Microsoft to pay $25m to DOJ and SEC in Hungary bribery and kickback case

Microsoft to pay $8,751,795 to the DOJ, and $16,565,151 to the SEC.

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Microsoft has agreed today to pay two fines worth over $25 million to settle charges with the Department of Justice and the Securities Exchange Commission involving a foreign bribery and kickback scheme orchestrated by its Hungarian subsidiary.

The OS maker wil pay a criminal penalty of $8,751,795 to the DOJ, and a second penalty of $16,565,151 to the SEC.

The two penalties will close a US investigation into Microsoft's Hungarian subsidiary, accused of breaking the Foreign Corrupt Practices Act (FCPA).

Microsoft Hungary's non-existent discounts

According to the DOJ, from 2013 to 2015, Microsoft Hungary executives and employees lied to Microsoft's main management that they needed to offer steep discounts to local resellers in order to win contracts to provide Microsoft software licenses to the Hungarian government.

In reality, the discounts were never passed to the final client, but were used for bribes and other "corrupt purposes," in violation of the FCPA.

By agreeing to pay the two fines, Microsoft gets to close the case without pleading guilty, or without the case reaching court, where the company could have risked much bigger fines.

Microsoft fired problematic employees

At the same time the DOJ was making its announcement, Microsoft President and Chief Legal Officer Brad Smith also made public a letter he sent to all Microsoft employees in regards to this incident.

Smith said the company fired four Microsoft Hungary employees and terminated business relationships with four resellers after they found out of the scheme, three years ago, in 2016.

"Some of the resellers responded by complaining to local regulators in an attempt to restore their business and some of the employees responded by suing us. We're grateful that local courts and regulators have backed up our decision to cut all ties with individuals and businesses that, in our view, behaved in a wholly unethical manner," Smith said.

The Microsoft exec also detailed changes Microsoft made to its sales program following the DOJ investigation, including the creation of a discount transparency program for public sector sales, and the rollout of a machine learning-based program to identify transactions "that pose heightened compliance risk."

Besides Hungary, Microsoft's name is also involved in a similar licensing corruption and bribery scheme in neighboring country Romania.