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Microsoft Pays DOJ and SEC $25 Million to Resolve FCPA Violations (Part I of III)

Microsoft finally resolved its FCPA enforcement action with a whimper.  Notwithstanding prior suggestions that Microsoft’s investigation uncovered global conduct, Microsoft’s liability focused primarily on Microsoft’s conduct in Hungary.  Even with the tailored settlement agreement,  DOJ and the SEC reiterated robust expectations surrounding third-party distributor networks, particularly in the software industry.

To resolve a lengthy six and one-half year investigation, Microsoft entered into a non-prosecution agreement with the Justice Department and an administrative settlement with the SEC.  Under the three-year NPA, a Microsoft subsidiary in Hungary, Microsoft Magyarorszag Kft paid $8.75 million criminal penalty.  Microsoft agreed to disgorge $13.78 million to the SEC, plus prejudgment interest of $2.78 million.

Under the DOJ’s FCPA Corporate Enforcement Policy, Microsoft did not receive voluntary disclosure credit; received full credit for cooperation with the DOJ; and disclosed all information about the individuals involved.

Microsoft also was credited for its remediation efforts, including: Microsoft strengthened its internal accounting controls and compliance programs, took disciplinary action against four Microsoft Hungary employees, terminated four Hungarian licensing partners, and implemented data analytics to identify high-risk transactions.

DOJ gave Microsoft a 25 percent reduction from the bottom of the Sentencing Guideline’s range

Microsoft agreed to internal accounting control and books and records violations for conduct arising in Hungary, Saudi Arabia, Thailand and Turkey.

In Hungary, Microsoft won $13.7 million in business through “improper payments.”  From 2013 to 2015, Microsoft’s Hungary subsidiary paid government officials through third-party vendors, consultants, distributors and resellers, including in circumstances where there was no evidence that the third parties provided any actual services.  In addition, Microsoft funneled improper payments to government officials through excessive discounts that were based on misleading and vague justifications.

In Saudi Arabia, from 2012 to 2014, Microsoft’s subsidiary diverted nearly $440,000 for marketing and business development projects with Microsoft’s partners, to a slush fund that was used to pay travel expenses for Saudi government officials and for gifts, furniture, laptops, tablets and other equipment for government agencies.  Two vendors maintained the slush fund and disbursed funds at the direction of Microsoft employees.

In Turkey in 2014, Microsoft executives approved an excessive discount in a transaction involving an unauthorized third party with a government tender in circumstances where the third party provided no actual services.

In Thailand, from 2012 to 2015, Microsoft provided improper travel and gifts and other things of value to foreign officials and non-government employees through slush funds maintained by their third party vendors and resellers.

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