Microsoft will pay out $37 million in a settlement to resolve charges that its staff bribed government officials in Hungary, the Washington Post reported on Monday, with President and Chief Legal Officer Brad Smith telling staff in an email the matter “involved employee misconduct that was completely unacceptable.”
The settlement, in which Microsoft did not admit or deny wrongdoing, comes after a 2018 Wall Street Journal report that the U.S. Justice Department and the Securities and Exchange Commission were investigating whether Microsoft sold discounted software to Hungarian middlemen who sold it to the country’s government at inflated prices from 2013-2015. Said middlemen fuelled the scheme by spending part of their ill-earned gains on kickbacks and bribes to government staff involved in the procurement process.
Per the Post, the SEC said in court documents that Microsoft did not have “sufficient procedures” in place to safeguard against such criminal shenanigans:
In one 2014 case, Microsoft Hungary employees received a 27.85 per cent discount for software to be sold to Hungary’s National Tax and Customs Administration, the Securities and Exchange Commission, one of the U.S. agencies with which Microsoft settled, said in a cease-and-desist order Monday. The reseller handling that account didn’t pass along the full discount and used a portion of the difference “to fund improper payments to government officials,” the agency said.
While the SEC noted that Microsoft cooperated with the investigation, it said in an order Monday, that the company did not have “sufficient procedures in place to determine whether the discount requests were legitimate and whether the approved discounts were being passed on to end customers.”
According to the Post, the SEC said Microsoft made $20 million in revenue from the scheme, which it will pay back to the SEC plus $4 million in interest. Microsoft Hungary struck a separate nonprosecution agreement with the DOJ requiring a payout of $12 million. Reuters wrote that the settlement also resolved SEC allegations of sloppy Microsoft accounting controls in Saudi Arabia and Thailand (referred to as “slush funds”) and an “unexplained discount on a transaction involving Microsoft’s Turkish unit.”
“Although Microsoft Hungary did not voluntarily self-disclose the misconduct, Microsoft Hungary received credit for its and Microsoft Corporation’s substantial cooperation with the Department’s investigation and for taking extensive remedial measures,” the DOJ wrote in a press release.
In the email to staff, Smith wrote that Microsoft fired four employees from its Hungary unit and terminated ties with four resellers there in 2016, but the “resellers responded by complaining to local regulators in an attempt to restore their business and some of the employees responded by suing us.” Smith added that he was “grateful that local courts and regulators have backed up our decision to cut all ties with individuals and businesses that, in our view, behaved in a wholly unethical manner,” as well as wrote he was pleased the SEC and DOJ recognised “the extent of our cooperation.”
As the Post noted, the $36 million settlement is substantially smaller than some other cases involving violations of the Foreign Corrupt Practices Act. Walmart agreed in June 2019 to a $401 million settlement involving corruption at foreign subsidiaries in places including Mexico, Brazil, and China, according to the paper, but the SEC accused Walmart of turning a blind eye for years to juice its foreign expansion.