Microsoft to Pay $26 Million to Settle Probe Into Hungarian Kickback Scheme

Microsoft didn't admit or deny wrongdoing, according to the settlement documents.

By Jay Greene, The Washington Post | Updated: 23 July 2019 13:12 IST

Microsoft to Pay $26 Million to Settle Probe Into Hungarian Kickback Scheme

Microsoft will pay $26 million (roughly Rs. 180 crores) to settle claims that it violated the Foreign Corrupt Practices Act when a handful of Hungarian employees inflated margins on software sales to fund an improper payment scheme.

Microsoft didn't admit or deny wrongdoing, according to the settlement documents. But in an email to employees Monday, President and Chief Legal Officer Brad Smith said that the claims "involved employee misconduct that was completely unacceptable" and that the employees involved and the partners with whom they worked "behaved in a wholly unethical manner."

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. Federal investigators probed whether the resellers used the difference to pay bribes and kickbacks to government officials, according to the Journal.

Microsoft settled the claims with the Justice Department and the Securities and Exchange Commission. The company's Hungarian subsidiary entered into a nonprosecution agreement with the Justice Department and paid it $8.75 million. It remainder was sent to the SEC, with which it agreed to a cease-and-desist order. Microsoft is not required to undergo monitoring.

In his email, Smith noted that the investigation crossed into other countries as well, saying Hungary was "where the most concerning conduct took place." Federal regulators have previously investigated Microsoft's tactics in China, Italy and Romania for violations of foreign corruption laws. The company said only that there are three other countries involved, and it 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.

Smith noted that the company cooperated with the Hungary investigation and that it fired four employees there as well as terminating 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.

While Smith called on a "need strong laws and effective enforcement by agencies such as the DOJ and the SEC," the Foreign Corrupt Practices Act has its detractors, including President Donald Trump. He told CNBC in 2012, "It's a horrible law, and it should be changed," arguing that it is wrong for US prosecutors to hold company's accountable for conduct abroad.

© The Washington Post 2019

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