Microsoft's venture group M12 has divested its minority stake in AnyVision, an Israeli facial-recognition startup, and says it won't make any further minority investments in companies that sell the technology.
AnyVision hit headlines last year over an NBC report in October and earlier Haaretz coverage alleging its technology was being used to conduct mass surveillance on Palestinians in the West Bank.
Microsoft drew criticism for taking part in AnyVision's $74m series A funding round in June. Some saw the investment as an endorsement of a company that was alleged to have deployed facial recognition in a way that conflicted with Microsoft's own ethical principles against its use for mass, ongoing surveillance.
Microsoft later hired former US Attorney General Eric Holder at law firm Covington & Burlington to review the allegations about AnyVision.
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AnyVision at the time confirmed its technology was used at border checkpoints between Israel and the West Bank, but denied it was used as part of a mass-surveillance program of Palestinians in the West Bank.
Microsoft also said AnyVision had agreed to comply with its principles as part of M12's investment and that had it reserved the right to audit the company for compliance.
Holder's audit, disclosed on M12's and AnyVision's websites on Friday, found that AnyVision's technology isn't and hasn't been used for mass surveillance in the West Bank.
"AnyVision's technology has not previously and does not currently power a mass-surveillance program in the West Bank that has been alleged in media reports. As such, Covington could not substantiate a breach of the Microsoft Global Finance Portfolio Company Pledge on Facial Recognition," Covington said.
Nonetheless, Microsoft has decided to divest its minority stake in AnyVision and updated its investment policy to end minority investments in any company that sells facial-recognition technology.
"For Microsoft, the audit process reinforced the challenges of being a minority investor in a company that sells sensitive technology, since such investments do not generally allow for the level of oversight or control that Microsoft exercises over the use of its own technology," M12 said in a statement.
"By making a global change to its investment policies to end minority investments in companies that sell facial-recognition technology, Microsoft's focus has shifted to commercial relationships that afford Microsoft greater oversight and control over the use of sensitive technologies."
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Microsoft has been the most vocal of tech giants in cautioning over the risks of facial recognition. Microsoft president Brad Smith in December 2018 called on governments to urgently create laws to regulate facial recognition.
However, earlier this year he opposed the European Commission's proposed five-year moratorium on the use of facial-recognition technology, which ultimately was never adopted.