This is the one drum solo on this list that I saw performed live by Genesis on their 1976/7 tour. It was later memorialized on the live album which came from the tour Seconds Out. Seconds Out is the band’s second live album following 1973’s Genesis Live. The recording included former Weather Report/Frank Zappa drummer Chester Thompson at the start of his long tenure as concert drummer for the band. Former Yes and King Crimson drummer Bill Bruford, the first drummer to take over for Phil Collins when he took on the role as lead singer after the departure of Peter Gabriel from the group, played drums on the band’s 1976 portion of the tour, from which the recording of “The Cinema Show” was taken. Thompson replaced Bruford on the 1977 part of tour which I was fortunate to see live in Austin.

To say I was blown away would, even today, be putting it mildly. Even in my enhanced concert listening mode, I knew it was something very special. The song itself was first released on the album Trick of the Tail. It waswritten by the whole band but as you might suspect, drummer Phil Collins came up with the basic rhythmic structure. The Houston Press said of Collins work on the 76/77 tour, “By this time, Phil was the front man for Genesis and spent more time singing live than sitting behind the drum kit. He still pulled double duty at most shows, though, showcasing his skills against touring drummer Chester Thompson in an elaborate duel every night.”

As this is the only two-man drum solo on the list, I thought it was a good way to introduce the underlying bribery schemes used by Microsoft, most particularly in their Hungarian subsidiary, which led to their Foreign Corrupt Practices Act (FCPA) violation. Yesterday, we considered the Securities and Exchange Commission (SEC), Cease and Desist Order (Order). Today we add in the information presented in the Department of Justice’s (DOJs)Non-Prosecution Agreement (NPA). Although Microsoft Hungary accepted responsibility for its actions and admitted the facts stated under the NPA, the DOJ said “the Office will not prosecute Microsoft Hungary for any crimes (except for criminal tax violations, as to which the Fraud Section and Office do not make any agreement) relating to the conduct described in the Statement of Facts”.

Microsoft Hungary agreed to pay approximately $8.5 million to the DOJ. Together with the amounts paid to the SEC in profit disgorgement, the total is just over $25 million. Microsoft Hungary received a 25% discount off the bottom end of the US Sentencing Guidelines for its extensive remediation and thorough investigation. The NPA specifically noted that the company had not self-disclosed so it did not receive any credit under that requirement of the FCPA Corporate Enforcement Policy.

For the compliance practitioner, the underlying bribery schemes were instructive. In addition to the internal control failures I noted previously, there was bid-rigging engaged in with Hungarian government officials and inflated sales margins which were used to create the pot of monies to pay bribes to Hungarian government officials. The basic scheme was for Microsoft Hungary personnel to obtain the bid information, including the budgeted amounts for the spend on software. Microsoft Hungary would then obtain a fraudulent discount through Microsoft’s internal business unit process to obtain discounting, making the needed representations without any backup or straight material misrepresentations. After the discount was obtained, it would not be applied to the final sales price but given to the Hungarian government officials as bribes.

There were several internal control failures throughout this process. Microsoft’s Business Desk, which oversaw and approved the discounts did not provide any rigor around the process, simply approving discounts between 28% to 32% without any financial analysis or backup documentation to the claimed business justification. When additional controls were set such that the discounts expired at the end of the quarter, these additional controls were not followed. Finally, there was no follow up or tracking of the discounts to show the customer was properly invoiced the agreed upon discounted price.

Beyond these corrupt acts, the entire bid process was not only corrupt but thoroughly rigged. In one instance, a third-party provider was accepted before the bidding process began. In another, the fraudulent pricing was memorialized as the final contract pricing before the bidding process even formally began.

In addition to these fraudulent sales process for software, other bribery schemes were funding through false third-party services agreements. In several instances in the Order, it detailed contracts that were entered into with Hungarian governmental agencies where no actual services were provided. The money for these services was also used to facilitate corruption.

Yet it did not end there. The Order further specified that in Saudi Arabia, Microsoft’s subsidiary diverted at least $440,000 of funds, intended to be used for marketing and developing business proposals with Microsoft’s partners, to a slush fund that was used to pay travel expenses for Saudi government employees and for gifts, furniture, laptops, tablets and other equipment for government agencies… The fund was maintained by two of Microsoft’s vendors, who disbursed it at the direction of MS Saudi Arabia employees. The vendors received a payment for serving as the conduit for purchasing the gifts and arranging the travel. While Microsoft records do not accurately reflect the total amount and use of the funds, approximately $270,000 was used to pay for travel by government customers and approximately $35,000 for gifts and other services for government customers. In Thailand, the bribery scheme was to take money assigned for customer training and use it to fund bribes. The bribes themselves were to pay for travel and “purchase technological equipment” for government officials.

Finally, in Turkey, the bribery scheme was a well-established one in the tech space, with the use of an “integrator”. This is a third-party who does not provide goods or services but simply integrates all the tech companies’ bids into one response to a Request for Quote. The integrator was not a Microsoft Turkey approved third-party, yet it received a 7% discount which was used to create the pot of money to pay the bribes.

Join us tomorrow where we consider Ringo Starr’s work on The Endand Microsoft’s actions to obtain it stunning result.

Sources

Los Endos-Seconds Out (live)

Los Endos-Wembley (live)

Los Endos – Düsseldorf (live)

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, 2019

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