Microsoft export violations have resulted in multi-million-dollar penalties for the software provider. The company has made voluntary disclosures to the Bureau of Industry and Security (BIS), the Department of the Treasury’s Office of Foreign Assets Controls (OFAC), and the Department of Justice (DOJ). Most of these reported violations occurred between 2012 and 2019. These violations were the result of a failure to adequately identify end-users of products.
Microsoft Sanction Programs Violations
Microsoft will pay over $3 million dollars in civil penalties for over 1,300 possible sanction violations. These violations involved providing its software license and related services to individuals in Cuba, Syria, Russia, and Iran designated on the Specially Designated Nationals and Blocked Persons List (SDN). The SDN List is maintained by the OFAC to identify companies and individuals owned, controlled by, or acting on behalf of sanctioned countries.
Most of the violations in this case involved Russia which has been the focus of numerous additional sanctions and regulations since the beginning of the war in Ukraine. Although the OFAC noted that the violations were self-disclosed and non-egregious it also cited a “reckless disregard for sanctions” in this case despite the company’s voluntary self-disclosure. Microsoft is not alone in these infractions as numerous companies have continued to conduct business to parties on sanctions lists.
BIS Enhancing Enforcement and Prosecution
The BIS and other export enforcement agencies have been changing the scope and enforcement policies in recent years to address the increased complexities of the international political arena. Export Administration Regulations (EAR) have continually been changing as more items are being added to the Commerce Control List (CCL). Additionally, the agency has increased its focus on the use of sanctions and denied parties lists to protect sensitive technologies.
David Axelrod, Assistant Secretary for Export Enforcement, has stressed on numerous occasions that the BIS and OFAC intend to hold U.S. companies and foreign subsidiaries accountable for export violations to protect U.S. foreign policy and national security interests.
The Importance of Denied Parties Screening
In this case, properly performed denied parties screening would have prevented export and sanction violations. Screening is performed to restrict or prohibit U.S. individuals and organizations from exporting products or providing services to parties listed on denial, debarment, and blocked persons lists.
Screening applies to all businesses regardless of product or service sector. An organization is obligated to ensure that any transaction, where there is a transfer of money, is not destined to an individual or entity on a government watch list. Screening also applies to businesses that only engage in domestic transactions, as individuals on these lists often reside in the United States.
CVG Strategy Export Compliance Programs
Microsoft export violations underscore the importance in creating and maintaining viable export compliance programs for technology-based businesses. These programs should be incorporated into an organization’s management system to ensure effective mitigation of risks associated with violations.
CVG Strategy can help you understand Export Administration Regulations and OFAC sanctions, and help you establish a coherent and effective export compliance program. We can perform export control classifications, perform audits, and educate your team. Regardless of whether your business falls under EAR or ITAR, CVG Strategy has the expertise to help.