Document Outline

• Structure Bookmarks
  • Kathryn H. Ruemmler Jonathan C. Su Latham & Watkins LLP 555 Eleventh Street, NW Suite 1000 Washington, D.C. 20004 DarrylS.Lew Courtney Hague Andrews White & Case LLP 701 Thirteenth Street, NW Washington, D.C. 20005 
  • U.S. Department of Justice 
  • United States Attorney Southern District of New York One St. Andrew's Plaza New York, New York 10007 
  • Criminal Division Fraud Section 1400 New York Avenue, NW Washington, D.C. 20005 
  • July 22, 2019 
  • Re: Microsoft Magyarorszag Szamitastechnikai Szolgaltat6 es Kereskedelmi Kft. Criminal Investigation Dear Ms. Ruemmler and Mr. Lew: The United States Department of Justice, Criminal Division, Fraud Section and the United States Attorney's Office for the Southern District of New York (the "Fraud Section and the Office"), and Microsoft Magyarorszag Szamitastechnikai Szolgaltat6 es Kereskedelmi Kft. ("MS Hungary"), pursuant to the statutory authority of the MS Hungary General Manager reflected in Attachment B,
  • (a) MS Hungary did not receive voluntary disclosure credit because it did not voluntarily and timely disclose to the Fraud Section and the Office the conduct described in the Statement of Facts; (b) MS Hungary received full credit for its cooperation with the Fraud Section and the Office's investigation, including conducting a thorough internal investigation, making regular factual presentations to the Fraud Section and the Office, producing documents to the Fraud Section and the Office from foreign countri
  • (i) MS Hungary and Microsoft have agreed to continue to cooperate with the Fraud Section and the Office in any ongoing investigation of the conduct of MS Hungary and Microsoft, their subsidiaries and affiliates, and their officers, directors, employees, agents, business partners, distributors, and consultants relating to violations of the FCP A; G) MS Hungary has agreed to disgorge $13,780,733 in profits and $2,784,417.92 in prejudgment interest to the Securities and Exchange Commission ("SEC") in connectio
  • payments, false books and records, failure to implement adequate internal accounting controls, and circumvention of internal controls under investigation by the Fraud Section and the Office until the later of the date upon which all investigations and prosecutions arising out of such conduct are concluded, or the end of the Term. At the request of the Fraud Section and the Office, MS Hungary shall also cooperate fully with other domestic or foreign law enforcement and regulatory authorities and agencies, as
  • Microsoft shall promptly report such evidence or allegation to the Fraud Section and the Office. On the date that the Term expires, MS Hungary, by the General Manager of MS Hungary and the Chief Financial Officer of MS Hungary, will certify to the Fraud Section and the Office that MS Hungary has met its disclosure obligations pursuant to this Agreement regarding any reportable matters at MS Hungary. Each certification will be deemed a material statement and representation by MS Hungary to the executive bran
  • Office do not make any agreement) against MS Hungary relating to any of the conduct described in the Statement of Facts. To the extent there is conduct disclosed by MS Hungary or Microsoft that does not relate to any of the conduct described in the Statement of Facts, such conduct will not be exempt from prosecution and is not within the scope of, or relevant to, this Agreement. The Fraud Section and the Office, however, may use any information related to the conduct described in the Statement of Facts agai
  • Microsoft with written notice of such breach prior to instituting any prosecution resulting from such breach. Within thirty days of receipt of such notice, MS Hungary and Microsoft shall have the opportunity to respond to the Fraud Section and the Office in writing to explain the nature and circumstances of such breach, as well as the actions MS Hungary and Microsoft have taken to address and remediate the situation, which explanation the Fraud Section and the Office shall consider in detennining whether to
  • does not have the effect of circumventing or frustrating the enforcement purposes of this Agreement, as detennined by the Fraud Section and the Office. This Agreement is binding on MS Hungary and Microsoft, and the Fraud Section and the Office, but specifically does not bind any other component of the Department of Justice, other federal agencies, or any state, local, or foreign law enforcement or regulatory agencies, or any other authorities, although the Fraud Section and the Office will bring the coopera
  • AGREED AND CONSENTED TO: Microsoft Magyarorszag Szamitastechnikai Szolgaltat6 es Kereskedelmi Kft. J t< ly ,i & ~ c> I Cl 1 Date: _____ By: tt·~ Christopher Mattheisen General Manager MS Hungary Date: _____ By: Kathryn H. Ruemmler Jonathan.C. Su Latham & Watkins LLP Date: _____ By: Darryl S. Lew Courtney Hague Andrews White & Case LLP Microsoft Corporation Date: 1--J ~-/7 By: , Bradford L. Smith President and Chief Legal Officer Microsoft Corporation Date: _____ By: Kathryn H. Ruemmler Jonathan C. Su Latham
  • i" ' ... : AGREED AND CONSENTED TO: Microsoft Magyarorszag Szamitastechnikai Szolgaltat6 es Kereskedelmi Kft. : . .:1 Date: ____ By: ___________________ _ Christopher Mattheisen General Manager MS Hungary Date: By: -----"~=---:...--~+-'--'-H_. -~-Y'A-)'"1--_l.v-___ _ V-Kathryn H. Ruemmler Jonathan C. Su Latham & Watkins LLP Date: ____ By: _____________________ _ . ., '. Darryl S. Lew Courtney Hague Andrews White & Case LLP Microsoft Corporation Date: ____ By: Bradford L. Smith President and Chief Legal Offi
  • AGREED AND CONSENTED TO: Microsoft Magyarorszag Szamitastechnikai Szolgaltat6 es Kereskedelmi Kft. Date: ____ By: Christopher Mattheisen General Manager MS Hungary Date: _____ By: Kathryn H. Ruemmler Jonathan C. Su Latham & Watkins LLP Date: '1/1'f //'/ By: Microsoft Corporation Date: ____ By: Bradford L. Smith President and Chief Legal Officer Microsoft Corporation Date: _____ By: Kathryn H. Ruemmler Jonathan C. Su Latham & Watkins LLP Date: ?-j,l/12 By: Courtney Hague Andrews White & Case LLP 9 
  • ATTACHMENT A STATEMENT OF FACTS The following stipulated Statement of Facts ("Statement of Facts") is incorporated by reference as part of the Non-Prosecution Agreement (the "Agreement") between the United States Department of Justice, Criminal Division, Fraud Section and the United States Attorney's Office for the Southern District of New York (the "Fraud Section and the Office"), and Microsoft Magyarorszag Szamitastechnikai Szolgaltat6 es Kereskedelmi Kft. ("MS Hungary"). MS Hungary hereby agrees and stip
  • 3.Microsoft Ireland Operations Limited ("MIOL") was an indirect, wholly-ownedsubsidiary of Microsoft with headquarters in Dublin, Ireland. MIOL was assigned the right to license Microsoft software to customers in countries in the Europe-Middle East-Africa region, including Hungary, through a number of agreements entered into by Microsoft and various subsidiaries. 4.Executive 1 was a high-level executive at MS Hungary.5.Manager 1 was a manager overseeing the Public Sector team at MS Hungary. 6.Employee 1 was
  • prices for government contracts were necessary to conclude deals with Hungarian government agencies. The savings represented by the discounts, however, were not passed along in full by TPis to the Hungarian government customers to reduce the end customer price. Instead, the inflated margins were used to fund improper payments under the FCP A in connection with the sale of Microsoft software to Hungarian government agencies. MS Hungary, therefore, knowingly and willfully caused Microsoft, a U.S. issuer, to f
  • behalf of its consortium. The TPI that won the tender would negotiate the final sales price with the government end user and, typically, sign an agreement with that agency. In certain instances, the TPI that purchased the licenses from MIOL did not resell the licenses directly to the end customer, but instead resold the licenses to another TPI for onward sale to the end customer. 15. Microsoft maintained standard estimated retail prices at which it offered its software for sale. Government and other large c
  • 18. Although the final price that government agencies paid for Microsoft software licenses was negotiated between the TPI that won the tender and the government agency, discounts requested by MS Hungary personnel and approved by the Microsoft Business Desk should have been passed through in full to the government end customer by the LSP that purchased the licenses from MIOL. The Corrupt Scheme Perpetrated by MS Hungary 19. From at least 2013 to June 2015, a MS Hungary executive and ce11ain employees, includ
  • t. 1, and Employee 1, the false discounts created inflated margins in the Microsoft sales channel that were used to make improper payments under the FCP A. 21. The inflated margins created through this scheme by MS Hungary personnel were not used to reduce the end customer price, but instead were used for corrupt purposes and, moreover, were falsely recorded as "discounts" and stored in various tools and databases on Microsoft servers in the United States. These false discounts were consolidated into Micros
  • 24. On or about May 3, 2013, MS Hungary restructured the deal with Agency 1. The same MS Hungary employee who requested the initial discount sent an email to the Microsoft Business Desk, copying Executive 1, Manager 1, and Employee 1, requesting a 22.55% discount in order to, among other things, "fit [Agency l's] given budget." This discount was approved by the Microsoft Business Desk. 25. On or about June 4, 2013, about two weeks before the Agency 1 tender was announced to the public, Employee 1 emailed Ma
  • 28. Despite knowing that Agency 1 had already accepted a €2.36 million price for the deal two days earlier, on or about June 19, 2013, Manager 1 wrote an email to the Microsoft Business Desk, copying Executive 1, Employee 1, and another MS Hungary employee, in which Manager 1 provided false justifications for an additional requested discount. Specifically, Manager 1 made the following misrepresentations: We are in the final stage closing this deal for 4400 desktops and additional servers, and we have a real
  • falsely obtained discount was not passed through in full by TPI 3 to Agency 1. Instead, with the knowledge of MS Hungary employees, including Executive 1, Manager 1, and Employee 1, the inflated margin was used to fund improper payments under the FCPA in connection with the sale of Microsoft software to Agency 1. Example 2: The Scheme Involving Agency 2 33. In or about early 2014, MS Hungary began working on a deal involving 10,000 desktop licenses for Microsoft software for Agency 2. Employee I was aware o
  • 37. On or about June 23, 2014, another MS Hungary employee wrote an email to the Microsoft Business Desk, copying Manager 1 and Employee 1, which stated, "We are still working to close on the [Agency 2] deal .... We were focusing on the financial aspects and collected all the necessary approvals in the Government up to the Prime Minister." The MS Hungary employee then requested an additional 5% discount on certain licenses in the deal. Based on these false representations, the Microsoft Business Desk approv
  • 40. The difference between the discounted €2.2 million price that TPI 1 paid to MIOL and the€3.76 million price reflected in the agreement between Agency 2 and TPI 3 created a margin of approximately €1.56 million (approximately 41.7%). The falsely obtained discount that helped create this inflated margin was not passed through in full by TPI 3 to Agency 2. Instead, with the knowledge of MS Hungary employees, including Manager 1 and Employee 1, the margin was used to fund improper payments under the PCP A i
  • a server located in Phoenix, Arizona. Third, false records from the MS Hungary licensing deals at issue were stored in a Microsoft Business Desk database located in Bellevue, Washington. A-12 
  • ATTACHMENT B CERTIFICATE OF CORPORATE RESOLUTIONS WHEREAS, Microsoft Magyarorszag Szamitastechnikai Szolgaltat6 es Kereskedelmi Kft. ("MS Hungary") has been engaged in discussions with the United States Department of Justice, Criminal Division, Fraud Section and the United States Attorney's Office for the Southern District of New York (the "Fraud Section and the Office"), regarding issues arising out of its knowingly causing Microsoft Corporation ("Microsoft") to make and keep false books, records, and acco
  • 1. MS Hungary (a) enters into this non-prosecution agreement ("Agreement") with the Fraud Section and the Office; and (b) agrees to accept a monetary penalty against MS Hungary totaling $8,751,795, and to pay such penalty to the United States Treasury with respect to the conduct described in the Statement of Facts in Attachment A; and 2 MS Hungary acc~pts the terms and conditions of this Agreement, including, but not limited to, (a) a knowing waiver for purposes of this Agreement and any charges by the Unit
  • ATTACHMENT C CORPORATE COMPLIANCE PROGRAM In order to address any deficiencies in its internal controls, compliance code, policies, and procedures regarding compliance with the Foreign Corrupt Practices Act ("FCPA"), 15 U.S.C. §§ 78dd-l, et seq., and other applicable anti-corruption laws, Microsoft Corporation ("Microsoft") on behalf of itself and its subsidiaries and affiliates, agrees to continue to conduct, in a manner consistent with all of its obligations under this Agreement, appropriate reviews of it
  • Policies and Procedures 2. Microsoft will develop and promulgate a clearly articulated and visible corporate policy against violations of the anti-corruption laws, which policy shall be memorialized in a written compliance code. 3. Microsoft will develop and promulgate compliance policies and procedures designed to reduce the prospect of violations of the anti-corruption laws and Microsoft's compliance code, and Microsoft will take appropriate measures to encourage and support the observance of ethics and c
  • 4. Microsoft will ensure that it has a system of financial and accounting procedures, including a system of internal controls, reasonably designed to ensure the maintenance of fair and accurate books, records, and accounts. This system should be designed to provide reasonable assurances that: a. transactions are executed in accordance with management's general or specific authorization; b. transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accep
  • Proper Oversight and Independence 7. Microsoft will assign responsibility to one or more senior corporate executives of Microsoft for the implementation and oversight of Microsoft's anti-corruption compliance code, policies, and procedures. Such corporate official(s) shall have the authority to report directly to independent monitoring bodies, including internal audit, Microsoft's Board of Directors, or any appropriate committee of the Board of Directors, and shall have an adequate level of autonomy from ma
  • Internal Reporting and Investigation 10. Microsoft will maintain, or where necessary establish, an effective system for internal and, where possible, confidential reporting by, and protection of, directors, officers, employees, and, where appropriate, agents and business paitners concerning violations of the anti-corruption laws or Microsoft's anti-corruption compliance code, policies, and procedures. 11. Microsoft will maintain, or where necessary establish, an effective and reliable process with sufficien
  • Third-Party Relationships 14. Microsoft will institute appropriate risk-based due diligence and compliance requirements pe1taining to the retention and oversight of all agents and business partners, including: a. properly documented due diligence pertaining to the hiring and appropriate and regular oversight of agents and business pattners; b. informing agents and business pa1tners of Microsoft's commitment to abiding by anti-corruption laws, and of Microsoft's anti-corruption compliance code, policies, and
  • 17. Microsoft will ensure that Microsoft's compliance code, policies, and procedures regarding the anti-corruption laws apply as quickly as is practicable to newly acquired businesses or entities merged with Microsoft and will promptly: a. train the directors, officers, employees, agents, and business partners consistent with Paragraph 8 above on the anti-corruption laws and Microsoft's compliance code, policies, and procedures regarding anti-corruption laws; and b. where warranted, conduct an FCPA-specific
  • ATTACHMENT D REPORTING REQUIREMENTS Microsoft Magyarorszag Szamitastechnikai Szolgaltat6 es Kereskedelmi Kft. ("MS Hungary") and Microsoft Corporation ("Microsoft") agree that they will report to the Fraud Section and the Office periodically, at no less than twelve month intervals during a three-year term, regarding remediation and implementation of the compliance program and internal controls, policies, and procedures described in Attachment C. During this three-year period, MS Hungary shall: (1) conduct a
  • procedures are reasonably designed to detect and prevent violations of the FCPA and other applicable anti-corruption laws. c. The first follow-up review and report shall be completed by no later than one year after the initial report is submitted to the Fraud Section and the Office. The second follow-up review and report shall be completed and delivered to the Fraud Section and the Office no later than thirty days before the end of the Term. d. The reports will likely include proprietary, financial, confide