U.S. regulatory agencies are investigating Microsoft and some of its business partners in Hungary over software sales that may have violated corruption laws, according to a report from the Wall Street Journal.
The Journal reports that the U.S. Securities and Exchange Commission and Department of Justice are in the midst of a probe examining deals Microsoft made in 2013 and 2014 to sell software at discounts to intermediary firms in Hungary that would then turn around and re-sell the products to government agencies. Citing sources close to the investigation, the Journal reports that authorities are looking into the possibility that these middleman firms did not pass the savings on to government agencies and instead pocketed the profits and used them for bribes.
In a statement, Microsoft said when it “became aware in 2014 of potential wrongdoing in our Hungarian subsidiary, we moved quickly to pursue a detailed investigation and hold people accountable.” The company fired four employees and ended relationships with four partners as a result and has been defending itself against legal claims.
“Beginning in 2014 we also developed a comprehensive response to concerns we had around how partners and resellers were using discounts,” Microsoft said in the statement. “Since then we’ve implemented a new global program to ensure transparency around discounts for government customers. This requires partners to pass on discounts to these customers and ensures a formal confirmation from the customer that they are aware of the discount. In addition, our contracts with partners mandate compliance with local and U.S. law. Finally since 2017 we’ve been developing and using new AI based technology to better identify compliance risks, including around the use of these types of discounts.”
Federal authorities have looked into other Microsoft business relationships in places like China, Russia, Pakistan, Italy and Romania during the same time period. It is unclear if those investigations remain active, but Microsoft wrote in an annual SEC filing that is “cooperating with authorities in the U.S. in connection with reports concerning our compliance with the Foreign Corrupt Practices Act in various countries.”
In the document Microsoft added it receives inquiries from authorities and employees from “time to time.” As a global company, Microsoft lists as a risk the possibility that rogue employees or vendors could violate corruption laws, though the company says it has put policies and controls in place to keep that from happening.
“While we devote substantial resources to our global compliance programs and have implemented policies, training, and internal controls designed to reduce the risk of corrupt payments and collusive activity, our employees, vendors, or agents may violate our policies,” according to the filing. “Our failure to comply with Anti-Corruption Laws or competition laws could result in significant fines and penalties, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business, and damage to our reputation.”