Hewlett-Packard is demanding that its global network of 154,000 channel partners pay to complete a regulatory compliance training program by Oct. 31 or risk losing their partner status.
HP recently notified some U.S.-based partners of the compliance initiative via a faxed letter that described the mandatory compliance requirement and a $120 fee "only payable by credit card." The delivery method, combined with the credit card-only terms, set off a bit of a furor among solution providers, some of whom said they initially believed the faxes to be a hoax.
But it's no scam. HP is demanding that partners register for the program, complete a short compliance training module with a third-party contractor, review and accept HP's Partner Code of Conduct and complete a questionnaire to assess compliance risk.
Joe Balsarotti, president of HP partner Software To Go, said the ASCII Group's online forum was buzzing with "ticked off" HP resellers as the faxes announcing the compliance program started arriving last month. The program itself was announced in June, according to Palo Alto, Calif.-based HP, but some partners say that the faxes were the first they heard about it.
Balsarotti, whose company is located in St. Peters, Mo., said partners were troubled because "HP is usually such a professional company," but the grainy, faxed correspondence "looks like a scam and it smells like a scam."
Risa Stolly, owner of Bethlehem, Penn.-based A-Prompt, also described the communications as "unprofessional." She said A-Prompt "threw the fax in the trash" before learning from her peers that the message was a legitimate communication from HP that now appears on the company's partner portal.
"We could have communicated this better," said a spokesperson for HP's Solution Providers Organization -- Americas. HP will be mailing partners directly with more information about the compliance program ahead of the Oct. 31 deadline, the spokesperson said.
The compliance effort is apparently aimed at preventing everything from bribery prosecutions associated with the U.S. Foreign Corrupt Practices Act (FCPA) to gray market movement of products aimed at avoiding taxes.
"This initiative seeks to protect both HP and HP partners by reducing business risk and unnecessary costs, penalties and goodwill damage that can result from noncompliant behavior, including government sanctions and legal action for violations," wrote Enrique Lores, senior vice president of HP's worldwide Solution Partners Organization and commercial sales, and Jon Hoak, vice president and chief ethics and compliance officer for HP, in a fax sent to HP partners that was obtained by ChannelWeb.com.
"Partners that fail to comply will face serious consequences, including potential loss of status as an HP partner. All HP partners are required to complete this program," the faxed message warns.
Integrity Interactive, the Waltham, Mass.-based company administering the compliance program, will receive the entirety of fees from participating partners, according to HP. That's no small amount of money -- at $120 per partner from the 154,000 worldwide partners HP reported having in 2008, the initiative would amount to better than $18 million in fees for Integrity Interactive should every partner pony up.
But it seems unlikely that HP's entire channel will participate in the program, given the reaction of some smaller partners. Some small solution providers that do only several thousand dollars of business with HP annually told Channelweb.com that they would rather buy their HP products from big box retailers like Office Max and Staples rather than pay the $120. They said they often get better pricing for their customers from those stores than from distributors.
For most larger partners, the fee they are being asked to pay isn't particularly troubling -- and partners with unspent market development funds from HP can pay for the program with that money. Partners contacted by Channelweb.com described the $120 as a "nuisance fee," but one that they would gladly pay if they knew more about the compliance program's purpose.
"It's the principle, not the amount," said one partner who asked not to be named, adding that he felt that HP had not communicated what partners would be receiving for their time and money.
"They're getting something back. The reason HP partnered with Integrity Interactive is for suppliers to get something tangible," said Richard Cellini, an Integrity Interactive senior vice president for business and legal affairs. "We keep a lock-encrypted PDF of their response. We maintain millions of these records for hundreds of companies around the world."
Next: FCPA Enforcement On The RiseCellini said one reason HP was concerned with gray market issues and anti-corruption enforcement was that the U.S. government has signaled that it will be focusing on high-tech companies for possible violations of the FCPA.
"Some smaller partners may be scratching their heads, but that just shows how much this is needed," he said. "The U.S. Department of Justice has targeted the high-tech industry on anti-bribery laws. Whether you're doing business for yourself or on behalf of a larger company like HP, you can't bribe anyone."
"Routing things in a certain way, to avoid taxes and duties, actually lands people in jail. Normally the DOJ squeezes individuals to get at companies. But the bribery guys want to put individuals in jail," Cellini said, adding that "98 percent" of FCPA violations brought to court involve distributors and resellers.
"It's essentially the 'reseller corruption act.' And it's not the wave of the future, it's the wave of the present," he said.
Cellini's interpretation of a tough new DOJ attitude towards FCPA violators was seconded by Hugh Quinn, principal at Washington, D.C.-based compliance consultant Quinn Forensics. Quinn said the DOJ was currently conducting about 120 open investigations into possible FCPA violations, a major increase in focus on the Carter-era law.
"They've had more enforcement of the FCPA in the past four years than in last 40 years," he said. "They've increased their staffing and the biggest area they're going after is third-party vendors. So anything a partner does, the liability could go to HP."
Quinn said that even the smallest of businesses ought to be as concerned with FCPA compliance as larger firms, pointing to the September conviction on federal bribery charges of Gerald and Patricia Green, a husband and wife who ran film festival and tourism businesses together in Los Angeles. The Greens face up to five years in prison for each of their FCPA violations.
"Most of the people getting hit with this FCPA stuff, they're your next door neighbor. They're not robbing banks," Quinn said. "And most of the FCPA cases never go to trial. They get settled because everybody's scared to death of it."
Participating in compliance programs like Integrity Interactive's can help protect individuals against FCPA charges if an employee or business partner violates the law, Quinn said.
"I don't think it's too much to ask," he said, referring to the $120 fee HP partners are required to pay for the program. "It's a nuisance fee, but if you want to play with the big boys, you've got to pay it.
"I'm pretty sure HP doesn't want to do business with somebody who's going to sink the ship. Look, the best thing in the world is that you get to be CEO of HP," Quinn added. "The worst thing in the world is if you're CEO of HP and the feds put you in handcuffs because one of your resellers violated the FCPA."
Some partners, however, say they might just walk away from their partnership with HP over the compliance initiative. Gabriel Phoenix Communications owner Derek Gabriel said his Kaneohe, Hawaii-based company already pays fees for other compliance programs independent of HP.
"If you want me to jump through an extra hoop to prove additional compliance for you, that's an expense you should be responsible for. By forcing my company to pay for your compliance efforts, you add additional costs to do business with you. This compounds the already high costs associated with training and certifications to do business as an HP partner," Gabriel told ChannelWeb.com in an e-mail exchange.
"Last I checked, Lenovo, Dell, Xerox, Lexmark and the myriad other major PC, printer and network equipment manufacturers don't charge partners for compliance schemes. So to continue to maintain a competitive stance with respect to my operating costs, I'll choose to strengthen my business relationship with these other vendors over paying to prove compliance with HP programs," he said.