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Hewlett-Packard Agrees To Pay $108 Million Penalty To Settle Foreign Bribery Charges

PALO ALTO (CBS SF) -- Hewlett-Packard Co. and its Russian, Polish and Mexican subsidiaries agreed Wednesday to pay $108 million in penalties to settle criminal and civil charges of paying bribes and illegal commissions to secure foreign government contracts.

The settlements were announced by Palo Alto-based HP, the U.S.  Justice Department and the U.S. Securities and Exchange Commission and were set forth in four separate documents, including two filed in federal court in San Jose.

In total, the three subsidiaries agreed to pay $76.8 million in criminal penalties and fines to settle Justice Department probes of alleged violations of the U.S. Foreign Corrupt Practices Act, which forbids bribes to foreign government officials to obtain contracts and requires certain internal accounting practices and controls.

HP agreed to pay another $31.5 million in civil penalties in a settlement of a related SEC probe.

The global computer technology company said in a statement that it "cooperated fully" with both government agencies.

"The misconduct described in the settlement was limited to a small number of people who are no longer employed by the company," HP General Counsel John Schultz said in a statement.

At the Justice Department, Deputy Assistant U.S. Attorney General Bruce Swartz said, "Hewlett-Packard subsidiaries created a slush fund for bribe payments, set up an intricate web of shell companies and bank accounts to launder money, employed two sets of books to track bribe recipients, and used anonymous email accounts and prepaid mobile telephones to arrange covert meetings to hand over bags of cash."

In the case of HP's Russian subsidiary, ZAO Hewlett-Packard A.O., U.S. attorney's office prosecutors simultaneously filed four criminal charges and a plea agreement in U.S. District Court in San Jose Wednesday.

In the pact, the subsidiary agreed to plead guilty to the four counts of violating the Foreign Corrupt Practices Act by using a slush fund to provide bribes to obtain a $100 million technology contract with Russia's prosecutor general's office. It agreed to pay $58.8 million in penalties.

In the case of the Polish subsidiary, Hewlett-Packard Polska, prosecutors filed criminal charges in federal court in San Jose Wednesday together with a deferred prosecution agreement.

The subsidiary acknowledged in the agreement that it violated accounting controls and that one of its executives gave a government official $600,000 in bags of cash to obtain technology contracts with the Polish national police agency. It will pay a $15.5 million penalty.

The Justice Department reached an out-of-court settlement known as a non-prosecution agreement with HP's Mexican subsidiary.

In that agreement, the company acknowledged it violated accounting requirements and paid illegal commissions to a consultant to obtain technology contracts with Mexico's state-owned petroleum company, known as Pemex. It agreed to pay a $2.5 million penalty.

The SEC civil proceeding was settled in an administrative order in which HP promised to pay $31.5 million for alleged violations of the FCPA.

Kara Brockmeyer, head of the SEC unit that enforces the law, said, "Hewlett-Packard lacked the internal controls to stop a pattern of illegal payments to win business in Mexico and Eastern Europe. The company's books and records reflected the payments as legitimate commissions and expenses."

© Copyright 2014 by CBS San Francisco and Bay City News Service. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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