Microsoft Investigated by Feds for Alleged Bribery, Corruption in Hungary

Microsoft Corp. (MSFT) is being investigated by U.S. authorities over allegations that it engaged in bribery and corruption to boost software sales in Hungary, The Wall Street Journal, citing people familiar with the matter, reported.

The U.S. Justice Department and the Securities and Exchange Commission (SEC) are eager to determine how Microsoft sold software such as Word and Excel to middleman firms in the Eastern European country at steep discounts believed to run as high as 30%. According to the report, these intermediaries then sold the software on to government agencies in Hungary in 2013 and 2014 at close to full price. Investigators are concerned that the middleman companies used the difference to pay bribes and kickbacks to government officials.

Microsoft, which in 2015 cited Hungary as its “best-performing…subsidiary, of its size, for two years running”, told the newspaper that it immediately launched its own probe into the situation after becoming aware of “potential wrongdoing” in the country in 2014. The company’s deputy general counsel, David Howard, added that Microsoft is cooperating with the Justice Department and SEC. “We’re committed to ethical business practices and won’t compromise these standards,” he said.

Howard added that Microsoft has fired four employees related to its probe in Hungary, including its country manager Istvan Papp. As part of its clean-up mission, he also claimed that the company terminated business relationships with four partners in Hungary last year after they were deemed to have violated Microsoft’s policies and has stepped up its efforts to increase transparency about discounting. (See also: Microsoft: 7 Secrets You Didn't Know.)

Not an Isolated Case

The investigation into Microsoft’s practices in Hungary follow a series of similar probes into the company’s relationships with its business partners in five other countries, according to the Journal. Five years ago, U.S. authorities reportedly investigated Microsoft’s relationship with its business partners in China, Romania, Italy, Russia, and Pakistan, based on allegations that its partners may have bribed government buyers or provided kickbacks.

The Journal was unable to determine whether the U.S. is still investigating Microsoft in these countries. (See also: 10 Most-Loved Stocks in Hedge Funds: Goldman's VIP List.)