The System of Putin

Officials in Deep Sleep

The Hewlett-Packard corruption scandal received the blessing of a German Euler Hermes export guarantee. A thorough audit of the documents should have uncovered the inconsistencies.

von David Crawford , Marcus Bensmann

When the Russian General Prosecutor’s Office orders an overpriced computer system from the US company Hewlett-Packard in 2001, it needs to find a country that will secure the loan. In November 2003, the German HP subsidiary applies for a loan from the Dresdner Bank, and in March 2004 the German Economics Ministry gives the deal its blessing. This means that the German taxpayer carries part of the risk for the deal. Through their negligence, German officials also helped Hewlett-Packard transfer over seven million Euros in bribes to the Russian authorities – giving HP a dominant position in the Russian market. According to court records this may have also damaged other western computer companies.

The HP documents were certainly formulated in a tricky manner. They were intentionally kept brief to conceal the funds intended for bribery. Russian Hewlett-Packard employees developed a special method of bookkeeping that would not raise suspicion in internal audits. Accordingly, a number of columns that were usually used in cost tables were omitted, including those for list price, the discount in Dollars and the discount in Euros.

Nevertheless, an internal auditor stumbled across the fraud. When a senior HP official asked why the columns were missing – he was told that that at least 6.6 million would be moved to a slush fund for kickbacks, according to a meeting summary. The auditor then made a note of the amount on the margin of the document, according to the summary.

The German Ministry of Economics and Labor under Wolfgang Clement (Social Democratic Party Germany) did not apply the same scrutiny. And it failed to discover the fraud. On 12th March 2004, officials approved the export guarantee. One week later Hewlett-Packard Germany received the corresponding documents from Euler Hermes. A spokesperson for the Economics Ministry which is today led by Sigmar Gabriel (Social Democratic Party Germany) said: „Unfortunately, information cannot be provided regarding specific deals because this could violate trade and business secrets.“ But in general terms, the federal government would not be liable if it were to become clear that a deal involved bribery. Euler Hermes also declined to comment about the case.

However, Euler Hermes employees could have raised alarm if they had diligently analyzed the documents.

This was left to tax officials in Saxony who uncovered the corruption scandal in 2007. They discovered the contradictions in the documents, some of which Euler Hermes employees had also reviewed.

There are further inconsistencies. Should the deal between Russia and HP even have been allowed to receive a German export guarantee? Not really. Because the deal did not preserve or create jobs in the EU, and there was no public interest in the case.

Beyond that: this deal may have even damaged German competitors. That is what the investigators in Saxony discovered. Prosecutors say the corruption hurt HP’s competitors because the deal prevented IT companies such as Siemens, IBM and Dell from engaging in business with the Russian authorities for many years. For this reason German prosecutors have petitioned in an indictment under review in a Leipzig court for the garnishment of Hewlett-Packard profits in Russia.

Elena Panfilova, the founder of Transparency International Russia, emphasizes that state guarantees should only be provided if a deal is 100 percent clean. „In countries where corruption is endemic, the authorities providing permits must check especially thoroughly and investigate two or three times whether there might be corruption“, she said in a telephone interview.

Unfortunately, the German authorities failed to do this.

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German-English Translation: Noah Walker-Crawford

Copy Editor: Ariel Hauptmeier

In Cooperation with RTL und Mediapart.