Microsoft has agreed to pay approximately US$25.3 million, including a criminal fine, to settle US charges it made improper payments that were used to bribe government officials in Hungary and other countries.
The US Department of Justice said Microsoft Hungary will pay the US$8.75 million criminal fine, as part of a three-year non-prosecution agreement in which it “admits, accepts and acknowledges” responsibility for employees’ misconduct.
Microsoft also agreed to pay nearly US$16.6 million to settle related civil charges by the US Securities and Exchange Commission over its activities in Hungary, Saudi Arabia, Thailand and Turkey, without admitting wrongdoing.
Both settlements resolved charges that Microsoft violated the federal Foreign Corrupt Practices Act, after the Redmond, Washington-based company failed to properly account for the improper payments in its records.
In an email to employees, Microsoft president Brad Smith said the settlements “involved employee misconduct that was completely unacceptable,” and said the “small number” of employees involved in Hungary were no longer with the company.
“There is no room for compromise when it comes to ethical business practices,” Smith said in the email’s subject line.
Prosecutors said the Hungarian scheme generated at least $14.6 million of improper profit for Microsoft between 2013 and 2015, in connection with the sale of software licenses to Hungarian government agencies.
Executives and employees at Microsoft Hungary, which is based in Budapest, were accused of falsely telling Microsoft that steep discounts were needed to complete the transactions.
According to an SEC filing, the payments were made through third party vendors, consultants, distributors and resellers. There were circumstances where there was no evidence of any services provided by the third parties. Improper payments were also funded through excessive discounts that Microsoft’s senior executives in Hungary approved based on vague justifications without ensuring they were passed on to the end government customers.
Prosecutors said the savings should have gone to customers, but were instead used by intermediary resellers in part to pay bribes to government officials, with Microsoft recording the discounts as legitimate business expenses.
"Microsoft failed to make and keep adequate documentation related to third party vendors, consultants, distributors and resellers and failed to devise and maintain a sufficient system of internal accounting controls throughout the relevant time," SEC stated
The SEC accord also resolved charges over improper travel and gifts to officials in Saudi Arabia and Thailand through “slush funds” maintained by third parties, and an unexplained discount on a transaction involving Microsoft’s Turkish unit.
“We will hold subsidiaries and, where appropriate, the parent corporations accountable wherever FCPA violations occur,” US Attorney Geoffrey Berman in Manhattan said in a statement.
(Reporting by Jonathan Stempel in New York; Editing by Chizu Nomiyama, Dan Grebler and Susan Thomas)
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