Antitrust Law Daily Wrap Up, RICO NEWS: Hewlett-Packard sued over allegations of bribery of Mexican state-owned oil company officials, (Dec 5, 2014)

By Linda O’Brien, J.D., LL.M.

Information technology company, Hewlett-Packard, and its Mexican subsidiary, along with a foreign consulting company, formed a criminal enterprise for the purpose of securing contracts to sell its business technology optimization products through the corruption of public officials, according to a complaint filed in the federal district court in San Jose, California (Petroleos Mexicanos v. Hewlett-Packard Company, December 2, 2014).

Petroleos Mexicanos is a state-owned oil and gas entity that develops business, economic, industrial, and commercial activities related to the exploration and extraction of oil and hydrocarbons. Hewlett-Packard (HP) is a global provider of personal computers, information technology infrastructure, and imaging and printing products and services.

The complaint states that in 2008, HP, through subsidiary HP Mexico, entered into discussions with a Petroleos Mexicanos subsidiary, Pemex Exploracion Y Produccion, to secure contracts to sell business technology optimization (BTO) software, hardware, and licenses. HP Mexico targeted Pemex’s chief operating officer, Manual Aveleyra, who would be a signatory on behalf of Pemex for the contracts. HP Mexico allegedly conferred a number of benefits on Aveleyra with the intent to induce him to award the Pemex contracts to HP, including travel, gifts, and entertainment.

As part of its bribery scheme, HP Mexico allegedly made payments to a Mexican information technology consulting company, Intellego, S.C., in order to obtain the BTO business from Pemex. HP Mexico was aware that Intellego’s chief operating officer supervised Aveleyra, who had significant responsibilities for the BTO contracts. As part of its agreement with Intellego, HP Mexico agreed to pay the company an “influencer fee” equal to 25 percent of the licensing components of the BTO contracts, the complaint charges.

According to the complaint, since Intellego was not a pre-approved channel partner, HP Mexico executives arranged for another entity, a pass-through partner, to receive funds from HP Mexico and then channel those funds to Intellego. The pass-through partner had no legitimate role in negotiating the BTO contracts but received a portion of the influencer fee in exchange for channeling the bribe payments. The payments from HP Mexico to the pass-through partner was alleged to total over $1.6 million.

HP allegedly implemented a system of internal controls which were inadequate and thus enabled the payment of illegal bribes to obtain business. Moreover, the defendants purportedly concealed the payment of bribes by falsely recording them as payments for legitimate services or commissions. HP’s previous racketeering activity included the payments of bribes to government officials in Russia, through its subsidiary HP Russia, in 2000, to secure a government tender to automate the telecommunications and computing infrastructure of the Office of the Prosecutor General of Russia. In April 2014, HP Russia agreed to plead guilty to felony violations of the Foreign Corrupt Practices Act and admitted its role in the unlawful scheme, the complaint states.

The plaintiffs could not, in the exercise of reasonable due diligence, have uncovered these facts for themselves prior to the public disclosures by the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC), they maintained. In April 2014, the DOJ announced that it had entered into a non-prosecution agreement with HP, in which HP Mexico admitted to making bribes to obtain business from Pemex. Also in April 2014, the SEC issued a cease-and-desist order in settlement of its investigation of the HP criminal enterprise, the complaint alleges.

As a direct and proximate result of the defendants’ actions, the plaintiffs allegedly entered into BTO contracts with HP Mexico and paid HP Mexico approximately $6 million. The plaintiffs suffered damages through increased costs that they would not have otherwise incurred had the BTO contracts been awarded at fair market prices, the lawsuit claimed.

The plaintiffs assert claims for fraudulent concealment, tortious interference with contracts and violations of the Racketeer Influenced and Corrupt Organizations Act and California’s Unfair Competition Law. The action seeks injunctive relief, damages, disgorgement, pre- and post-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 5:14-cv-05292.

Attorneys: Melinda M. Morton (Procopio, Cory, Hargreaves and Savitch LLP) and Richard D. Berstein and Frank M. Scaduto (Willkie Farr & Gallagher LLP) for Petroleos Mexicanos and Pemex Exploracion Y Produccion.

Companies: Petroleos Mexicanos; Pemex Exploracion Y Produccion; Hewlett-Packard Company; Hewlett-Packard Mexico, S.De R.L. De C.V.

News: RICO StateUnfairTradePractices CaliforniaNews