In what’s being called a brazen violation of anti-bribery laws, the Russian subsidiary of Hewlett-Packard last week pleaded guilty to felony violations of the U.S. Foreign Corrupt Practices Act (FCPA) in connection with a bribery scheme to win a lucrative technology contract with the Russian Office of the Prosecutor General, according to a press release from the U.S. Attorney’s Office in Northern California.

H-P Russia executives used a multimillion dollar slush fund, created through a complicated buy-back scheme, to bribe Russian officials in the awarding of a technology contract worth more than €35 million, according to the plea agreement. The H-P Russia subsidiary sold hardware and other technology products to a Russian channel partner, then bought the items back with an €8 million mark-up and another €4.2 million in “services.” Those products were then re-sold to Russia’s Office of the Prosecutor General at the marked-up price. Payments to the intermediary were funneled through shell companies, some with direct ties to government officials, and the slush fund was used to purchase trips, luxury automobiles, pricey jewelry, and other items, the release stated. The subsidiary executives kept two sets of books, one of which included secret spreadsheets detailing categories of bribe recipients, the release said. It also included evidence of side agreements, including a bogus €2.8 million commission to a U.K.-registered shell company, which was linked to a Russian government agency director in charge of managing the technology project, according to the release.

U.S. District Court Judge D. Lowell Jensen of the Northern District of California ordered H-P Russia to pay a $58.8 million fine. H-P subsidiaries in Poland and Mexico also agreed in April to a deferred prosecution agreement and a non-prosecution agreement, respectively, for FCPA violations, bringing the total penalties for the three subsidiaries to roughly $76.8 million in penalties and forfeitures, the U.S. Attorney’s Office said. The office reported that H-P also consented to a final judgment with the U.S. Securities and Exchange Commission in April, which resulted in a tab of $31.5 million in disgorgement, prejudgment interest, and civil penalties. All told the criminal and regulatory penalties for the California-based company and its subsidiaries are north of $108 million.

“In a brazen violation of the FCPA, Hewlett Packard’s Russia subsidiary used millions of dollars in bribes from a secret slush fund to secure a lucrative government contract,” Principal Deputy Assistant Attorney General Marshall L. Miller of the Justice Department’s Criminal Division said in a statement. “Even more troubling was that the government contract up for sale was with Russia’s top prosecutor’s office. Tech companies, like all companies, must compete on a level playing field, not resort to secret books and sham transactions to hide millions of dollars in bribes.”

 Prosecutors said the scheme lasted for the better part of a decade.

U.S. Attorney Melinda Haag of the Northern District of California said the conviction and sentencing are evidence that the attorney’s office is committed to aggressively prosecuting corporate fraud, regardless of where it occurs. She also praised Hewlett-Packard’s cooperation while the case was being investigated.

“H-P’s cooperation during the investigation is what we expect of major corporate leaders facing the challenges of doing business around the world,” Haag said in a statement.

Prosecutors said the court filings acknowledge the steps H-P took to cooperate, including conducting a “robust” internal investigation, gathering extensive evidence for prosecutors, making employees available for interviews, taking disciplinary action against the employees involved, and undertaking remedial efforts to tighten anti-corruption and compliance procedures.

 

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