Seagate Technology, the world’s biggest hard-drive maker, has been imposed a $300 million civil penalty fine by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) to resolve alleged violations of U.S. export controls related to selling hard disk drives (HDDs) to Huawei Technologies Co. Ltd. (Huawei) in violation of the foreign direct product (FDP) rule.
For those unaware, in May 2019, the U.S. Commerce Department placed Huawei and some of its non-U.S. affiliates on its “Entity List” – a U.S trade blacklist – in a move to cut off the Chinese company from American suppliers and ban it from doing business in the country due to national security concerns and foreign policy interests.
Further, in May 2020, BIS imposed controls over the sale of certain foreign-produced items made with U.S. technology to Huawei to “better address the continuing threat” posed by the Chinese company.
Despite the restrictions imposed by BIS in 2020, Seagate continued doing business with the Chinese firm, even as its only two competitors such as WD and Toshiba, had stopped selling HDDs to Huawei in accordance with the new rule.
According to the press release by the BIS, Seagate Technology sold approximately 7.4 million units of HDDs, valued at about $1.10 billion to Huawei between August 17, 2020 and September 29, 2021 without authorization from BIS.
Subsequently, Seagate also entered into a three-year Strategic Cooperation Agreement with Huawei, naming Seagate as “Huawei’s strategic supplier” and granting the company a “priority basis over other Huawei suppliers.”
“Even after Huawei was placed on the Entity List for conduct inimical to our national security, and its competitors had stopped selling to them due to our foreign direct product rule, Seagate continued sending hard disk drives to Huawei,” said Matthew S. Axelrod, Assistant Secretary for Export Enforcement.
“Today’s action is the consequence: the largest standalone administrative resolution in our agency’s history. This settlement is a clarion call about the need for companies to comply rigorously with BIS export rules, as our enforcement team works to ensure both our national security and a level playing field.”
The $300 million settlement represents the largest standalone administrative penalty in BIS history aimed to stop sales of sophisticated technology to China.
Under the terms of the settlement agreement, Seagate has agreed to pay $300 million to the U.S. Department of Commerce over a period of five years, to be paid in quarterly installments of $15 million, with the first installment due in October 2023. Also, the resolution includes a multi-year audit requirement and a five-year suspended Denial Order.
“We believe entering this agreement with BIS and resolving this matter is in the best interest of Seagate, our customers and our shareholders,” said Dave Mosley, the company’s Chief Executive Officer.
“Integrity is one of our core values, and we have a strong commitment to compliance as evidenced by our global team of international trade compliance and legal professionals – complemented by external experts and outside counsel. While we believed we complied with all relevant export control laws at the time we made the hard disk drive sales at issue, we determined that engaging with BIS and settling this matter was the best course of action. We are now moving forward fully focused on executing our strong technology roadmap to support the growing demand for mass data storage solutions.”