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Will HP Russia’s bribery conviction cast shadow on Canadian operations?

Channel Strategy

Hewlett-Packard’s long running lucrative projects for the Canadian government may be in danger following the conviction for bribery of the company’s Russian subsidiary in a United States Court.

A source close to the situation in Ottawa, told CDN that a 10-year ban on HP Canada products and services “could happen” because of the developments emanating from the U.S.

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.

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 implications for HP Canada because new integrity rules introduced by the Public Works and Government Services Canada stipulate that businesses could be disqualified from bidding for 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.

“We are currently reviewing the recent 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,” said Marcel Poulin, spokesperson for Diane Finley, minster of Public Workds and Government Services

When contacted, and HP Canada spokesperson said:

“HP is aware of the new guidelines, and we are working to fully understand them. In the meantime, we will continue to provide best-in-class products and services and software to all of our customers, including the Canadian government.”

When asked about specifics regarding their business with the Canadian government, the spokesperson said “we’re committed to protecting the confidentiality of our customers and as per our company policy, we can’t disclose this type of information.”

However, CDN has learned from a source that HP Canada officials knew about the bribery case and the potential of 10-year ban.

“HP along with other high-tech vendors knew of the Canadian federal government’s policy on the criminal records check where any affiliation involved in any deals would be checked out down the whole chain. They all thought it was rediculous, but no one paid any more attention to it and it became law,” the source said.

The source added that someone, more than likely an HP competitor, called the government and forced them to “hold HP’s feet to the fire.”

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).

“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.

Public Works and Government Services is now reviewing the U.S. court decision and is examining it possible impact on future business with HP Canada.

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.

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.

(with notes from Paolo Del Nibletto)