Corruption is a feature, not a bug

Heads are rolling at Microsoft for what passes in Hungary, and the SEC just took a cut for its silence

In my next life, I want to be a law enforcement agency. It is the best business!

I will start corruption investigations against corporations and then accept millions in “penalty” payments from my targets halfway through the procedure. In exchange I let them keep the names of their corrupt counterparts secret. Everyone wins. Well, everyone who matters. I can even posture as a knight in shining armor. Maybe not a knight of justice, but still. It’s a win-win for all who matter. The public and justice just don’t.

The Hungarian subsidiary of Microsoft will pay a criminal penalty of 8 million dollars to the U.S. Department of Justice, and a second penalty of 16 million dollars to the SEC to close a US investigation into Microsoft’s Hungarian subsidiary accused of breaking the Foreign Corrupt Practices Act.

According to the DOJ, Microsoft Hungary executives and employees falsely claimed to Microsoft’s main management that they needed to offer steep discounts (31.5%) to local distributors in order to win contracts to provide Microsoft software licenses to the Hungarian government – between 2013 to 2015.

In reality, the opposite was true. The government agreed to buy the software at a surcharge from an intermediary, and the discounts were never passed to the final client. Instead they were used for bribes. By agreeing to pay the two fines, Microsoft gets to close the case without pleading guilty, or without the case reaching court, where the company could have risked much bigger fines and getting every detail out in the public during a court procedure.

But it’s not poor Microsoft that got ripped off. Prosecutors said the Hungarian scheme generated at least USD 14.6 million of “improper profit” for Microsoft between 2013 and 2015, in connection with the sale of software licenses to Hungarian government agencies. I beg to differ here, that was not “profit”, that was the bribe they paid to local politicians and politically connected “businessmen” to get the deal.

I am also wondering what the alternatives to Microsoft software were for the bureaucrats? Linux? Mac? Why exactly did Microsoft need to bribe anyone to choose the only software bureaucrats know and that serves as the basis of their jumbled, publicly procured specialist software ecosystem. If they kick out Microsoft, they would have to rewrite everything from healthcare software from university systems and public procurement software… Oh wait, that’s another monumental corruption opportunity and that’s the only thing a politician always looks for. So maybe MS had a competitor after all…

The licenses haven’t just been overpriced – there weren’t even as many of them as it was claimed. So in essence, Microsoft agreed to serve as a cashiers’ desk for corrupt pigs, ripping off both the parent company and the Hungarian taxpayers. But who exactly they bribed – we will never know because Microsoft bought the silence of US authorities for a petty 24 million dollars. (I wonder what the actual bribe vs. proven bribe ratio might by for global corporations, but I am pretty sure they add budget for “criminal penalties” such as this. Or if they don’t have the spare change, their corruption counterparts might do.)

In Hungary, heads have been rolling at Microsoft for this affair. In 2016, Microsoft Hungary fired four employees and terminated business relationships with four resellers (Humansoft Kft, Euro One Zrt, Racionet Zrt) after they found out about the scheme.

But don’t worry about those four bad apples too much, they all found cushy government jobs straight away. The head of government business at Microsoft Hungary at the time immediately got rehired by the Office of the Prime Minister. Another one of the fired employees went on to become deputy chair of the National Investment Agency, the office that handles public property and assets. Fitting job, if you ask me, he had the relevant experience having proved to be very competent in squandering his employer’s assets. After all, that is what always happens to public property.)

In Romania, for contrast, ministers got into jail for the very same scandal. (But Romania had an active prosecutor and we don’t.) And this was the scandal that made Politico speculate just how big were the stakes for Orbán at the 2018 elections, as a case like this would bring down any politician if it ever reached a court that was not dependent on him. (Aiding the recent escape from jail time of former PM of Macedonia, Nikola Gruevski has shown just how little Orbán and his ilk think about courts and justice – and how well immunity pays. Gruevski is living his best life in Budapest, out in the public, despite being convicted to jail for corruption at home.)

According to the reports, it is Microsoft Hungary that will pay the fines to avoid further procedure and the publication of the investigation’s details – but the end of the investigation is also a godsend to whoever else was involved on the Hungarian side.

Paying to close investigations is not beneath anyone here. Just recently Orbán agreed to repay 43.7 million euros to Brussels from the taxpayers’ pocket as the Brussels investigation into his son in law’s affairs didn’t want to stop. (The Hungarian investigation into the same affair not only stopped without finding any crime, it didn’t even start as the country’s infamous chief prosecutor refused to even look at it.)


“The chiefly loyal prosecutor” Front page of economic weekly HVG, featuring Orbán’s loyalist chief prosecutor as he is looking for evidence of the alleged wrongdoing of any Orbán loyalist

The taxpayer also footed the bill of the law firm defending the Orbán-family in the OLAF case that ended with the deal. But that was EU-money spent on streetlight projects won by the Orbán-family. Software was another one of the royal son-in-law’s genius businesses, according to some sources. According to Né, for instance, Microsoft’s lobbyists had to pay regular visits to the closest of the PM’s associates, including family.

So an MEP referred a similar case featuring Microsoft before the European anti-fraud agency, OLAF, because the scam apparently also involved European funds. He also claims that the Microsoft case is also linked to the usual members of the Orbán-clan. We are looking forward to seeing how much it will cost us to close this investigation as well.

At this point it feels stupid to even file a case with SEC or OLAF, if all that happens is they take their cut from the bribes (SEC) or claw some of the funds back (EU) – but only after the schemes got busted by themselves and beyond any doubt. And even then they don’t reveal who did it, just accept repayment of some of the funds, and lose jurisdiction because Orbán refuses to bring this country under the European prosecution – unsurprising, since he couldn’t control that.

Until that paying penalties and paying back EU-subsidies (if they are found out) – just to avoid going public and risking future subsidies – is the modus operandi of corrupt Eastern European regimes. And it is accepted by the European Union as well as the SEC.

Please let me get that job in my next life. I could be such a righteous pretend-investigator, grandstanding as defender of justice, while collecting tasty penalties to satiate the crowds, while allowing the circus to keep running. Silencing these investigations with no matter how many millions (from the taxpayer) still looks like a good deal – and not at all like justice served. But the SEC appears to be really good at collecting spectacular sums – and then not actually investigating further. Just look at the bird feed Facebook is allowed to throw at the Cambridge Analytica scandal. Astronomical sum, of course, but not something a corporation of Facebook’s size couldn’t budget for next time they choose to be incompetent on purpose.

Investopedia writes that fines issued by the Securities and Exchange Commission (SEC) “goes back to investors who have been victims of securities law violations.” I wonder who that will be in this case. Surely not the Hungarian taxpayers. I’m sure there’s a small print in the law that allows the authorities keep some of the spoils as operation costs or something. No one does such a poor job of preventing future corruption for free.

Same for the European taxpayers who will not be better off from reclaiming a tiny bit of the vast sums sunk into “subsidizing development” by central planning geniuses and cover-my-ass bureaucrats, coupled with local regimes entrenching their grip on power by being the local distributors of these funds. No less than the Hungarian autocracy has been built on the dubious wisdom of EU-development money being handled by hungry politicians.

Anyway, Microsoft Hungary has hired a new CEO recently who has relevant experience.  Not in software, but in closing deals with the SEC – having served as CEO of Magyar Telekom at the time it cut a similar deal with the SEC over an investigation into his predecessors, who handed out bribes in (wait for it) Macedonia for corrupt authorities to cut out the competition.

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