Hewlett-Packard: The Spreadsheet Management Wasn’t Supposed to See

In the Hewlett-Packard FCPA case, the company agreed to pay $31,472,250 to the Securities and Exchange Commission over allegations that subsidiaries disguised improper payments for government business as ordinary expenses. The case reached into Russian project spreadsheets, Polish public-sector sales and Mexican channel commissions. If you know why an agent received a markup, who actually did the work or what disappeared from an approval file, you may know why the company’s records told a different story.

Hewlett-Packard sold computers, software and technology services through subsidiaries, distributors and resellers. In this Foreign Corrupt Practices Act settlement, the public customers were Russia’s federal prosecutor’s office, Poland’s national police agency and Mexico’s state-owned petroleum company, Pemex. The contracts bought technology. The payments described by the government bought influence over who supplied it.

The SEC’s April 9, 2014 announcement covered separate company proceedings. HP Russia agreed to plead guilty, HP Poland entered a deferred prosecution agreement and HP Mexico entered a non-prosecution agreement. The parent company separately settled the SEC’s allegations about false accounting and failed controls.

Russia’s Technology Contract Had Two Sets of Books

HP Russia admitted in the statement of facts accompanying its criminal plea agreement that a buy-back arrangement created a slush fund for a government technology project, according to the Justice Department’s announcement. The project concerned the computer and telecommunications systems of the Office of the Prosecutor General of the Russian Federation. Its first phase was worth more than €35 million, within a larger project valued at more than $100 million.

The commercial sequence explains where the money came from. HP sold the products to a Russian channel partner, bought the same products back from an intermediary at a nearly €8 million markup, paid the intermediary for purported services and resold the products to the government customer at the increased price. The intermediary’s payments then moved through shell companies and offshore accounts. Some of the shell companies were directly associated with government officials.

The SEC’s order placed the Russian scheme between approximately 2000 and 2007. It alleged that the internal pricing documents identified recipients of improper payments, while versions sent to credit, finance and legal staff outside Russia hid them. One internal spreadsheet separated the payment recipients from the project’s other costs. Another included a page tracking the money passing through the agent:

We see a particularly revealing choice in that account: the people running the deal needed accurate records for themselves and a different story for everyone reviewing it. The spreadsheet was useful precisely because it showed where the money was going. Its circulation was the problem.

The Credit Officer Asked What the Agent Did

Employees in HP’s U.S. International Business Center had questioned whether a proposed American agent could handle the project at all. According to the SEC, public records suggested that the agent worked in medical supplies and had little income relative to the proposed technology assignment. Financing moved to Europe before those questions were answered, and a German agent replaced the American one.

The SEC alleged that HP Russia’s credit officer initially denied approval and asked what the agent’s markup paid for, which subcontractors were involved and what they would do. The deal team supplied a list that omitted payment recipients appearing in its internal documents. The deal went forward without meaningful due diligence on the German agent.

That is where third-party due diligence meets the actual sale. The questions concerned capacity, work and payment, all things an employee handling the transaction could understand. A different contracting entity and a new financing arrangement did not answer what the intermediary was being paid to do.

Poland’s Police Contracts Came With a Revenue Share

Under its deferred prosecution agreement, HP Poland admitted falsifying books and bypassing controls to secure technology contracts with Poland’s national police agency from 2006 through at least 2010, as the Justice Department reported from the agreed statement of facts. It described cash, gifts and travel benefits for the agency’s director of information and communications technology. The official’s job included reviewing existing technology contracts and awarding new ones, according to the SEC’s separate account.

The SEC alleged that employees and agents agreed to pay the official 1.2% of HP Poland’s net revenue on contracts awarded by the police agency. It described at least $600,000 in cash, along with gifts, travel and entertainment. During the same period, the Polish government awarded HP Poland police-related technology contracts worth approximately $60 million.

The details make that percentage more than an accounting entry. The Justice Department’s account of the admitted conduct described bags of cash, computers and mobile devices for the official, and a leisure trip to Las Vegas that included a private flight over the Grand Canyon. According to the SEC, employees paid many travel expenses in cash without authorization and recorded them inaccurately.

The SEC also described anonymous email accounts with shared passwords, messages saved as drafts and meetings where an HP Poland executive and the official communicated by typing on a laptop. Those communications concerned upcoming tenders and bribe amounts. For a public-sector sales employee, the connection runs from the customer’s purchasing authority to the promised benefit and the contract it was meant to secure.

Mexico’s Approved Partner Passed the Money to Someone Else

In its non-prosecution agreement, HP Mexico admitted falsifying corporate books and bypassing internal controls in sales to Pemex, according to the Justice Department’s announcement. HP Mexico agreed to pay a $1.41 million commission to a consultant with close ties to senior Pemex executives. It routed the payment through an approved channel partner, which forwarded it to the consultant.

The SEC’s order says HP called the commission an “influencer fee.” The consultant received the payment in 2009. The software and licensing contracts were worth approximately $6 million. The consultant had technical experience with Pemex, but the SEC alleged that HP Mexico selected it primarily for its official connections.

HP’s channel rules required pre-approval, a written agreement, due diligence and registration in the partner system. According to the SEC, the consultant lacked the required approval and agreement, so the sales team inserted an already approved partner. That partner had played no role in negotiating or assisting with the deal, but HP Mexico recorded it as the deal partner anyway.

The SEC alleged there was even an extra approval to pay for the disguise. Sales managers sought a higher commission to compensate the pass-through partner, while telling regional management that the consultant deserved more for extra work and managing discounts. The request omitted the pass-through partner’s role, and regional officials approved the increase the same day with little or no additional review.

The SEC said the consultant subsequently paid approximately $125,000 to an entity controlled by Pemex’s chief information officer. It also said HP Mexico recorded the consultant payments as legitimate commissions. On that account, a partner approval gave the payment a respectable name while concealing both the real intermediary and the official who benefited.

A similar use of the sales channel appears in Microsoft Hungary. In its non-prosecution agreement, Microsoft Hungary admitted that employees used false discount justifications while resellers retained margins to fund improper payments instead of passing the discounts to government customers. The pricing moved in opposite directions in the two cases: HP’s Russian deal added a markup, while the Microsoft scheme used discounts. Both made the gap between the supplier’s price and the public customer’s deal part of the payment trail.

The Subsidiaries’ Entries Became the Parent’s Accounts

The parent’s books and records and internal accounting controls were central to the Securities and Exchange Commission’s case. Each subsidiary’s accounts flowed into Hewlett-Packard’s consolidated financial statements. The SEC alleged that payments described as services, commissions and other legitimate costs therefore carried the false explanation into the parent’s reporting.

HP had anti-corruption policies, but the SEC alleged that regional and country operations implemented them inadequately. The Russian deal illustrates the difference between an approval process on paper and one that controls a transaction: according to the SEC, a country manager signed the contract without authorization and bypassed the review intended to expose pricing, discounts and margins. Management later ratified the contract through a retroactive authorization.

The same gap between policies and practice appears in Fresenius Medical Care. The 2022 Journal of Forensic and Investigative Accounting paper Fresenius Medical Care: A Case Study on the FCPA describes managers and employees circumventing controls despite flagged transactions and formal policies. That comparison helps explain why an insider’s account of an ignored question or overridden approval can matter as much as the policy itself.

What an Insider Could See Behind the Contract

The useful FCPA whistleblower evidence in this case connects the sale, the payment and the explanation inside the company. A finance employee might recognize the difference between the internal spreadsheet and the version sent for approval. A sales employee might know why a consultant was indispensable to the customer relationship. A channel employee might know that the registered partner had done none of the work credited to it.

We examine those connections with the person who understands the transaction. What the agent delivered, who controlled the tender and why a payment took an indirect route can turn an apparently routine commission into a much clearer account of the government’s purchase. You may know the part that the invoice leaves out.

For foreign-bribery information, the SEC whistleblower program can pay whistleblowers a share of collected sanctions. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. These are separate programs, and we assess which fits the conduct you know.

You Know Why the Commission Was Paid

If you know who really earned a channel commission or why the approval file left someone out, speak with our whistleblower experts. We work beside you to connect that knowledge to the public contract and bring in FCPA whistleblower lawyers who understand subsidiary accounting and intermediary payments. We stay with you as partners, building your strongest whistleblower case from the transaction you know from the inside.