Feds said to probe Microsoft over foreign bribery claims

The Wall Street Journal reports that lawyers at the Justice Department and the Securities and Exchange Commission are looking into claims in China, Italy, and Romania.

Jay Greene Former Staff Writer
Jay Greene, a CNET senior writer, works from Seattle and focuses on investigations and analysis. He's a former Seattle bureau chief for BusinessWeek and author of the book "Design Is How It Works: How the Smartest Companies Turn Products into Icons" (Penguin/Portfolio).
Jay Greene
3 min read

Federal regulators are looking into an alleged bribery scheme involving Microsoft and its partners in China, Italy, and Romania, according to a Wall Street Journal report.

According to the report, lawyers at the Justice Department and the Securities and Exchange Commission are focused on allegations of kickbacks in China, as well as the company's relationship with resellers and consultants in Romania and Italy.

While Microsoft did not directly acknowledge the investigation, it said in a statement provided to CNET that it takes such allegations "seriously" and cooperates with government inquiries "fully."

"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," John Frank, Microsoft's vice president and deputy general counsel, said in a statement. "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"

A Securities and Exchange Commission spokesman declined to comment on the report. A Justice Department spokeswoman didn't immediately respond to a request for comment.

In a blog post shortly after the Journal story posted, Frank noted that allegations don't always lead to legal action. "It is also important to remember that it is not unusual for such reviews to find that an allegation was without merit," Frank wrote.

Citing people "familiar with the matter," the Journal reported that the China allegations come from "an anonymous tipster" who was in contact with U.S investigators last year. That tipster, who worked to develop business for Microsoft and was also involved in a labor dispute with the company, reportedly alleged that a Microsoft executive in China gave instructions to "offer kickbacks to Chinese officials in return for signing off on software contracts."

Microsoft reportedly hired an outside law firm to look into the claims in 2010, and after a 10-month investigation found no evidence of wrongdoing.

The Italian claims are said to focus on Microsoft's dealings with consultants in that country. The Journal reports that consultants who specialize in customer loyalty programs have allegedly offered gifts, such as trips, to Italian procurement officials in exchange for government business.

In Romania, federal investigators are looking into allegations that resellers of Microsoft's software offered bribes to win business from Romania's Ministry of Communications, and what role if any Microsoft might have played, according to the Journal report. According to the article, a ministry spokeswoman said the allegations were "inconsistent" with agency records.

"In a company of our size, allegations of this nature will be made from time to time," Microsoft's Frank wrote in his blog post. "It is also possible there will sometimes be individual employees or business partners who violate our policies and break the law. In a community of 98,000 people and 640,000 partners, it isn't possible to say there will never be wrongdoing. Our responsibility is 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."

Bribery allegations are hardly new in technology. Last summer, Oracle paid $2 million to settle charges with the SEC that it failed to keep its India subsidiary from creating a slush fund used to pay phony vendors.

Updated at 11:25 a.m. PT with more details and analysis.