HP has struck a deal with the California Attorney General's office over the surveillance tactics used during an internal investigation earlier this year.

The $14.5m deal will effectively shield current and former HP employees from further civil legal action in connection with the investigation.

An HP spokesman told vnunet.com that the deal will not affect the felony charges filed last month against former chairman Patricia Dunn, former attorney Kevin Hunsaker, and three private investigators. 

"We are pleased to settle this matter with the Attorney General and are committed to ensuring that HP regains its standing as a global leader in corporate ethics and responsibility," said chief executive Mark Hurd in a statement.

As part of the settlement, HP will pay $13.5m to form a 'Privacy and Piracy Fund' which the state will use to pursue cases involving privacy violations. The remaining $1m will be used to cover statutory damages and the cost of the investigation.

HP has also agreed to roll out a five-year programme to enforce the terms of the agreement and oversee ethics reforms at the company.

The plan calls for the retention of several new ethics and privacy officers, including ethics and compliance officer John Hoak and chief privacy officer Scott Taylor.

Bart Schwartz, the attorney first retained by HP in September, will be appointed to review the company's investigative processes.

HP will also form a 'compliance council' to oversee ethics policies, and will redesign its training policies for internal investigations.

Board member G. Kennedy Thompson will oversee the programme and will be put in charge of ensuring that the company is in compliance with the terms of the settlement.

The investigation stems from a scandal that erupted in September after an investigation found evidence of misconduct by private investigators and HP employees during an internal leak investigation in the first half of 2006.

It was later revealed that the operation, dubbed Kona II, included lying to phone companies in order to obtain private phone records, and equipping email messages with spyware to report forwarding. 

The Kona II investigators were alleged to have discussed placing surveillance equipment and informants in two national newsrooms.

Legal investigations by the State of California and the US Securities and Exchange Commission led to congressional hearings and the indictments of five people, including Dunn, on a number of felony charges.