Seagate Technology Holdings PLC, a leading provider of data storage solutions, has reached a settlement with U.S. authorities over allegations of violating U.S. export control laws by shipping hard disk drives worth over $1.1 billion to Huawei in China.
The Department of Commerce announced that Seagate will pay a penalty of $300 million for its actions between August 2020 and September 2021.
The settlement is significant as it highlights the U.S. government’s continued efforts to prevent sensitive technology from reaching China that could be used for military purposes or pose a threat to national security.
Huawei, a major telecommunications company in China, has been on the Entity List, a U.S. trade blacklist, since 2019, due to concerns over its ties to the Chinese government and fears of espionage and cyber-attacks.
Seagate continued to sell hard disk drives to Huawei even after a new rule was put in place in August 2020 that restricted sales of certain foreign items made with U.S. technology to the company.
The penalty reflects the severity of the violation, which resulted in Seagate shipping 7.4 million drives to Huawei and becoming the company’s sole supplier of hard drives.
The actions of Seagate also highlight the difficulties that companies face in navigating complex export control laws and regulations.
While the other two primary suppliers of hard drives, Western Digital Corp and Toshiba Corp, stopped shipments to Huawei after the new rule took effect, Seagate continued to sell to Huawei despite the potential legal ramifications.
US Authorities Fine Seagate $300 Million
Matthew Axelrod, the assistant secretary for export enforcement at the Commerce Department’s Bureau of Industry and Security, stated that Seagate continued to ship hard disk drives to Huawei even after its competitors had stopped selling to them.
The consequences of this action resulted in the largest administrative penalty ever imposed by the agency, which is not tied to a criminal case.
Seagate’s defense was that its foreign-made drives were not subject to U.S. export control regulations as they were not the direct product of U.S. equipment. However, the government’s order stated that Seagate wrongly interpreted the foreign product rule and did not evaluate the entire manufacturing process, including testing equipment, subject to the rule.
Seagate made hard disk drives in several countries, including China, Northern Ireland, Malaysia, Singapore, Thailand, and the United States.
In August, the U.S. Department of Commerce sent Seagate a “proposed charging letter,” which warned the company that it may have violated export control laws. The letter initiated eight months of negotiations, which led to the settlement.
As part of the agreement, Seagate will be required to pay a $300 million fine which will be spread out over five years, with $15 million being paid each quarter.
The first payment is expected to be made in October. In addition, the company has committed to undergoing three compliance program audits and will be placed under a five-year suspended order that denies its export privileges.
Seagate CEO Dave Mosley stated that the company believed it had complied with all relevant export control laws at the time it made the sales but decided that settling the matter was the best course of action.
In light of the settlement, Seagate will report its fiscal third quarter 2023 financial results before the market opens on Thursday, rather than after the close of trade as previously planned.
The impact of Seagate’s settlement with the U.S. authorities for violating export control laws by selling hard disk drives to Huawei is likely to be significant.
The penalty of $300 million is substantial and represents the largest administrative penalty ever imposed by the Commerce Department’s Bureau of Industry and Security, not tied to a criminal case.
The settlement could also have significant implications for other companies doing business with Huawei or other companies on the Entity List. The U.S. government has been taking an increasingly aggressive stance towards companies that violate export control laws, particularly those involved in technology exports to China.
