In this series, we examine compliance violations and the resulting fines paid by companies. We will also explore the details of the violations to help other organizations steer away from these pitfalls.
In this twelfth post, let’s turn our focus on Microsoft and the $3.3 million it paid to settle sanctions violations from the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the Bureau of Industry and Security (BIS).
Background of the Case
Microsoft, a global technology and software development leader, violated the U.S. sanctions and export control regulations due to unauthorized transactions involving sanctioned countries and entities. In April 2023, Microsoft agreed to pay over $3.3 million to settle these violations with OFAC and BIS. Out of this, $2.9 million went to OFAC, while BIS got a little more than $600,000. This fine was paid to resolve the 1,339 violations of sanctions paid to entities and agents in Ukraine, Russia, Cuba, Iran, and Syria. This case highlights multinational corporations’ challenges in maintaining compliance with complex international trade regulations.
The Nature of the Violations
Between July 2012 and April 2019, Microsoft exported software and services to blocked and sanctioned entities in various countries, including Cuba, Iran, Syria, and Russia. These exports happened due to insufficient controls in Microsoft’s automated systems, which allowed transactions involving restricted parties to be processed without proper screening.
The violations primarily involved Microsoft’s subsidiaries, including those based in Ireland and Germany, which failed to adequately implement screening measures to prevent sales to sanctioned parties. These lapses allowed 1,339 transactions totaling $12 million to occur without appropriate authorization or oversight.
Settlement with OFAC and BIS
As part of the settlement, Microsoft agreed to pay $2.98 million to OFAC and $624,013 to BIS, totaling over $3.3 million in penalties. In reaching the settlement, Microsoft cooperated with the investigation and took steps to address the compliance gaps that led to the violations.
The highlight is that the Treasury ruled that Microsoft’s actions were non-egregious. Also, since Microsoft self-disclosed the violations, it got almost $300,000 in credit.
Nevertheless, this case highlights the need for robust compliance programs for subsidiaries and affiliates. These programs must align with the same standards as their parent company. It also emphasizes the role of technology in facilitating compliance and the need for continuous monitoring and improvement of automated systems.
Learnings from the Settlement
The Microsoft settlement offers many lessons for organizations seeking to maintain compliance with export control and sanctions regulations.
Implementing Effective Compliance Programs
Microsoft’s case highlights the need for effective compliance programs that cover rigorous screening and monitoring. As a first step, understand what your compliance programs must include based on your operations and the jurisdictions in which you operate. If you’re a global organization, you will have to comply with multiple regulations, and this requires comprehensive policies and procedures. Make sure your policies outline compliance expectations and provide guidance on navigating complex regulatory environments.
If you plan to use automated systems for their many benefits, note that they must be designed to detect and prevent unauthorized transactions with sanctioned entities. Regular audits and reviews of these systems can identify weaknesses and ensure they function effectively.
Ensuring Subsidiary and Affiliate Compliance
The violations in Microsoft’s case bring up an important lesson – monitoring the activities of your subsidiaries and affiliates and ensuring they also comply with the required regulations. One way to achieve this uniformity is to implement consistent compliance measures across all entities and ensure that they are effectively communicated and enforced.
Provide regular training programs and ongoing communication with subsidiaries and affiliates to reinforce the importance of compliance and help prevent violations. Furthermore, establish clear lines of accountability and oversight to ensure the consistent implementation of compliance measures.
Enhancing Oversight and Accountability
Microsoft’s settlement highlights the need for enhanced oversight and accountability in compliance efforts. As with any initiative, compliance also requires a buy-in from the top leadership and they must show the way for other employees to follow. Also, establish clear lines of responsibility and ensure that the senior management and board members are actively involved in overseeing compliance initiatives.
Reporting and Accountability
With regular reporting and monitoring of compliance activities, you can identify areas for improvement and ensure that compliance measures are effectively implemented. If you’re a large company with considerable resources, appoint dedicated compliance officers to oversee compliance efforts and ensure accountability.
Leverage Technology for Compliance
The Microsoft case brings out the role of technology in facilitating compliance and the need for continuous monitoring and improvement of automated systems. You can use one or more of the many compliance platforms available today to implement robust screening and monitoring. These measures can detect and prevent unauthorized transactions.
Regular Audits
Perform regular audits and reviews of automated systems to identify weaknesses and ensure they function effectively. Also, consider investing in technology solutions that provide real-time insights into compliance activities and enable proactive risk management.
With these measures, you can stay away even from accidental non-compliance, especially from your subsidiaries and affiliates.
Final Thoughts
Microsoft’s settlement with OFAC and BIS is a lesson in the challenges multinational corporations face in maintaining compliance with complex international trade regulations. The case highlights the importance of effective compliance programs, consistent oversight and accountability, and how technology can come in handy to boost compliance efforts. We hope other organizations can learn from these mistakes to prevent international sanctions violations.