Microsoft Investigated For Alleged Bribery and Corruption in Hungary

August 23, 2018, 10:18 PM UTC

U.S. Justice Department and the Securities and Exchange Commission are investigating Microsoft for possible bribery and corruption in its pursuit of software sales in Hungary, the Wall Street Journal reported on Thursday.

U.S. officials have authority to investigate payments to governments and officials in other countries by U.S. firms under the 1977 Foreign Corrupt Practices Act (FCPA). The act prohibits bribery and allows prosecution for corruption, wherever it occurs.

A Microsoft spokesperson told Fortune that it became aware in 2014 of “potential wrongdoing” in its Hungarian subsidiary, and that the company quickly pursued an internal investigation. “We fired four employees and terminated our business with four partners, and we’ve been defending ourselves against legal claims they raised as a result,” the spokesperson said.

The Journal reported that included Istvan Papp, Microsoft’s country manager for Hungary. Papp told the Journal that he had “received only positive feedback from the management,” and declined to comment further. Microsoft did not immediately reply to a request for comment from Fortune.

The alleged arrangement was that Microsoft sold its software to middleman companies at a discount, which in turn marked them up closer to full price to sell to the Hungarian government. Part of that difference was then paid to government officials.

Microsoft’s spokesperson said that in 2014, it overhauled how it handled discounts, and discloses more information about them to 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,” the company said. The firm also said it mandates compliance in contracts to both U.S. and local law, and it has added AI-based technology to help identify compliance risks.

Microsoft has faced probes in recent years over sales arrangement in several countries, mostly developing nations. In 2013, reports indicated U.S. authorities had looked into deals in China, Italy, and Romania, and Pakistan and Russia for bribery. It’s unclear if any of those probes continue.

In 2012, President Donald Trump told CNBC the “this country is absolutely crazy” to pursue bribery in other countries; that it puts U.S. firms at a disadvantage; and that the law is “horrible” and should be changed. The Trump Organization, his for-profit company that manages licensing his name and managing property, allegedly engages in practices that could fall afoul of the FCPA.

In April 2017, Attorney General Jeff Sessions delivered a speech at an ethics and compliance conference that covered many issues he’d address in leading the Department of Justice, but highlighted that “We will continue to strongly enforce the FCPA and other anti-corruption laws.” That included the largest settlement under FPCA in the agency’s history in September 2017 for $965 million against Telia, a Swedish telecom company, and its subsidiary in Uzbekistan over bribery in that country.