Microsoft headquarters in Redmond, Washington, on April 15, 2017. Photo: Katherine Welles/Shutterstock.com

“Deeply disappointed and embarrassed.” 

That's how Microsoft Corp. president and chief legal officer Brad Smith said he and fellow company leaders felt after learning that senior executives and other employees of the tech giant's Hungarian subsidiary were involved in an alleged bribery scheme.

“As a company, we do not tolerate employees and partners who willfully break policies that go to fundamental issues of business and integrity,” Smith added in an email to employees. 

The bribery revelation, which occurred several years ago, resulted in Microsoft entering into a more than $25.3 million settlement agreement Monday with the Justice Department and U.S. Securities and Exchange Commission to settle claims of violations of the Foreign Corrupt Practices Act. 

Under the agreement, Microsoft will pay more than $8.7 million in criminal penalties and $16.5 million to the SEC in disgorgement and prejudgment interest. The company also has entered into a non-prosecution agreement with the DOJ and a cease and desist order with the SEC.  

According to the DOJ, Microsoft's employees in Hungary “falsely represented to Microsoft” that they were giving Hungarian government agencies steep discounts on software licenses to finalize deals with resellers who bid to sell those licenses to government customers. 

In reality, the discounts allegedly were not passed on to government customers but were instead “used for corrupt purposes.”

Microsoft employees in Saudi Arabia, Thailand and Turkey also engaged in misconduct, according to the SEC's cease and desist order. In Saudi Arabia, for example, employees allegedly used at least $440,000 in company money to pay for travel expenses for government employees and buy government agencies gifts, including laptops and furniture.  

But “the most concerning conduct took place” in Hungary, according to Smith. The DOJ alleged that the bribery scheme in that country resulted in Microsoft obtaining nearly $14 million in business between 2013 and 2015. 

Microsoft foreshadowed its FCPA settlement earlier this year when it stated in a quarterly report that it had “been cooperating with authorities in the U.S. in connection with reports concerning our compliance with the Foreign Corrupt Practices Act in various countries.”

The DOJ reduced Microsoft's criminal penalty by 25% based on the company's “full cooperation and remediation.” While Microsoft did not voluntarily self-disclose the misconduct, it fired the Hungarian employees in question and enacted a more robust, companywide compliance system to mitigate corruption risks. 

Smith told employees that Microsoft had created a discount transparency program for public sector sales, strengthened the company's anti-corruption program and was using machine learning to flag potentially corrupt transactions. 

“We recognize that no business process can offer a perfect guarantee of eliminating all global instances of a human frailty that is as old as humanity itself. That's why we need strong laws and effective enforcement by agencies such as the DOJ and the SEC in the United States and around the world,” Smith wrote. 

“And it's why across the business community we need not only to be vigilant but committed to putting the world's most advanced technology to work to help fulfill the strong ethical principles that the public rightfully expects us to uphold,” he added. 

When contacted for Microsoft's comment on the FCPA settlement, a spokeswoman for the company referred to Smith's email to employees.