HP's Russia unit pleads guilty to bribery, pays $58.77 million fine

HP ultimately pays a $108 million tab to put violations of the Foreign Corrupt Practices Act behind it in Russia, Poland and Mexico.
Written by Larry Dignan, Contributor

Hewlett-Packard was fined $58.77 million after its Russia subsidiary pled guilty to a bribery charge.

The fine was part of a $108 million total tab to settle similar charges in Mexico and Poland and pay regulatory penalties. HP's three subsidiaries wound up paying penalties of $76.76 million with another $31.74 million in civil penalties, interest and disgorgement.

According to a statement from the Department of Justice Thursday, HP's Russia subsidiary, ZAO Hewlett-Packard A.O., pled guilty to violating the Foreign Corrupt Practices Act (FCPA). HP Russia bribed Russian government officials to land a contract valued at €35 million.

hp russia

HP cooperated fully with the investigation and the DOJ said the company has enhanced its compliance and accounting practices.

As for HP Russia, executives pled guilty for setting up a slush fund. The moving parts went like this:

HP subsidiaries first sold the computer hardware and other technology products called for under the contract to a Russian channel partner, then bought the same products back from an intermediary at a nearly €8 million mark-up and an additional €4.2 million in purported services, then sold the same products to the Office of the Prosecutor General of the Russian Federation at the increased price. The payments to the intermediary were then largely transferred through multiple layers of shell companies, some of which were directly associated with government officials. Proceeds from the slush fund were spent on travel services, luxury automobiles, expensive jewelry, clothing, furniture and various other items.

To keep track of and conceal these corrupt payments, the conspirators inside HP Russia kept two sets of books: secret spreadsheets that detailed the categories of bribe recipients, and sanitized versions that hid the bribes from others outside of HP Russia. They also entered into off-the-books side agreements to further mask the bribes. As one example, an HP Russia executive executed a letter agreement to pay €2.8 million in purported “commission” fees to a U.K.-registered shell company, which was linked to a director of the Russian government agency responsible for managing the Office of the Prosecutor General of the Russian Federation project. HP Russia never disclosed the existence of the agreement to internal or external auditors or management outside of HP Russia.

HP settled FCPA violations for its Poland and Mexico subsidiaries in April.

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