HP Rides the Slippery Slope from Ethics Violations to Charges of Corruption

Yesterday, it became known that the U.S. was widening its investigation into possible bribes paid by Hewlett-Packard to help win a contract in Russia.  The government probe began in April when authorities arrested three HP employees in Germany and Switzerland who were charged, by German prosecutors, with bribery, embezzlement, and tax evasion in connection with a business deal between Hewlett-Packard ISE GmbH, a former HP German subsidiary, and the chief public prosecutor’s office in Russia.  Six other non-HP employees were also allegedly involved in the bribery ruse.

HP disclosed the investigation, this week, in its financial statements as a potential legal cost.  According to the allegations, the HP subsidiary paid bribes totaling $10.9 million to win a $44.5 million contract stretching from 2001 to 2006 to set up an IT network for the Russian prosecutor’s office, known as the Russia GPO deal. Now, the SEC is looking into whether HP violated the Foreign Corrupt Practices Act, which bars American companies from bribing foreign government officials.

If found guilty of violating the Foreign Corrupt Practices Act, HP could be subject to civil penalties of up to $500,000 per violation.  Criminal penalties could also cost the company $2 million per violation or twice the financial gain of the violation itself, whichever number is higher.

When a corporate culture fosters a philosophy of ethical relativism, which rejects a standard of right and wrong, the cost can be more than legal penalties.  Market capitalization of the company may well take a hit as stockholders bail out of their investments in the company in order to distance themselves.  Ultimately, the weight of the malfeasance could crush a, once, prosperous company. Enron comes to mind.