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Harry Cassin
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Thomas Fox
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H-P Russia sentenced for mob-style felonies

A Russia subsidiary of Palo Alto-based Hewlett Packard Company pleaded guilty Thursday in federal court in San Francisco to conspiracy and substantive violations of the anti-bribery and accounting provisions of the Foreign Corrupt Practices Act.

The plea by ZAO Hewlett-Packard A.O. (H-P Russia) to four felonies was part of a $108 million settlement reached in April by Hewlett Packard and three overseas subsidiaries with the DOJ and SEC.

U.S. District Judge D. Lowell Jensen sentenced H-P Russia at Thursday’s hearing to pay a fine of $58.8 million. That amount had been agreed in the April deal.

H-P Russia admitted bribing Russian government officials to win a $45 million technology contract with the Office of the Prosecutor General of the Russian Federation.

In the April settlement, an H-P subsidiary in Poland entered into a deferred prosecution with the DOJ, and a subsidiary in Mexico entered into a non-prosecution agreement. Together they agreed to pay combined criminal penalties of about $19 million, bringing the total criminal penalties for the three H-P subsidiaries to $76.7 million.

The Hewlett Packard Company also resolved civil FCPA-related charges with the SEC as part of the April settlement. It paid $31.5 million in disgorgement, prejudgment interest, and civil penalties.

The total amount of the enforcement action against H-P and the three subsidiaries was just over $108 million.

The offenses in Russia occurred from 2000 to 2007.

In Poland, Hewlett-Packard’s subsidiary gave gifts and cash bribes worth more than $600,000 to a government official to obtain contracts with the national police agency.

To win a software sale to Mexico’s state-owned oil and gas company, Pemex, H-P Mexico paid more than $1 million in inflated commissions to a consultant with close ties to company officials, and money was funneled to one of the officials. The contract was worth $6 million.

As part of the April plea deal, H-P Russia confessed to creating a $5.8 million slush fund and using it to bribe Russian officials.

The Russia unit sold products at a low price to secret channel partners and bought them back at a steep mark up. It then sold the same products to the Russian customer — the Office of the Prosecutor General of the Russian Federation — at the increased price.

The inflated payments to the channel partners were laundered through a cascading series of shell companies registered in the United States, the United Kingdom, the British Virgin Islands, and Belize.

Payments from the shell companies to the Russian officials were made through off-shore bank accounts in Switzerland, Lithuania, Latvia, and Austria.

Some of the money was spent on travel, cars, jewelry, clothing, expensive watches, swimming pool technology, furniture, household appliances, and other luxury goods.

H-P Russia kept two sets of books. Secret spreadsheets detailed the categories of recipients of the corrupt payments. Sanitized versions hid the bribes.

The Russia subsidiary concealed the phony channel partner sales from internal and external auditors and H-P management outside Russia.

In court filings for Thursday’s hearing, the DOJ acknowledged Hewlett Packard Company’s “extensive cooperation . . . including conducting a robust internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, and organizing voluminous evidence” for the DOJ.

But 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.”

The DOJ said Hewlett Packard also took “extensive anti-corruption remedial efforts . . . including taking appropriate disciplinary action against culpable employees, and enhancing [its] internal accounting, reporting, and compliance functions.”

In 2012, German prosecutors arrested three former Hewlett-Packard managers for paying $10.3 million in bribes in Russia. The Saxony chief prosecutor said a Finnish woman, an American man, and a German man were charged with bribery, breach of trust, and aiding in tax evasion.

In April this year, Polish prosecutors said a former government official identified as Andrzej M., and a former H-P executive called Tomasz Z., were being charged with bribery. Their last names were withheld in accordance with Polish law.

The DOJ’s September 11, 2014 release with links to the charging documents, fact statements, plea agreement, and other pre-trial agreements is here.


Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.

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