Microsoft sold software to sanctioned Russian firms, US government says

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Microsoft has agreed to pay more than $3 million in fines for selling software to sanctioned entities and individuals in Cuba, Iran, Syria, and Russia from 2012 to 2019. The US Treasury Department says the majority of the apparent breaches involved blocked Russian entities. or persons located in the Crimea region of Ukraine and that the company will pay approximately $2.98 million to the Office of Foreign Assets Control (OFAC) and $347,631 to the Department of Commerce. (He settled for $624,013 but will receive credit for his Treasury deal.)

According to an OFAC enforcement notice, Microsoft, Microsoft Ireland and Microsoft Russia failed to control who purchased the company’s software and services through third-party partners. Basically, Microsoft sold things to companies it could legally deal with, but then those companies turned around and sold them to companies that shouldn’t have been able to get their hands on Microsoft products. In certain Volume Licensing programs involving sales through intermediaries, Microsoft has not received, or otherwise obtained, complete or accurate information about the end customers for its products, the notice states.

Treasury says this is just one example of Russia’s attempt to circumvent sanctions

Microsoft Russia employees may also have intentionally attempted to frustrate the company’s due diligence efforts. The statement includes details of a Russian oil and gas infrastructure company that Microsoft reviewed and rejected before some Microsoft Russia employees successfully used a pseudonym for this subsidiary to arrange orders on behalf of the company. Those employees were fired, but OFAC says that fact underscores persistent efforts by Russian Federation actors to evade U.S. sanctions.

The Treasury also says Microsoft had other shortcomings in its compliance procedures. There have apparently been instances where he had information that should have alerted him to the fact that a sanctioned party was using his products, but he did not detect it for various reasons. These include a failure to properly aggregate its information and the fact that it did not research all restricted parties its listings did not include companies majority-owned by a sanctioned company, nor Cyrillic or Chinese names, which are often what customers gave when they applied to purchase the software, according to the Treasury.

Fines may seem like a small drop in the bucket for Microsoft, especially when Treasury says the company took about $12 million from sales. However, while the Treasury said Microsoft showed reckless disregard for US sanctions, it appears the company took a step back due to how it handled the situation. According to the announcement, it was Microsoft that discovered the violations, investigated them, then reported them to the government, and the company made significant changes to strengthen its policies and enforcement.

Microsoft takes export control and sanctions compliance very seriously, so after learning of screening failures and violations by a few employees, we voluntarily disclosed them to the appropriate authorities, said David Cuddy, company word. We have cooperated fully with their investigation and are satisfied with the settlement.

Microsoft’s changes to its policies may be significant in the future. This all happened before Russia’s last invasion of Ukraine (it invaded and annexed Crimea in 2014), but since the beginning of 2022 the number of sanctions against the country has skyrocketed, and many between them relate to the sale of technology. Microsoft is not alone in facing the consequences of selling restricted technologies to Russia; earlier this week, the Justice Department indicted an Estonian national for allegedly selling US electronic devices and hacking tools to the Russian military.

Update April 7, 8:49 PM ET: Added a statement from Microsoft regarding the settlement.

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