Financial Regulatory Forum

BREAKINGVIEWS – Western probes a risk for multinationals in Russia

April 16, 2010

– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –

By Jason Bush

MOSCOW, April 16 (Reuters Breakingviews) – Hewlett-Packard is under investigation for paying bribes in Russia. It’s the latest sign that western regulators are paying close attention to Russian business practices. The resulting reputational and legal risk may now be the biggest worry for foreign companies in Russia.

German prosecutors suspect former HP managers of paying 8 million euros in kick-backs. Ironically, the payments concern a 35 million euro contract to supply Russia’s Prosecutor General’s Office — the very body charged with fighting corruption.

The HP case is the third major corruption scandal involving a western multinational in Russia in the space of two months. In February, IKEA revealed that it had sacked the head of its Russian operation for condoning bribery. And earlier this month, Daimler  paid $185 million to settle a lawsuit brought by the U.S. Justice Department for violation of U.S. anti-bribery laws in several countries, including Russia.

It isn’t news that Russia is deeply corrupt. The country regularly scores dismally on international transparency rankings. But high-profile cases involving western corporations have been rare. That helped foster the impression that Russia’s corruption, whilst an irritating impediment to business, was manageable.

Were corruption cases left to Russia’s own law enforcement agencies, the chances of anyone getting to the bottom of them are slight. As recent scandals appear to confirm, these agencies are themselves deeply corrupt.

But western companies in Russia now also have to worry about the attentions of regulators and law-enforcers back home. The HP case follows several corporate scandals in Germany over recent years, which have led to a toughening by German authorities. The U.S. Justice Department and UK’s Serious Fraud Office are also cracking down.

Whether this scrutiny will end deeply-engrained practices in countries like Russia is doubtful. But it adds a new dimension to the corruption risks already facing western companies there. Many are now asking themselves whether it is worth doing business in Russia at all.

CONTEXT NEWS

– German prosecutors say they suspect former Hewlett-Packard managers of paying 8 million euros in bribes to Russian officials.

– They say the suspicious payments, made through a web of offshore shell companies and bank accounts, relate to a 35 million euro contract to supply computer equipment to Russia’s Prosecutor General’s Office between 2000 and 2007.

– The U.S. Securities and Exchange Commission is also investigating the case. Hewlett-Packard has stated that it is co-operating fully with German, Russian and U.S. authorities.

– On April 1 German carmaker Daimler agreed to pay $185 million to settle a lawsuit brought by the U.S. Department of Justice for violation of U.S. anti-bribery laws. Daimler’s Russian unit pleaded guilty to charges that it had paid bribes to win government contracts, including contracts to supply cars to the Russian police.

– In February IKEA dismissed Per Kaufmann, the regional head for Central and Eastern Europe and its senior executive in Russia. IKEA said it took the action after an IKEA unit in St Petersburg condoned the payment of a bribe by a subcontractor.

(Editing by Peter Thal Larsen and David Evans)

((neil.collins@thomsonreuters.com))

Keywords: BREAKINGVIEWS HP/RUSSIA

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