Seagate pays 300 million fine for shipping Huawei hard drives

Seagate pays $300 million fine for shipping Huawei hard drives in violation of US export control laws

(Portal) Seagate Technology has agreed to pay a $300 million fine in a settlement with US authorities for selling more than $1.1 billion worth of hard drives to Chinese company Huawei in violation of U.S. export control laws have been delivered, the Commerce Department said on Wednesday.

Seagate (STX) sold the drives to Huawei between August 2020 and September 2021, despite an August 2020 rule restricting the sale of certain foreign items made with US technology to the company. Huawei was placed on the Entity List, a US trade blacklist, in 2019 to reduce sales of US goods to the company amid national security and foreign policy concerns.

The punishment is the latest in a series of measures by Washington to ban China from advanced technology that could aid its military, facilitate human rights abuses, or otherwise threaten U.S. security.

Seagate shipped 7.4 million drives to Huawei for about a year after the 2020 rule came into effect, becoming Huawei’s sole supplier of hard drives, the Commerce Department said.

The other two main hard drive suppliers halted supplies to Huawei after the new regulation went into effect in 2020, the department said. Though they have not been identified, Western Digital (WDC) and Toshiba (TOSBF) were the other two, the US Senate Commerce Committee said in a 2021 report on Seagate.

The companies did not respond to requests for comment.

Even after “its competitors stopped selling to them … Seagate continued to supply hard drives to Huawei,” Matthew Axelrod, deputy secretary for export enforcement in the Department of Commerce’s Office of Industry and Security, said in a statement. “Today’s action is the consequence.”

Axelrod said the administrative fine was the largest in the agency’s history not linked to a criminal case.

Seagate’s position was that its foreign-made hard drives are not subject to US export control regulations, essentially because they are not the direct product of US devices.

“Although we believed that we were in compliance with all relevant export control laws at the time of the disk sales in question, we decided that … resolving this matter was the best course of action,” Seagate CEO Dave Mosley said in a statement.

In an order issued Wednesday, the government said Seagate misinterpreted the foreign products rule to require an assessment of only the final stage of its manufacturing process and not the entire process.

Seagate manufactured drives in China, Northern Ireland, Malaysia, Singapore, Thailand and the United States, the order said, and used units, including test units, are subject to the rule.

In August, the US Department of Commerce sent the company a “proposed warning letter,” warning the company that it may have violated export control laws. The letter sparked about eight months of negotiations.

Seagate’s $300 million penalty is payable in quarterly installments of $15 million over five years, with the first payment due in October. It also agreed to three audits of its compliance program and is subject to a five-year suspension order denying its export privileges.