(Mint Press) – The Securities and Exchange Commission (SEC) and the United States Department of Justice have opened preliminary investigations in Microsoft Corp. (NASDAQ: MSFT) into allegation of bribery to overseas government officials in exchange for business favors. Microsoft’s practices in China, Italy and Romania are being considered for potential violations of the 1977 Foreign […]
(Mint Press) – The Securities and Exchange Commission (SEC) and the United States Department of Justice have opened preliminary investigations in Microsoft Corp. (NASDAQ: MSFT) into allegation of bribery to overseas government officials in exchange for business favors. Microsoft’s practices in China, Italy and Romania are being considered for potential violations of the 1977 Foreign Corrupt Practices Act (FCPA).
The FCPA prohibits U.S.-based companies from making payments to further business interests with foreign governments or foreign agents. The Wall Street Journal first broke this story on March 19.
John Frank, a vice president and a deputy general counsel for Microsoft, stated in a blog that in such government reviews, it is not uncommon to find that these claims are meritless.
“We take all allegations brought to our attention seriously and we cooperate fully in any government inquiries,” Frank said. “Like other large companies with operations around the world, we sometimes receive allegations about potential misconduct by employees or business partners, and we investigate them fully regardless of the source. We also invest heavily in proactive training, monitoring and audits to ensure our business operations around the world meet the highest legal and ethical standards.”
Microsoft is among a group of about 100 other companies who are also under investigation for violations of the Foreign Corrupt Practices Act. As major corporations have significant incentives to not allow such cases to go to trial, most FCPA cases are settled out of court, with fines that can run into the tens of millions of dollars.
A court conviction on a FCPA charge could limit a company’s ability to do business with the federal government or to engage in international commerce.
In 2008, Siemens, the German engineering and electronics multinational corporation, agreed to a $800 million settlement with the Justice Department and the SEC to stop an ongoing investigation into allegations of potential violations of FCPA.
The government’s crusade on corporate corruption
Tom Fox, a lawyer that specializes in FCPA and whose blog — FCPA Professor — has been ranked in the top 25 business law blogs by LexisNexis for 2010 and 2011, argued that even though 100 companies being investigated at the same time may seem like a grand number, it’s not. “The number of companies being investigated at any one time may appear to be large. That is because of the variety of ways the DOJ/SEC obtain information on possible violations; self-disclosure by companies, whistleblowers, or other means.”
“Most of these investigations will be closed with no enforcement actions taken against the companies being investigated and these declinations to prosecute will not be made public so we will never know why they were closed,“ Fox continued.
An unnamed whistleblower stated that a Microsoft official in China directed the whistleblower to pay bribes to government officials to win business deals and government contracts. After this has concluded, the whistleblower had a business-related conflict with Microsoft. Microsoft launched an internal investigation into the 2010 situation, but found no evidence of wrongdoing or improper behavior.
Granted that Microsoft conducted this investigation correctly, such an internal action could help mitigate Microsoft’s liability. “It depends on how thoroughly Microsoft did their internal investigation and how good their compliance program is and how many other issues there might be,” said Eric Sussman, a former Justice Department prosecutor who is now a lawyer with Kaye Scholer, a firm that is not involved in the Microsoft case. “The problem for any large company dealing in a high-risk environment like China or Romania is there is a high risk of being solicited for bribes.”
“The Microsoft FCPA investigation speaks to the difficulties faced by international companies to make sure they are compliant with the FCPA,” Fox said. “It speaks to the difficulties for many worldwide companies, with many thousands of employees and third party representatives in wide and varying locations.”
The Microsoft investigation continues a renewed trend by the Obama administration to combat corporate bribery and corruption overseas. Since 2011, the Justice Department has taken on major players in technology, retailing and finance such as Tyco International (NYSE: TYC), Comverse Technology (NASDAQ: CMVT), Deutsche Telekom (FWB: DTE) and Wal-Mart Stores (NYSE: WMT).
Wal-Mart is currently under investigation in regard to a 2012 New York Times investigation that showed that the retailer used bribery in a persistent manner to facilitate its expansion in Mexico. The Justice Department is thought to be “pursuing a deep pipeline of other potential investigations related to the anticorruption law,” according to the Times.
Alston & Bird attorney Edward Kang, a partner with Government & Internal Investigations Group — a consultancy focusing on security fraud, health care fraud, anti-corruption, anti-money laundering and FCPA, argue that this new level of vigilance comes from multiple sources.
“The significant number of FCPA cases currently being investigated is not something that happened overnight, but reflects a steady rise in enforcement that began in 2005,” Kang explained. “While no one reason can itself explain this trend, some of the factors include: (1) a growing international consensus that corruption must be combated, which has resulted in greater cooperation from foreign countries for FCPA investigations; (2) increased domestic commitment and resources allocated to DOJ, SEC, and FBI for investigating and prosecuting FCPA cases; (3) heightened vigilance on the part of U.S. companies to proactively investigate and report potential violations to law enforcement officials; and (4) greater protections afforded to whistleblowers who provide information to the government about possible misconduct.”
“Corruption is undeniably bad business,” Kang continued. “It is anticompetitive, increases the cost of doing business in emerging markets, and places companies at risk to ever-increasing demands of corrupt foreign officials.n However, if the FCPA is instead used as a vehicle to extract large settlements from actors who are not sufficiently involved in the core allegations of corrupt conduct, then FCPA enforcement could have a significant chilling effect on overseas investment and may put companies subject to FCPA jurisdiction at a competitive disadvantage.”
Despite this, the federal government is committed to its course of action. “We are in a new era of FCPA enforcement,” said Lanny Breuer in 2010, formerly the assistant attorney general for the Justice Department’s criminal division. “We are here to stay.”