Hewlett-Packard Russia, an international subsidiary of Hewlett-Packard, pleaded guilty last week and agreed to pay a $58.7 million fine for violations of the Foreign Corrupt Practices Act.
As Compliance Week previously reported, H-P subsidiaries in Poland and Mexico similarly reached criminal resolutions with the government in April 2014 for FCPA violations in connection with contracts with Poland’s national police agency and Mexico’s state-owned petroleum company, respectively. In total, the three H-P entities will pay $76.7 million in criminal penalties and forfeiture.
In a related FCPA matter, the Securities and Exchange Commission filed a proposed final judgment in April 2014, to which H-P consented. Under the terms of the proposed final judgment, H-P paid $31 million in disgorgement, prejudgment interest, and civil penalties, bringing the total amount of U.S. criminal and civil penalties against H-P and its subsidiaries to more than $108 million.
Case Details
H-P Russia pleaded guilty on Sept. 11 before U.S. District Judge Lowell Jensen of the Northern District of California to conspiracy and substantive violations of the anti-bribery and accounting provisions of the FCPA. According to the plea agreement, H-P Russia executives created a secret slush fund, at least part of which was used to secure a lucrative government contract.
“Even more troubling was that the government contract up for sale was with Russia’s top prosecutor’s office,” Principal Deputy Assistant Attorney General Marshall Miller said in a statement. Both the conviction and sentencing are “important steps in our ongoing efforts to hold accountable those who corrupt the international marketplace,” he said.
Chief Richard Weber of the Internal Revenue Service-Criminal Investigation (IRS-CI) issued a similar warning: “For other companies out there conducting business in this way, let the message be very clear—we will relentlessly follow the money trail.”
According to the Justice Department, H-P Russia created excess profit margins to finance the slush fund through an elaborate buy-back deal scheme. H-P 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.
To conceal these corrupt payments, the conspirators inside H-P 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.
For example, an H-P Russia executive executed a written 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. H-P Russia never disclosed the existence of the agreement to internal or external auditors or management outside of H-P Russia.
‘Extensive Cooperation’
The Justice Department acknowledged H-P’s “extensive cooperation” in resolving the case. Specifically, H-P conducted a robust internal investigation, voluntarily made U.S. and foreign employees available for interviews, and collected, analyzed, and organized voluminous evidence for the agency.
The agency also acknowledged H-P’s “extensive anti-corruption remedial efforts,” including taking appropriate disciplinary action against culpable employees, and enhancing H-P’s internal accounting, reporting, and compliance functions.
In a statement, U.S. Attorney Melinda Haag of the Northern District of California said, “H-P’s cooperation during the investigation is what we expect of major corporate leaders facing the challenges of doing business around the world.”
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