Bonum Certa Men Certa

EPO and Microsoft Collude to Break the Law -- Part XII: Foreign Corrupt Practices, Bid Rigging and “Slush Funds”

Previous parts:



FCPA



Summary: Microsoft has come under repeated scrutiny for alleged breaches of the FCPA

In the last part we saw how Microsoft has repeatedly featured on the radar of anti-trust regulators and has come under scrutiny for its anti-competitive practices on both sides of the Atlantic.



But anti-competitive practices are not the only reason why the company has attracted unwanted attention from regulators.

"...anti-competitive practices are not the only reason why the company has attracted unwanted attention from regulators."In its home country, the Redmond behemoth has also been subject to investigation by the Department of Justice (DoJ) and the Securities & Exchange Commission (SEC) due to suspected violations of the US Foreign Corrupt Practices Act (FCPA) which prohibits US companies, as well as entities acting on their behalf, from bribing foreign officials.

Back in March 2013, it was reported that the DoJ and the SEC were investigating Microsoft in connection with an alleged kickback scheme operated by the company in China, as well as irregularities in its relationships between itself and resellers in Italy and Romania.

According to the Wall Street Journal the investigation was started after an anonymous tipster spilt the beans to US investigators in 2012. It was alleged that at least one Microsoft executive in China gave instructions to offer unspecified kickbacks to Chinese government officials in exchange for green-lighting Microsoft contracts.

In Italy, the investigation centered on how Microsoft handled deals with consultants there. The WSJ’s report claimed that Microsoft consultants that worked in customer loyalty-related positions would offer gifts like trips to acquisition officials as barter for government contracts.

"It was alleged that at least one Microsoft executive in China gave instructions to offer unspecified kickbacks to Chinese government officials in exchange for green-lighting Microsoft contracts."The Romanian investigation related to Microsoft’s involvement with its resellers allegedly offering “bribes” to win large government contracts with the Ministry of Communications.

Later on, in August of the same year, it was reported that federal investigators had extended their inquiry to include Microsoft partners in Pakistan and Russia.

In Russia, an anonymous tipster told Microsoft that resellers of its software allegedly funneled kickbacks to executives of a state-owned company to win a deal.

In Pakistan, a tipster alleged that Microsoft authorized a consulting firm to cover the expenses for a five-day trip to Egypt for a government official and his wife in order to win a tender. The contract Microsoft won in this case was reportedly worth USD 9 million and was signed three months after the paid trip to Egypt.

Giving bribes
The ‘Microsoftgate’ scandal rocked Romania in 2014



There isn't a lot of information out there about the result of the US FCPA investigations that were launched in 2013. It seems to be almost impossible to find any details about what became of the investigations into the Chinese kickback scheme and the other alleged irregularities in Italy, Russia and Pakistan.

"In Pakistan, a tipster alleged that Microsoft authorized a consulting firm to cover the expenses for a five-day trip to Egypt for a government official and his wife in order to win a tender."What is a matter of public record, however, is that Microsoft's shenanigans in Romania led to a domestic criminal investigation and triggered a major political scandal in that country, known as the Microsoft licensing corruption affair or "Microsoftgate" for short.

This was reputed to be the "biggest ever" corruption case in Romania and it rocked the country's political establishment as local investigations progressed during 2013 and 2014.

Nine government ministers from the education, finance and communication ministries of various governments stood accused of approving contracts selling IT licenses to Romanian schools at highly inflated prices. Damages linked to the case were estimated at €53.7 million.

As things turned out, most of the former government officials were charged with abuse of office after the 10-year statute of limitations had already expired. The contract for the first Microsoft IT licence was signed in 2004 and most of the indictments were not filed until 2015. Whether this was due to incompetence on the part of the prosecutors or the result of corruption is unclear.

"The contract for the first Microsoft IT licence was signed in 2004 and most of the indictments were not filed until 2015. Whether this was due to incompetence on the part of the prosecutors or the result of corruption is unclear."In any event most of the charges were dropped in 2018 due to this prosecutorial cock-up.

Nevertheless, the case did have some success in terms of convictions. Former communications minister Gabriel Sandu, a former mayor Gheorghe Stefan from the town of Piatra Neamt in northeastern Romania, and businessmen Nicolae Dumitru and Dorin Cocos were jailed after they admitted to accepting bribes from people interested in getting the contracts through.

Sandu, who was Romania’s communications minister between 2008 and 2010, allegedly favoured a company owned by local investors Dinu Pescariu and Claudiu Florica and granted it the contract to supply Microsoft licenses to state institutions for a year without a public tender, according to the prosecutors.

After his conviction, Sandu filed a denouncement with the National Anticorruption Directorate (DNA) in 2017. In his denouncement which he made public he claimed that former president Basescu, former prime minister Emil Boc as well as former US ambassadors, Nicholas Frank Taubman and Mark H. Gitenstein, pressured him into making payments to the firm represented by Pescariu and Florica and that former Microsoft Romania managers were also allegedly involved in the scheme.

The dust from the licensing corruption affair in Romania had hardly begun to settle when Microsoft was back in the news again.

"The dust from the licensing corruption affair in Romania had hardly begun to settle when Microsoft was back in the news again."At the end of November 2018, a whistleblower lodged an FCPA complaint with the SEC alleging malfeasance in connection with a South African Department of Defence software procurement contract.

The contract which was worth EUR 6.6 million (ZAR 120 million in local currency) was awarded to EOH Mthombo a subsidiary of the EOH Group, a South African conglomerate specialising in the provision of technology services to businesses and government.

At the time in question EOH Mthombo was a reseller of Microsoft software licences via a Microsoft Channel Partner agreement.

The whistleblower accused Microsoft of being complicit in allowing EOH Mthombo to engage in a “corrupt” licensing transaction with the Department of Defence.

Microsoft extricated itself from the South African affair by terminating its partner agreement with EOH Mthombo in March 2019.

"The whistleblower accused Microsoft of being complicit in allowing EOH Mthombo to engage in a “corrupt” licensing transaction with the Department of Defence."Some months later, in July 2019, Microsoft hit the headlines again in the USA this time in connection with another FCPA investigation involving its subsidiaries in Hungary, Saudi Arabia, Turkey and Thailand.

According to the SEC, Microsoft's subsidiary in Hungary provided discounts on software licenses to its resellers, distributors and other third parties. Instead of passing on the discounts to Microsoft's government customers, the discounts were used to fund improper payments intended for foreign government officials to secure software license sales for Microsoft.

The SEC also found that Microsoft's subsidiaries in Saudi Arabia and Thailand provided improper travel and gifts to both foreign government officials and employees of non-government customers funded through slush funds maintained by Microsoft's vendors and resellers. In Saudi Arabia a USD 440,000 “slush fund” was “used to pay travel expenses for Saudi government employees and for gifts, furniture, laptops, tablets and other equipment for government agencies.”

Executives in Microsoft’s wholly-owned subsidiary in Turkey were found to have approved an excessive discount in a transaction involving the Ministry of Culture. Microsoft’s records did not reflect what services, if any, a third-party system integrator provided, and there was no evidence that the discount was passed on to the government customer.

According to the SEC, "Microsoft failed to make and keep adequate documentation related to third party vendors, consultants, distributors and resellers and failed to devise and maintain a sufficient system of internal accounting controls throughout the relevant time.”

On 22 July 2019 the SEC announced that Microsoft had agreed to pay more than USD 16 million to settle charges that it violated the FCPA in connection with its operations in these four foreign based subsidiaries and that it has violated the books and records and internal accounting controls provisions of the Securities Exchange Act of 1934.

Without admitting or denying the SEC's findings, Microsoft consented to a cease-and-desist order and agreed to pay disgorgement of USD 13.78 million and prejudgment interest of USD€ 2.78 million.

"The SEC also found that Microsoft's subsidiaries in Saudi Arabia and Thailand provided improper travel and gifts to both foreign government officials and employees of non-government customers funded through slush funds maintained by Microsoft's vendors and resellers."The settlement also included an agreement on the part of Microsoft's wholly-owned Hungarian subsidiary to pay a criminal penalty of more than USD 8.7 million to resolve the federal investigation into violations of the FCPA connected with the sale of Microsoft software licenses to Hungarian government agencies.

Microsoft appears to have successfully bought its way out of trouble on this occasion.

The negative PR for the company was limited by the fact that the bid-rigging and bribery affair in Hungary didn't cause any significant domestic political fallout in contrast to the "shit-storm" unleashed by the "Microsoftgate" corruption scandal in Romania in 2014.

Meanwhile, in Thailand, there was a request from the non-governmental organisation Anti-Corruption Organisation of Thailand (ACT) urging the National Anti-Corruption Commission (NACC) to investigate the Microsoft bribery case.

ACT secretary-general, Mana Nimitmongkol, made the call in response to reports of Microsoft's settlement with the SEC: "Now that the issue is public knowledge, the NACC has a duty to tell the public about what happened, and what it plans to do about it," Mr Mana said. "They can't just turn a blind eye to it."

Unfortunately there is no record of any subsequent investigation by the Thai NACC.

The reluctance of the NACC to investigate might be connected with Microsoft's role in Thailand which has been described as that of "a key player and partner in Thailand’s digital transformation process" and its lead position in "advising business and government leaders ... on AI technology".

"Microsoft appears to have successfully bought its way out of trouble on this occasion."That concludes our synopsis of Microsoft's involvement in alleged violations of the US FCPA.

As we move towards the concluding phase of this series we intend to return to the main focus, namely the questionable nature of Microsoft's prominent role in the EPO's current "digital transformation process".

Before tackling this issue in more detail we will take a look at another aspect of Microsoft's activities which seems to be of significance here, namely its position as a leading player in the global 'IP' arena.

Recent Techrights' Posts

Reboots Should Never be Necessary
"BUT WHAT ABOUT SECURITY!!"
There's Still Hope for the World Wide Web
Let's hope that the trajectory of the Web won't be leading us to over-reliance on Google, nor will it reward worthless slopfarms
Gemini Links 15/07/2025: Smolweb and Alhena 5.1.7
Links for the day
XBox is Rapidly Turned Into a Slopfarm by Microsoft
Slop isn't about efficiency and saving money
Microsoft's Halloween Documents and systemd, Wayland, Etc.
Maybe one day Wayland will be widespread. Or maybe not.
 
Links 15/07/2025: LLM Pollution and Pushback in Ukraine
Links for the day
Gemini Links 15/07/2025: xkcd, New Cert, and Alhena Gemlog
Links for the day
Links 15/07/2025: Press Freedom at Risk and New Facebook Blunders
Links for the day
The Danes Want GNU/Linux
David Heinemeier Hansson recently moved to GNU/Linux
Cory Doctorow Explains Why Software Freedom Matters, Whereas "Open Source" Misses the Point and Helps Monopolies
It's a very long article
BillPR (EpsteinGate-Bribed NPR) is Turning Into a Partial Slopfarm that Promotes Slop
"I went on a date with a chatbot!"
Two Weeks Passed Since Latest Large Wave of Microsoft Layoffs, More Expected Next Month
Blaming the debt on "AI" is just self-serving storytelling
Over at Tux Machines...
GNU/Linux news for the past day
IRC Proceedings: Monday, July 14, 2025
IRC logs for Monday, July 14, 2025
Gemini Links 15/07/2025: Gemini "Style Sheets" and Switching From Microsoft GitHub to Codeberg
Links for the day
Coming Soon: Another OSI Scandal, This One Implicating Molly de Blanc
OSI has been fairly quiet lately
Outreachy & Debian pregnancy cluster, Meike Reichle evidence
Reprinted with permission from Daniel Pocock
Again, "Lunduke is Actually Sending His Audience to Attack People"
Microsoft Lunduke is not trying to "protect" Linux
One of the Most Hilarious Things About the Microsoft SLAPPs
It's so ridiculous
Financial Support for the Free Software Foundation or the GNU Project
The FSF has extended until Friday its fund-raising campaign
Illegally Hiding (or Demanding Secrecy Around) Illegal Requests or Attempts at Extortion
unlawful communications like threats
Gemini Links 14/07/2025: BOFH Archive, Updating Old Palm PDAS, and Nginx vs Slop Bots
Links for the day
Ubuntu is Becoming GAFAM-Like
What does that say about Canonical and Ubuntu?
Slopfarms Which Take Real Articles About GNU/Linux and Turn Them Into Copycats Which Are False
Even before the LLM hype those were quite common
The Firm That Picks on Techrights is Accustomed to Working With Criminals
Techrights never did anything illegal. So why is it being picked on by people who work with criminals?
Microsoft Said the Mass Layoffs Were for "Investment" in "AI", But It's Also Laying Off the "AI" and "Copilot" Staff
Months ago we showed many so-called "AI" people were getting the boot and this time it's the same
DryDeadFish is Dead, Long Live DryDeadFish
We kept checking, hoping it can recover from some temporary technical issue
For Quite Some Time Already Microsoft Attracts Crackpots, Scams, and More
Occasionally we talk about the situation at IBM as there are many parallels
Links 14/07/2025: Chatbots Broken Again, McHire LLM Shows Limits of the Hype
Links for the day
Changing One's Name Won't Change One's Past
People who have earned a bad reputation are not magically "entitled" to reset
People Who Assault Women Are Not Victims of "Distress"
It seems like an American tradition. In a country with almost 50 presidents, not even one was a female.
Slashdot Media Turned Linux Journal Into a Slopfarm and Now Slashdot Actively Promotes Anti-Linux Slopfarms
Yes, "no-nonsense" apparently means actual nonsense
Adoption of Gemini Protocol Still Growing
Gemini Protocol is being obscured by the media - it doesn't help that Google 'hijacked' the word "Gemini" - but people still manage to find out about it, download a client, and use it
Links 14/07/2025: Arresting Photographers, Threats to Revoke US Citizenship Over Criticism
Links for the day
More EPO Leaks on the Way
We hope that Mr. Rowan will actually try to refute what we say and show, not merely point the finger at the messengers
Decommodification is a Corporate Strategy Against Communities
systemd is led by Microsoft and hosted by Microsoft
copyleft.org 'Hijacked' by the People Who Attack the Person Who Created Copyleft
So far there's nothing "tasteless" in copyleft.org, but that can change at any time in the future
Asking People to Take Down Articles and Videos Only Makes These More Popular and "Viral"
If you do something bad, one of the worst things you can possibly do it try to silence those who speak about it
Over at Tux Machines...
GNU/Linux news for the past day
IRC Proceedings: Sunday, July 13, 2025
IRC logs for Sunday, July 13, 2025
Two-Thirds Towards FSF Goal, Richard Stallman to Give Talks in Europe
There are 67 left before reaching the target
Brett Wilson LLP "Takes it Personal" (Character Assassination, Not Professionalism). Everybody Can See That.
On behalf of violent men
Gemini Links 14/07/2025: Politicised Tech and "Leaving GitHub"
Links for the day
Pissing Contests and Pissing Off Everyone
people who came from Microsoft are trying to vex and divide the community
Microsoft Repeats the Mistakes Made by the EPO After We Exposed a Major Microsoft/EPO Scandal 10 Years Ago
That scandal was all over the media, not just in English
The Demise of LLMs
We've just checked BetaNews again. They've dropped all the slop and went back to human authors.
Gemini Links 13/07/2025: Sonpo Museum of Art and FCEUX
Links for the day
Links 13/07/2025: UnitedHealth's Censorship Campaign, Australia Wary of China
Links for the day
Firing Away With Nonsense
Or fighting fire with fire
Links 13/07/2025: Climate Crisis, GAFAM Poisoning the Water
Links for the day
Turns Out LLMs for Code Don't Save Time and Don't Improve Quality
Neither legal nor useful
The Microsofters Will Have an Obligation to Compensate Us
This story isn't just about Microsoft. It's also about corruption, there are many women victims, there is abject "abuse of process", and many more scandals to be illuminated in years to come.
Reproducing at the EPO Instead of Producing Monopolies for Foreign Monopolies With Their Price-Fixing Cartels
Does the EPO recognise the need of well-educated Europeans to bear kids?
Valnet Inc. Dominates Real (Not LLM Slop) GNU/Linux Coverage in 2025
And likely in prior years, too
Free Software Foundation (FSF) Fund Raiser Goes on
Later this month we'll expose another OSI scandal
EPO Staff Representatives Issue a Warning About Staff's Health and Inadequate Care
Even the EPO's own stakeholders (money sources) are openly protesting against what the EPO became
Links 13/07/2025: Partly Assorted News From Deutsche Welle and CBC
Links for the day
Gemini Links 13/07/2025: Board Games and Battle Styles
Gemini Links for the day
Over at Tux Machines...
GNU/Linux news for the past day
IRC Proceedings: Saturday, July 12, 2025
IRC logs for Saturday, July 12, 2025