HP Russia guilty of government bribery using “secret slush fund”

An HP subsidiary, HP Russia, pleaded guilty to bribing Russian companies in order to score a technology contract worth millions, US prosecutors said.

The company has agreed to pay a $58.77 million fine in a prosecution brought by San Francisco federal prosecutors asserting the Foreign Corrupt Practices Act (FCPA), which applies to US companies and their subsidiaries abroad.

“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 Miller said in a statement Thursday. “Even more troubling was that the government contract up for sale was with Russia’s top prosecutor’s office."

Haag's office described the whole affair as a complex web of illegal payments and shell companies.

According to the statement of facts filed with the plea agreement, HP Russia created excess profit margins to finance the slush fund through an elaborate buy-back deal scheme. 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.

It's not the first time an HP subsidiary has found itself on the wrong side of the FCPA. In a deferred prosecution, the Mexican and Polish subsidiaries of HP agreed back in April to pay about $18 million combined. The government charged the bribery in connection to contracts with Poland's national police agency and Mexico's state-run oil company, Pemex.

Today, HP reissued a statement on the matter it made in April. General Counsel John Schultz said, "The misconduct described in the settlement was limited to a small number of people who are no longer employed by the company." He added that "HP fully cooperated" with the government's investigation.