According to the Wall Street Journal, U.S. authorities are investigating Microsoft over a bribery and corruption matter in Hungary, some details of which the company shared with Compliance Week.

The Department of Justice and the U.S. Securities and Exchange Commission are investigating software sales made by Microsoft to “middleman firms in Hungary that then sold those products to government agencies there in 2013 and 2014,” notes the WSJ report. 

Microsoft allegedly sold some of its products to these intermediaries at steep discounts, who then sold these products to the Hungarian government at near-full prices, says the WSJ. Now, U.S. authorities are investigating whether these intermediaries used the difference in price to pay bribes and kickbacks to government officials. 

A Microsoft spokesperson told Compliance Week, “As we confirmed to the Wall Street Journal, as soon as we became aware in 2014 of potential wrongdoing in our Hungarian subsidiary, we moved quickly to pursue a detailed investigation and hold people accountable. 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. We’re committed to ethical business practices and won’t compromise these standards.”

The Microsoft spokesperson added that, beginning in 2014, “we also developed a comprehensive response to concerns we had around how partners and resellers were using discounts. 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.”

According to an analysis conducted by Compliance Week, in at least six consecutive quarterly filings since 2016, Microsoft has stated that it is cooperating with U.S. authorities “in connection with reports concerning our compliance with the Foreign Corrupt Practices Act in various countries.” The first such disclosure made by Microsoft appeared in an annual report in July 2016.

The WSJ reported, however, that U.S. authorities were investigating Microsoft as early as 2013 for potential bribery and kickbacks concerning its business partners in China, Italy, Pakistan, Romania, and Russia. Those reports have not been confirmed.

As a broader legal and compliance matter, “the use of third parties acting on behalf of companies in the development of business internationally continues to be an ‘Achilles heel’ for global companies,” said Shawn Wright with law firm Blank Rome. “Retaining third parties requires a robust level of due diligence, similar to the due diligence required in conducting M&A transactions.”

“Companies must not only conduct the due diligence before the relationship begins, but they must ensure that they obtain certifications of compliance and provide training to those that act on their behalf,” Wright adds. “Most importantly, companies must ensure that the agreements with third parties contain audit rights and that the company exercises those audit rights periodically, especially if the third party is developing business with government agencies.”

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