Corruption Convictions and Blacklisting: A Growing Trend

September 29, 2014
Categories: Anti-corruption, Bribery, Compliance, FCPA, Government Procurement

The consequences for corrupt practices continue to expand beyond costly bribery schemes and potential enforcement actions with the growing use of blacklisting, also known as debarment. Both government entities and international organizations such as the World Bank use blacklisting when they have discovered contractor conduct indicating a lack of business integrity. Once blacklisted, a contractor is ineligible for future government contracts for a fixed term or indefinitely.

Businesses debarred in one country now may also lose opportunities in others as well through cross-debarment laws and agreements. The World Bank has partnered with other multilateral development banks to blacklist those contractors debarred by any of their partners. Additionally, the World Bank has started to publish its debarment decisions making it easier for other groups to use these sanctions against the debarred party.

A recent development is this area is Canada’s adoption of a new rule banning entities from Canadian government contracts if those entities or their affiliates have been convicted of any one of a number of crimes including bribery.

Earlier this year, Hewlett Packard (HP) and three of its subsidiaries plead guilty to charges that it violated the U.S. Foreign Corrupt Practices Act (FCPA) and agreed to pay $108 million to resolve the charges against them. The findings included charges that  HP’s Russian subsidiary paid more than $2 million through agents and shell companies to a Russian government official to retain a contract with the federal prosecutor’s office; its Polish subsidiary provided gifts and cash worth $600,000 to Polish officials to obtain a contract with the national police agency; and its Mexican subsidiary paid more than $1 million in inflated commissions to a consultant who in turned bribed a Mexican government official to influence a the bid process for a software sale.

The Canadian federal government purchased at least $37 million in technology services from HP last year and HP filled over 1,000 contracts for computers and other equipment.  HP also currently provides equipment and services for the Communications and Security Establishment, the Canadian government’s electronic eavesdropping agency.

Now Canada’s Public Works and Government Services department has begun the process of determining whether HP’s guilty plea triggers debarment under its new integrity rules adopted earlier this year. The department hasn’t set a deadline for the review, but HP could face a ten year ban for its conduct in other countries. Canada’s new rule will not allow companies like HP to simply fire the problematic employees or adopt compliance programs in order to mitigate or remove the ban.

This new law adds another level of incentive for companies to embrace anti-corruption prevention programs rather than react to these issues when they emerge. By the time conduct is discovered, it may already be too late when it comes to doing business with the Canadian government.

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