FCPA Compliance and Ethics Blog

March 26, 2013

McNulty’s Maxim No. 3 and Response to Allegations of Bribery

In a Wall Street Journal (WSJ) article by Chris Matthews, Joe Palazzolo and Shira Ovide, entitled “U.S. Probes Microsoft Bribery Allegations”, they reported that the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) were investigating “kickback allegations made by a former Microsoft representative in China, as well as the company’s relationship with certain resellers and consultants in Romania and Italy”. A whistleblower alleged that an executive of Microsoft’s China subsidiary had told the whistleblower “to offer kickbacks to Chinese officials in return for signing off on software contracts”. Additionally, they reported that “investigators are also reviewing whether Microsoft had a role in allegations that resellers offered bribes to secure software deals with Romania’s Ministry of Communications”.

Interestingly, as reported by Chris Matthews in a WSJ post in Corruption Currents, entitled “Microsoft Responds to FCPA Allegations”, Microsoft publicly responded to the reports. Matthews reported that Deputy General Counsel (GC) John Frank wrote in a blog post “As our company has grown and expanded around the world, one of the things that has been constant has been our commitment to the highest legal and ethical standards wherever we do business”. Frank also said that “The matters raised in the Wall Street Journal are important, and it is appropriate that both Microsoft and the government review them.”

Commenting on this situation with Microsoft, Alexandra Wrage, President of Trace International, wrote an article on Forbes.com, entitled “Microsoft And The Rising Federal Scrutiny Of Bribery”, where she said, “All of this should not be discouraging to companies worried about complying with anti-bribery laws. Strong compliance programs, even those that fail to prevent all forms of bribery, do provide protection from liability. “[A] company’s failure to prevent every single violation does not necessarily mean that a particular company’s compliance program was not generally effective,” write the DOJ and SEC in their recently published Resource Guide to the FCPA. “[The] DOJ and SEC…do not hold companies to a standard of perfection,” the Guide continues. This may not be enough to guarantee corporate compliance officers a full night’s rest, but it should provide some comfort.”

Wrage also noted that the Microsoft investigation underscores that fact that with any company that does business internationally you cannot watch all the people, or indeed all the third parties, all the time and that violations of anti-corruption laws such as the FCPA or anti-bribery laws, such as the UK Bribery Act, are a constant risk in worldwide business operations. She believes that Microsoft, by all accounts, would appear a robust anti-bribery compliance program. She understands that Microsoft’s Standards of  Business Conduct intones a strict policy against bribes, quoting it for the following:

“Microsoft prohibits corruption of government officials and the payments of bribes or kickbacks of any kind, whether in dealings with public officials or individuals in the private sector. 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.”

The company also requires all outside vendors to read and comply with the Microsoft Vendor Code of Conduct, which also prohibits incentives such as kickbacks or bribes.

But, as she says, for a large multinational like Microsoft, which has offices in more than 100 countries, it does not always mean that thousands of business partners all across the globe will be compliant all of the time. Indeed, as admitted by Microsoft Deputy GC Frank in his blog post, “In a company of our size, allegations of this nature will be made from time to time. 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.”

I think the final quote from Frank above, points to the specific usefulness of the Guidance, which states, “In the end, if designed carefully, implemented earnestly, and enforced fairly, a company’s compliance program—no matter how large or small the organization—will allow the company generally to prevent violations, detect those that do occur, and remediate them promptly and appropriately.” These three clauses point to Paul McNulty’s three maxims but the Microsoft response points to McNulty Maxim No. 3, “What did you do about it?

I have asked Paul what he meant by this which he broke down into two parts. The first part is did you investigate it thoroughly and did you remediate those factors which led to the underlying issue? As reported by Matthews, Palazzolo and Ovide “The allegations in China were also the subject of a 10-month internal investigation that Microsoft concluded in 2010, according to people briefed on the internal investigation. The probe, conducted by an outside law firm, found no evidence of wrongdoing, these people said.” As noted above, DOJ and SEC lawyers are now looking at these allegations, as well as those issues in Romania and Italy.

The second part is what remediation did you do? At this point it is not clear what remediation, if any, will be appropriate so we may have to leave that prong open at this time. However, there is one other matter brought up by the Guidance that is certainly raised in the context of this Microsoft matter that should be looked at. It is government involvement. One of the nine factors listed in the US Sentencing Guidelines state, “the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents”. Further, the Guidance makes clear throughout that a company benefits from self-disclosing and cooperating with the government. While it is not clear if Microsoft self-disclosed anything back in 2010 when it conducted its internal investigation, it does appear that it is cooperating with the DOJ and SEC at this time.

While several commentators have pointed to this Microsoft matter as an example of how difficult it might be to do business in full compliance with the US Foreign Corrupt Practices Act (FCPA) all the time, I draw a different lesson from this matter. I believe that an aggressive approach to McNulty Maxim No. 3 shows that it is not about how hard it is to do business internationally, or that the FCPA is too difficult to follow; but it is the strength of your compliance program and your response to allegations which should be the determinative factor for compliance. I think McNulty’s advice was good when I initially heard and I think it is good now. Moreover, it is a part of the FCPA Guidance which shows it is not just how McNulty might think through these issues but how the DOJ and SEC do so as well.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

Leave a Comment »

No comments yet.

RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Blog at WordPress.com.

%d bloggers like this: