Microsoft to Pay $25 Million to Settle Foreign Bribery Probe -- 2nd Update

By Dylan Tokar and Drew Hinshaw 

Microsoft Corp. agreed to pay $25 million to settle an investigation into potential violations of a law prohibiting the bribery of foreign government officials, the U.S. Securities and Exchange Commission said Monday.

The computer behemoth settled the alleged Foreign Corrupt Practices Act violations by four Microsoft subsidiaries in separate agreements with the SEC and the U.S. Department of Justice.

Microsoft, as part of its settlement with the SEC, neither admitted nor denied the misconduct described by the agency.

In an internal email to company employees on Monday that was viewed by The Wall Street Journal, Microsoft President Brad Smith said the misconduct involved a small number of employees that were no longer with the company.

"We were deeply disappointed and embarrassed when we first learned about these events several years ago, and we hope that all of the steps we've since taken, including today's settlement, send a strong message," Mr. Smith said.

The SEC and Justice Department investigation found that a Microsoft subsidiary in Hungary had used discounts on software licenses to fund bribes intended for foreign officials, the government said. The Hungarian subsidiary has entered into a nonprosecution agreement with the Justice Department, according to the agency.

In Saudi Arabia and Thailand, two other Microsoft subsidiaries provided illegal gifts and travel benefits to government officials through a slush fund, according to the SEC. A Turkish subsidiary illegally provided excessive discounts to a third party without properly recording the transaction, the agency said.

The Wall Street Journal last year reported that U.S. authorities, including the SEC and the Justice Department, were probing Microsoft's software sales in Hungary over potential bribery and corruption allegations.

The $25 million penalty included $16.6 million in disgorgements of profits and associated interest and an $8.75 million criminal fine against the Hungarian subsidiary.

The Justice Department said it gave the Hungarian unit a 25% discount off the criminal fine for cooperating with the investigation and taking steps to reform its business practices in the region.

Microsoft has terminated business relationships with four licensing partners in Hungary, saying they violated its policies. The company also said it has bolstered efforts to increase transparency about discounting.

Representatives for Hungary's government and its prime minister, Viktor Orban, didn't reply to requests for comment. Mr. Orban, re-elected to a fourth term last year, was in office during the period of the allegations, 2013 to 2015.

Microsoft pushed into Hungary and its neighbors in the early 2010s, to offset struggles in wealthier, more established markets. In 2012, then-Chief Operating Officer Kevin Turner, in a publicized meeting, had dinner with Mr. Orban in an effort to dissuade the Hungarian government from using free word-processing and spreadsheet software from rivals.

Over the next two years, Microsoft sold roughly $30 million annually in software to closely held Hungarian tech companies, sometimes at discounts that could run as high as 30%, according to people familiar with the matter. It couldn't be determined how much of those sales have been subject to scrutiny.

Two then-Microsoft employees in Hungary said they were urged by management outside Hungary to offer lavish discounts. Microsoft sales employees based outside of Hungary signed off on the discounts, according to one of the people.

The company and the Justice Department said Microsoft's Hungarian employees misrepresented the reasons for the discounts. The former Microsoft employees said they operated in a culture where higher-ups didn't ask questions and didn't seem to want to know.

"[We] feel deeply disappointed by us being blamed for wrongdoings," said a former senior Microsoft Hungary official.

The deals helped boost sales, and they helped lift the profile of the local unit. In a press release in June 2015, Microsoft cited Hungary as its "best-performing...subsidiary, of its size, for two years running" over the previous five years.

--Anita Kovacs contributed to this article.

Write to Dylan Tokar at [e-mail] and Drew Hinshaw at [e-mail]

(END) Dow Jones Newswires

July 22, 2019 17:31 ET (21:31 GMT)

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