Author: Nicola Sharp
21 November 2018
6 min read
Microsoft has become one of the highest-profile companies to be investigated over allegations of corruption and bribery.
The US Justice Department and the Securities and Exchange Commission (SEC) are reported to be examining the circumstances surrounding Microsoft’s sale of software to companies in Hungary in 2013 and 2014.
Microsoft is alleged to have sold software - such as its ever-popular Word and Excel – at a large discount to firms that were acting as middlemen. These firms then sold the software on to government agencies at full price. The investigation is trying to determine whether the money made from the resale was used to bribe Hungarian officials.
Microsoft deputy general counsel David Howard has stated that the company is cooperating with the authorities and said the company had reacted quickly in 2014 when it became aware of “potential wrongdoing.” Four people have been dismissed by Microsoft over the Hungary allegations and the company has ended a number of business relationships in that country for what it has said were violations of its company policies.
Microsoft’s code of conduct states: “Corruption is one of the leading obstacles to economic and social development. It distorts the rule of law and the institutional foundation on which Microsoft depends. Microsoft is committed to observing the standards of conduct set forth in the United States Foreign Corrupt Practices Act and the applicable anti-corruption and anti-money laundering laws of the countries in which we operate.’’
Regardless of the principles in Microsoft’s code of conduct, the investigation could be extremely damaging to the company’s finances and reputation.
Since these allegations came to light, Microsoft has emphasised how seriously it takes its responsibility to “take steps to train our employees, and to build systems to prevent and detect violations, and when we receive allegations, to investigate them fully and take appropriate action.’’
Such a determination to ensure it is legally compliant is, of course, to be applauded. But such a determination counts for nothing if the compliance measures introduced to ensure this are either not fit for purpose or not implemented properly by those entrusted with the task.
The world of technology is constantly evolving. Microsoft, like so many at the cutting edge of technology are looking to stay at the forefront of developments. They are also looking to maintain and improve their position in technology markets around the world.
As the products become more advanced and more countries embrace newer and better technology, those markets are only set to become bigger. It is understandable, therefore, if Microsoft and its current and potential rivals are looking to gain an ever-larger slice of the cake. Such a desire, however, should not mean a company “takes its eye off the ball’’ when it comes to the need to make sure all aspects of its operations are legally compliant. This can be costly, as Microsoft is finding out.
Many other industries and trading sectors have seen some of their major names face massive legal problems because of their alleged involvement in bribery to secure big deals. Aerospace, mining, oil and pharmaceuticals are just some that spring to mind. It is not beyond the realms of possibility that the software and technology giants could be the next big names to face major legal headaches – if they do not take appropriate steps to remove the potential for wrongdoing.
The markets for technology are often relatively new and expanding at a rate that can bring huge financial rewards for those who manage to secure a good position within them. But such companies must have an awareness of the risk of corruption – or other types of business crime – if they are not to suffer the problems that other corporates in other sectors have experienced after not paying enough attention to compliance.
Technology may be a relatively new market place and its range of products may be new and ever changing. But those involved in this market need to understand the value of the preventative measures that have been keeping all sorts of firms out of legal trouble for decades.
As a basic starting point, an investigation into how a company functions can identify how its working methods provide opportunities for business crime to be carried out and go undetected. Changes to routines, working practices and procedures as a result of such an investigation can reduce or even remove the potential for crime.
It may be that a company starts such an investigation as part of a general awareness of the need to assess its vulnerability to crime. But any allegations or suspicions of illegal conduct should also be viewed as a clear sign that an internal investigation is needed. Concerns raised by an employee, company representative or trading partner, questionable transactions and any inexplicable accounting activities all need to be seen as the basis for an investigation.
Any investigation has to be carried out in a thorough, competent manner. It may be that outside expertise should be brought in. Business crime solicitors, forensic accountants and IT specialists may all be of use in identifying areas where problems may exist, seeking evidence and making recommendations based on their findings.
It is possible that many senior figures in companies that are doing especially well in technology markets around the world view the need for an investigation into the possibility of wrongdoing as a very low priority.
They could argue that they are too busy grabbing ever greater market share and increasing revenues to be bothered with the time and expense of an investigation into what may not even turn out to be a legal problem. But this is a dangerous approach, regardless of whatever industry sector you operate in.
When it comes to bribery that outlook is especially risky. Section 7 of the UK’s Bribery Act 2010 introduced an offence of failure by a commercial organisation to prevent bribery being committed in connection with its business. A company can be guilty of this offence without even knowing that the bribery had been committed. This pretty much demolishes the argument made by some companies that they are too busy to make time to make sure wrongdoing is not being committed in their name.
The only defence to a Section 7 allegation is that the company had adequate procedures in place to prevent bribery. Yet the difficulty in succeeding with this defence was emphasised earlier this year when a modestly-sized office refurbishment company, Skansen, became the first to be convicted in the UK for failure to prevent bribery.
Skansen had won two contracts after its managing director paid two bribes. The firm started an internal investigation, introduced an anti-bribery policy, dismissed its managing director, filed a Suspicious Activity Report (SAR) to the National Crime Agency and reported the matter to the City of London Police. During the police investigation, Skansen cooperated fully. Yet the company was still charged with failure to prevent bribery, under Section 7.
In its defence, Skansen emphasised that it had an ethos of acting with honesty, had policies that told staff to deal with third parties in an open and honest manner and had financial controls and clauses in contracts to prevent bribery. Yet the jury was not convinced that Skansen’s controls were robust enough to be considered adequate procedures.
A lack of proper assessment of all aspects of a company’s work will allow existing illegal behaviour to continue unchecked and unrecognised. Even if there is currently no wrongdoing, a non-existent approach to prevention is almost encouraging it to develop. All companies need to be aware of the value of an internal investigation. It can identify and remove aspects of a company that make it vulnerable to wrongdoing.
Putting it simply, if there is currently no wrongdoing being committed an investigation reduces the possibility of it happening in the future. By devising new rules and working practices in response to the findings of an investigation, a company can make itself more resistant to crime – both that committed against it and that committed on its behalf.
And if there has been illegal activity, an internal investigation can identify how it happened, introduce measures to prevent any repeat occurrence and help it deal with law enforcement agencies.
Where criminal activity has been identified in a company, that company is likely to receive less harsh treatment if it self-reports what has happened rather than waiting for the authorities to discover it and carry out their own investigation. Even if the company only begins its own investigation at the same time or after an external agency begins its enquiries, it will still be given credit if it shares its investigation findings, cooperates with the authorities and is seen to make genuine changes to its working practices to prevent any repeat wrongdoing.
It is in such circumstances that the right legal advice can be all-important. A company’s decision to self-report wrongdoing can be a task that requires careful consideration and handling. As an example, a company may need to pay close attention to the Serious Fraud Office’s (SFO’s) guidance on self-reporting. The SFO can offer a company that self-reports a deferred prosecution agreement (DPA); where the firm agrees to meet certain conditions in order to avoid a criminal prosecution.
Such situations are just as likely to be faced in the future by technology companies as any other corporate. Which is why they need to be aware of how to conduct themselves.
The past decade has seen many large, high-profile companies and financial institutions have huge fines imposed on them for a variety of reasons. In most cases, these massive penalties could have been avoided if problems that led to them had been recognised and prevented.
The firms driving the worldwide technological revolution are capable of amazing scientific feats, from which we can all ultimately benefit. But they have to recognise that they can benefit greatly from what they may consider to be traditional (even old-fashioned) workplace crime prevention.
Nicola is known for her fraud, civil recovery and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.