Microsoft to Pay $3.3 million for Selling Software to ‘Blocked Users’ in Russia, Cuba, Iran

American tech giant Microsoft has been fined over selling software to “Specially Designated Nationals” and blocked users in countries like Russia, Cuba, Iran, Syria, and the Crimean region of Ukraine.

The company has agreed to pay more than $3 million to settle an impending civil liability lawsuit for 1,339 sanction violations. Interestingly the sales took place between July 2012 to April 2019, right before Russia’s invasion and incursion of Ukrainian land.

Amounting to 94%—1,252 of all the sales made from Microsoft’s US and Ireland servers were to Russian entities—primarily based in the Crimea region. Additionally, 54 in Cuba, 30 in Iran, and three took place in Syria.

Addressing the issue, a Microsoft spokesman told the Wall Street Journal that, “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.” 

Microsoft allegedly used an indirect resale model in Russia to boost sales and negotiate bulk sales with customers. The company failed to obtain accurate information about some end users, resulting in alleged violations. 

Microsoft's subsidiary in Russia reportedly circumvented the company's screening controls, intentionally preventing other Microsoft affiliates from knowing the identity of ultimate customers. Even after blacklisting a Russian company—Stroygazmontazh in 2014, Microsoft employees were able to arrange orders for the company using a pseudonym. The involved employees have faced disciplinary action, including termination.

Microsoft and its subsidiaries in Ireland and Russia agreed to pay a settlement of $2.98 million to the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury, following a Bureau of Industry and Security (BIS) settlement of $624,013. After the BIS issued a credit of $276,382, the net settlement amount for Microsoft was almost $3.3 million for both bodies.

According to OFAC, Microsoft sold more than $12 million in products and services to these blacklisted parties. 

Microsoft has been in and out of legal trouble with authorities around the world, with its GitHub Copilot and OpenAI’s ChatGPT.

The topic of copyright and attribution for the original creator has been widely debated since the introduction of GitHub Copilot, which utilizes OpenAI Codex. To prevent any future legal disputes, GitHub and OpenAI are taking action by announcing that OpenAI Codex API will no longer be supported as of March 23, 2023.

There is a lot of doubt surrounding GitHub Copilot, and this was evident when a group of people filed a class action lawsuit against Microsoft, OpenAI, and GitHub in November 2022 for allegedly using licensed code to develop the AI-driven Copilot. This lawsuit has become a huge problem for the companies and to prevent any future legal disputes, GitHub and OpenAI have  announced that OpenAI Codex API will no longer be supported as of March 23, 2023.

ChatGPT has also been subjected to many lawsuits and bans. Recently Italy became the first country in the West to ban ChatGPT. Italian Data Protection Watchdog blocked and ordered a probe over privacy concerns and breach of Europe’s strict privacy regulations on the chatbot 

On the other hand, in Australia’s Hepburn Shire, its mayor Brian Wood threatened legal measures for defamation after ChatGPT made some false claims about him serving a prison term for bribery.