Hewlett-Packard’s $108 million FCPA settlement last week included a guilty plea by its Russia subsidiary to two felonies for conspiracy and substantive violations of the anti-bribery and accounting provisions of the FCPA.
As part of the plea deal, ZAO Hewlett-Packard A.O. (HP Russia) confessed to creating a slush fund and funnelling the money to shell companies to bribe Russian officials.
That part of the plea agreement reads like a rap sheet for the Russian mafia.
Here’s what it said:
* * *
As admitted in a statement of facts, HP Russia created excess profit margins for the slush fund through an elaborate buy-back deal structure, whereby (1) HP sold the computer hardware and other technology products called for under the contract to a Russian channel partner, (2) HP bought the same products back from an intermediary company at a nearly €8 million ($11 million) mark-up and paid the intermediary an additional €4.2 million ($5.8 million) for purported services, and (3) HP sold the same products to the GPO [Office of the Prosecutor General of the Russian Federation] at the increased price.
The payments to the intermediary were then largely transferred through a cascading series of shell companies—some of which were directly associated with government officials—registered in the United States, United Kingdom, British Virgin Islands, and Belize.
Much of these payments from the intermediary were laundered through off-shore bank accounts in Switzerland, Lithuania, Latvia, and Austria.
Portions of the funds were spent on travel, cars, jewelry, clothing, expensive watches, swimming pool technology, furniture, household appliances, and other luxury goods.
To keep track of these corrupt payments, the conspirators inside HP Russia kept two sets of books: secret spreadsheets that detailed the categories of recipients of the corrupt funds and sanitized versions that hid the corrupt payments from others outside HP Russia. They also entered into off-the-books side agreements.
As one example, an HP Russia executive executed a letter agreement to pay €2.8 million ($3.9 million) in purported “commission” fees to a U.K.-registered shell company that was linked to a director of the Russian government agency responsible for managing the GPO project.
HP Russia never disclosed the existence of the agreement to internal or external auditors or management outside of HP Russia and conducted no due diligence of the shell company.
* * *
The DOJ’s April 9, 2014 release is here.
Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.