Thanks for the update. Since the issue is specifically affecting the Outlook desktop app and not resolved by the previous steps, another likely cause is related to the permissions configured in the sensitivity label used for encryption.
Please check if the sensitivity label applied to the email includes permissions for external users. Update the label permissions to explicitly allow access to the intended external recipients.
If the issue persists, try the following troubleshooting steps:
Verify the recipient's email address Ensure the email was sent to the correct external email address and that the recipient is accessing the email using the same account.
Ask the recipient to open the email in Outlook on the Web (OWA) Sometimes, protected emails open more reliably in the browser version of Outlook.
Clear the Outlook cache On the affected machine, close Outlook and delete the contents of %localappdata%\Microsoft\Outlook
(do not delete the folder itself). Reopen Outlook and try accessing the email again.
Ensure the Azure Information Protection (AIP) client is up to date If the AIP unified labeling client is installed, verify it’s the latest version. Outdated clients can cause issues with reading protected messages.
Check for conflicting add-ins Disable any third-party Outlook add-ins that may interfere with message decryption and restart Outlook.
Hope this helps. Do let us know if you have any further queries.
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