A global technology company and its subsidiary settled SEC and DOJ charges for violating the books and records, and internal accounting controls provisions of the Foreign Corrupt Practices Act ("FCPA").

According to the DOJ, an executive and several other employees of a Hungarian subsidiary of Microsoft Corporation ("MS Hungary"), along with third parties acting on MS Hungary's behalf, participated in a bid-rigging and bribery scheme. Specifically, MS Hungary sold software licenses through third parties acting on its behalf, charging significantly discounted rates by falsely representing to the Microsoft Business Desk that the discounts were required for government customers. The DOJ stated that the false discounts created inflated margins for the third parties, which then were used for improper payments in violation of the FCPA.

Pursuant to a three-year non-prosecution agreement, MS Hungary agreed to pay a criminal penalty of $8,751,795, which represents a 25% reduction off the bottom of the U.S. Sentencing Guidelines range. In determining this penalty, the DOJ took into account MS Hungary and Microsoft Corporation's full cooperation during the investigation and remedial measures.

In a related proceeding, Microsoft agreed to disgorge $13,780,733 and pay prejudgment interest of $2,784,417.92 to the SEC. In addition to alleging that MS Hungary made improper payments intended for government officials, the SEC described additional misconduct by Microsoft subsidiaries in Saudi Arabia, Thailand and Turkey.

Commentary / James Treanor

In many ways, the Microsoft settlement represents a straightforward application of the DOJ's now-familiar FCPA Enforcement Policy. The company did not voluntarily self-disclose the misconduct, and thus received no credit in that regard, but it did earn the full 25% fine reduction available to companies that fully cooperate and timely implement remedial measures.

The settlement also serves as a reminder of the ever-present compliance risks associated with third parties, and in particular those who act on a company's behalf in dealings with government agencies and state-owned enterprises. When it comes to third parties, the focus is often on excessive commission payments, success fees, expense budgets, and other obvious channels through which improper payments may be made. The Microsoft settlement highlights a sometimes-overlooked risk area: namely, excessive discounts. As the allegations chronicled by the DOJ and SEC bear out, pricing manipulations - just as easily as fictitious fees and expenses - can be turned into cash bribes and other improper benefits.

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