- A government investigation into Microsoft’s business in Hungary is similar to a 2013 probe
- Neither the government nor Microsoft has announced a resolution to the 2013 investigation
The government’s bribery probe into Microsoft Corp.’s Hungarian business unit is likely an extension of a five-year investigation of the tech giant’s dealings in China, Romania, and Italy, according to sources.
The spinoff demonstrates a potentially costly ripple effect for multinational technology companies once government enforcers zero in on one aspect of potential bribery. The investigation mushrooms from there.
Microsoft acknowledged the Hungarian bribery probe into its sales business after The Wall Street Journal reported Aug. 23 that products such as Word and Excel were allegedly sold to intermediaries at steep discounts. These middlemen then sold the software to government officials at close to full price, in turn pocketing kickbacks on the deals.
Microsoft is also the subject of Securities and Exchange Commission and Justice Department bribery investigations that started in 2013 regarding the tech company’s business in China, Romania, and Italy.
Neither the agencies nor Microsoft have announced any resolution of the 2013 investigation, a sign that the government probe into potential Foreign Corrupt Practices Act violations is still ongoing. Companies typically announce the end of FCPA probes in corporate filings, while the government publicly announces cases that result in fines or criminal prosecutions.
The FCPA prohibits U.S. companies from making bribery payments to officials abroad to further their business.
“With growing international attention to issue of bribery — including increased investigation and enforcement across jurisdictions — it becomes more likely that questionable activity in different countries will come to light,” said Alexandra Wrage, president of TRACE International Inc., an organization that consults with companies on anti-bribery compliance.
“When that happens, the DOJ and SEC are likely to expand any related investigation accordingly,” she told Bloomberg Law.
Both the SEC and the DOJ declined to comment on the matter, and Microsoft didn’t immediately respond to a request for comment on whether the probes are related. In an emailed statement on the Hungary probe, Microsoft said it became aware of that business unit’s questionable practices in 2014 and immediately launched an internal investigation into the matter.
High Risk, High Price
Many technology companies use an indirect sales model to conduct business abroad, in which companies sell through channel partners and distributors, Jason Linder, head of global investigations and the anti-corruption practice at Irell & Manella LLP in Los Angeles, told Bloomberg Law.
The practice is also used in manufacturing and financial services, but U.S. enforcers view big tech as particularly “high-risk” when it comes to bribery because their distribution model is heavily decentralized.
“It carries with it an endemic bribery risk,” said Linder, a former DOJ FCPA prosecutor. It prevents companies from having complete oversight on transactions.
Prosecutors are even more likely to turn their attention to multinational tech in certain “high-risk” markets, such as Brazil, China, Russia, and India. Corporate executives in those countries often view paying bribes as a customary way of doing business.
“The DOJ may look at an allegation that comes from one of these high-risk industries or countries as more plausible because of the corruption risk level involved,” Linder added.
Nothing to See
Not every FCPA investigation uncovers illicit conduct. Cisco Systems Inc. disclosed in a 2016 filing that both the DOJ and SEC closed their inquiry into potential bribery violations without taking further action. The probe stemmed from the tech company’s reseller practices abroad. The investigation was opened in 2014.
Both the SEC and DOJ declined to prosecute International Business Machines Corp. in 2017, after a multi-country bribery probe didn’t uncover illicit conduct, a company filing stated.
“The government does look at things that turn out to not be anything,” Kara Brockmeyer, litigation partner and member of Debevoise & Plimpton LLP’s white collar and regulatory defense group in Washington, told Bloomberg Law.
But once a company has been found guilty of an FCPA violation, “subsequent allegations would almost certainly receive a heightened degree of attention,” Wrage said.
Increasingly, the government has been focused on “recidivist” FCPA violators, according to Brockmeyer, a former chief of the SEC’s FCPA unit. That “can be a challenging thing for multinational companies.”
Maxwell Technologies, IBM, and General Electric Co. are some of the companies that have been found in violation of anti-corruption laws more than once. Harsher penalties are possible for recidivists. Repeat offenders aren’t eligible for DOJ’s leniency policy on bribery, which offers discounted fines to companies that disclose bribery allegations.