Microsoft to pay $26 million to settle claims of violating the Foreign Corrupt Practices Act

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Microsoft has come to an agreement with the US Justice Department and the SEC because of employee misconduct in Hungary. The company was to face a probe over violations of the Foreign Corrupt Practices Act.

In agreeing to pay this money, Microsoft is neither really admitting guilt nor denying the claims made against it, and company President and Chief Legal Officer Brad Smith has written to all employees saying: "There is no room for compromise when it comes to ethical business practices".

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The claims relate to the activity of a number of senior employees of Microsoft Hungary between 2013 and 2015. As the Washington Post explains they "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". Just under a year ago, the Wall Street Journal reported news of the SEC investigation, referring to it as "bribery probe".

Writing to Microsoft employees about the matter, Brad Smith says:

I’m disappointed to share some news today that I hope we'll never need to repeat -- about the announcement of an agreement with the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) to settle claims of violations of the Foreign Corrupt Practices Act, or FCPA.

More specifically, it was announced that our Hungarian subsidiary has entered into a Non Prosecution Agreement, or NPA, with the DOJ and we have agreed to a Cease and Desist Order with the SEC. This follows Microsoft’s cooperation with a multi-year government investigation, reported previously, into potential violations of the FCPA between 2012 and 2015. (An NPA is a public contract between the DOJ and a company in which the company agrees to take certain actions; it does not involve the filing of any charges in court. The SEC Cease and Desist Order similarly is based on an agreement and doesn't involve a court filing.)

He goes on to say:

As the DOJ stated today, it has concluded that between 2013 and June 2015 "a senior executive and some other employees at Microsoft Hungary participated in a scheme to inflate margins in the Microsoft sales channel, which were used to fund improper payments under the FCPA." As the DOJ explained, a Microsoft Hungary executive and other Hungary employees "falsely represented" to Microsoft itself that these discounts were needed. But that doesn't absolve the company of legal responsibility for what happened. These employees failed to pass to customers the discounts they claimed were needed to close a deal, and instead, the DOJ concluded that "the inflated margins were used to fund improper payments."

At one level, we should all recognize that this misconduct involved a small number of employees at Microsoft Hungary, all of whom are no longer with the company. We're fortunate to have in place today a new set of leaders at our Hungarian subsidiary who are committed to the company's high ethical standards.

Microsoft has fired four employees in Hungary and ended relationships with four resellers. In addition, the company has created a discount transparency program for public sector sales, and improved its anti-corruption program. Smith says that the company is also "using machine learning to help identify transactions and automatically flag those that pose heightened compliance risk".

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