. (N.D. Cal. 2014)
  United States v. Hewlett‑Packard Polska, SP. Z.O.O. (N.D. Cal. 2014)
  In re Hewlett-Packard Mexico, S. de R.L. de C.V. (2014)
  

Hewlett-Packard Company

• Citation
• In the Matter of Hewlett-Packard Co., Admin. Proc. File No. 3-15832 (Apr. 9, 2014).

• Date Filed
• 04/09/2014

• Filed Under Seal
• No

• FCPA Statutory Provision
• • Books-and-Records
  • Internal Controls

• Other Statutory Provision
• None

• Disposition
• Cease-and-Desist Order

• Defendant Jurisdictional Basis
• Issuer

• Defendant's Citizenship
• United States