From 2013 to 2015, senior employees in Microsoft’s Hungary operations sold software to local resellers at a discount, and those partners, in turn, sold the products to the Hungarian government at closer to full prices, the Wall Street Journal reported last summer.
In one 2014 case, Microsoft Hungary employees received a 27.85 percent 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.”
The agency said that the “improper payments” generated $13.78 million in business for Microsoft. The company agreed to pay that amount to the SEC plus $2.78 million in interest.
The company’s Hungarian subsidiary also entered into a nonprosecution agreement with the Justice Department and agreed to pay it $8.75 million.
The SEC also cited instances of poor accounting controls in Saudi Arabia, Thailand and Turkey that led to delays in detecting employee abuse. Rather than elaborate kickback schemes, the agency found, for example, a $440,000 “slush fund” in Saudi Arabia “used to pay travel expenses for Saudi government employees and for gifts, furniture, laptops, tablets and other equipment for government agencies.”
Federal regulators have previously investigated Microsoft’s tactics in China, Italy and Romania for violations of foreign corruption laws. The company declined to say whether any other investigations are ongoing.
“It’s not appropriate for us to speak on behalf of the government about the status or existence of any inquiries,” Microsoft spokesman Dominic Carr said.
Though tech giants such as Google and Facebook have faced fierce scrutiny recently for missteps that have eroded trust, Microsoft has largely avoided criticism. The software giant has even called for greater regulation of facial recognition software, saying the technology is too important for tech giants to police themselves.
But allegations of kickbacks and bribery in tech are unusual, even if the total fine is relatively small.
“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 Justice Department said in a news release announcing the settlement.
Smith noted that the company fired four employees there and terminated business relationships with four resellers. He also said that Microsoft has strengthened its anti-bribery programs and that it has used machine learning to help root out potentially corrupt schemes by employees.
Microsoft’s payment is scant relative to some recent payouts for violations of the foreign corruption law. Last month, Walmart agreed to pay $282 million to settle federal criminal and civil charges that it ignored evidence of internal corruption for years that helped fuel its massive overseas expansion. In Walmart’s case, executives were aware of problems with anti-corruption programs at its foreign subsidiaries, including in Mexico, Brazil and China, but failed to act, according to court documents.
Though Smith said there was a need for “strong laws and effective enforcement by agencies such as the DOJ and the SEC,” the Foreign Corrupt Practices Act has its detractors, including President Trump. He told CNBC in 2012, “It’s a horrible law, and it should be changed,” arguing that it is wrong for U.S. prosecutors to hold company’s accountable for conduct abroad.