The U.S. Treasury fined Microsoft nearly $3 million for allegedly supplying software and services to entities on the government’s sanctions list. But the company seemingly came out ahead, with the settlement amounting to just a fraction of the money it earned from the illegal dealings.
The alleged conduct took place over the seven-year period from July 2012 to April 2019 and included a total of 1,339 violations. The majority of these – 1,252 – were related to Russia sanctions, though Microsoft also apparently violated sanctions against Cuban entities 54 times, Iranian entities 30 times and Syrian entities three times.
According to the Treasury Department, Microsoft supplied and activated software licenses and related services for restricted entities from its systems in the U.S and Ireland. The violations occurred as part of Microsoft’s volume licensing sales and incentive programs, which include a third-party reseller program.
Treasury officials attributed the missteps to shortcomings in Microsoft’s restricted-party screening and its lack of information about who its end-users were.
“Microsoft Russia employees appear even to have intentionally circumvented Microsoft’s screening controls to prevent other Microsoft affiliates from knowing the identity of the ultimate end customers,” the Treasury department wrote in a press release.
“Microsoft takes export control and sanctions compliance very seriously, which is why after learning of the screening failures and infractions of a few employees, we voluntarily disclosed them to the appropriate authorities. We cooperated fully with their investigation and are pleased with the settlement," a Microsoft spokesperson told Silverlinings by email.
To its credit, Microsoft voluntarily reported the violations once they were discovered and implemented “significant remedial measures.”
Microsoft agreed to pay $2.98 million to settle its potential civil liability for the violations. However, the Treasury Department noted it made more than $12.1 million from its alleged illegal activity.
Both figures are a fraction of Microsoft’s annual revenue and profit, which totaled $198.3 billion and $72.7 billion, respectively, in 2022.
"The fines aren't the issue per se. They aren't big in the scheme of Microsoft revenue. The bigger issue is that, since the Ukraine war started, more businesses are wary of doing business with companies that keep ties to China and Russia," said Zeus Kerravala, principle analyst at ZK Research.
"This event alone likely wont impact customers using Microsoft products but they do need to clean up how they do business. They should consider this a warning shot as any more violations and they could start to see customers reduce spend with them."
Oracle’s fine shadow
Microsoft isn’t the only cloud provider to be hit with a penalty recently.
In September 2022, Oracle agreed to pay the U.S. government $23 million to settle a U.S. Securities and Exchange Commission (SEC) probe into allegations that its subsidiaries in India, Turkey and the United Arab Emirates took bribes in exchange for business between 2016 and 2019. It did not admit wrongdoing.
Microsoft’s shares were trading at $291.42, up 2.46% at the close of the market today.
This story was updated on April 7, 2023, at 10:25 a.m. ET.