• Global Anti-Corruption Practice

Case Detail

In re Microsoft Magyarorszag Szamitastechnikai Szolgaltato es Kereskedelmi Kft. (2019)


Case Details
  • Case Name
  • In re Microsoft Magyarorszag Szamitastechnikai Szolgaltato es Kereskedelmi Kft. (2019)
  • Date Filed
  • 07/22/2019
  • Enforcement Agency
  • DOJ
  • Foreign Official
  • Unnamed government officials.
  • Date of Conduct
  • 2013 to 2015
  • Nature of Business
  • Microsoft Corporation (“Microsoft”) is a global software and technology company headquartered in Washington state. Microsoft maintains common stock publicly traded on the NASDAQ and registered with the SEC pursuant to Section 12(b) of the Exchange Act. 

    Microsoft has wholly-owned subsidiaries globally to assist in its operations.  Magyarorszag Szamitastechnikai Szolgaltat6 es Kereskedelmi Kft. ("MS Hungary") is Microsoft’s subsidiary in Hungary, and Microsoft Ireland Operations Limited (“MIOL”) is Microsoft’s indirect subsidiary in Ireland.
  • Influence to be Obtained
  • According to the DOJ, Microsoft’s Hungary subsidiary was involved in schemes in Hungary that caused Microsoft to violate the FCPA.  According to the DOJ, MS Hungary caused Microsoft to provide discounts on its software in government contracts.  The DOJ alleged that MS Hungary failed to pass the full discounts along to the government agencies but instead redirected funds for use in violation of the FCPA.  Specifically, the DOJ alleged that MS Hungary, in concert with third party intermediaries, rigged bids to favor certain third party intermediaries to secure government contracts.  Allegedly, after securing the deal through a third party intermediary, MS Hungary would then falsely represent to Microsoft the need for a discount so MS Hungary could close the deal with the agency (even though the agency’s budget could “cover the cost of the licenses without a discount” or even where the agency had already agreed to the higher price).  This would result in an “inflated margin [which] was used to fund improper payments . . . in connection with the sale.”  Microsoft would grant the discount and the third party intermediary that made the bid would purchase the licenses at a discount from MIOL, but re-sell to the government agency at the higher agreed upon price.  Rather than providing the government agency with the discount, the DOJ alleged that this “inflated margin” was used as bribes “with [MS Hungary’s] knowledge.”

    According to the DOJ these actions by MS Hungary caused Microsoft to “record and maintain false books, records and accounts” as MS Hungary’s financial records were incorporated into Microsoft’s overall financial records, which were stored in servers around the United States.

  • Enforcement
  • On July 22, 2019, the DOJ issued a Non-Prosecution Agreement (signed July 16, 2019 by a representative of MS Hungary), explaining that it had declined to prosecute MS Hungary for these alleged FCPA violations.  MS Hungary was ordered to pay a monetary penalty of $8,751,795.  MS Hungary was also required to report to the DOJ’s Fraud Section its remediation and compliance efforts in accordance with a compliance program for a three-year period.  The DOJ indicated that its determination was based on MS Hungary’s cooperation with the DOJ’s investigation and both MS Hungary and Microsoft’s remedial efforts.

    On July 22, 2019, the SEC settled its enforcement action against Microsoft for violations of the FCPA’s books-and-records and internal controls provisions.  Microsoft was ordered to pay disgorgement of about $13.78 million and prejudgment interest of about $2.78 million.
  • Amount of the Value
  • Not stated.
  • Amount of Business Related to Payment
  • About $14,586,325
  • Intermediary
  • Third-party agents.
  • Citizenship of Parent Entity
  • United States
  • Total Sanction
  • $ 8,751,795
  • Compliance Monitor
  • Yes
  • Reporting Requirements
  • Yes (3 Years)
  • Case is Pending?
  • No
  • Total Combined Monetary Sanction
  • $ 25,316,945
Defendants

Microsoft Magyarorszag Szamitastechnikai Szolgaltato es Kereskedelmi Kft.

  • Citation
  • In re Microsoft Magyarorszag Szamitastechnikai Szolgaltato es Kereskedelmi Kft., Letter to Kathryn H. Ruemmler and Darryl S. Lew from Geoffrey S. Berman, US Attorney of the Southern District of New York, Sarah Lai, Assistant US Attorney, and Robert Zink, Acting Chief Fraud Section, DOJ (July 22, 2019).
  • Date Filed
  • 07/22/2019
  • Filed Under Seal
  • No
  • Date Case Was Unsealed
  • 01/03/2020
  • FCPA Statutory Provision
  • Other Statutory Provision
  • None.
  • Disposition
  • Non-Prosecution Agreement
  • Defendant Jurisdictional Basis
  • Agent of Domestic Concern
  • Defendant's Citizenship
  • Hungary
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