Seagate Fined $300 Million for Violating U.S. Export Controls

admin Technology Dec, 25 2023

Background of the U.S. Restrictions

In 2019 and 2020, the U.S. DoC's BIS added Huawei and most of its subsidiaries to its Entity List, mandating U.S. or foreign companies to secure an export license for supplying any product, item, or service to Huawei that contained American technology. These restrictions primarily targeted semiconductors but also included products like hard drives, which use U.S.-designed EDA tools and equipment in their components.

Seagate's Non-Compliance

While many companies received export licenses from BIS, Seagate chose to bypass this requirement. Between August 17, 2020, and September 29, 2021, the company unlawfully shipped approximately 7.42 million hard drives, worth $1.104 billion, to Huawei in over 429 separate instances. This action was a deliberate business strategy, as acknowledged in their settlement with the authorities.

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Seagate as Huawei’s Sole HDD Provider

With Toshiba and Western Digital ceasing HDD sales to Huawei following the U.S. directive, Seagate became Huawei’s only hard drive supplier. They signed a three-year Strategic Cooperation Agreement, prioritizing Seagate over other suppliers. In March 2021, they further established a Long-Term Agreement for over five million HDDs, making Seagate a "Key Strategic Supplier" to Huawei.

Statements from U.S. Officials

Matthew S. Axelrod, Assistant Secretary for Export Enforcement, criticized Seagate’s actions, emphasizing the importance of complying with BIS export rules for national security and fair market practices.

Settlement Terms

Under the settlement agreement, Seagate will pay the U.S. Department of Commerce a $300 million penalty, to be disbursed in quarterly installments of $15 million over five years, starting October 31, 2023. The amount is reportedly double what Seagate profited from the unlawful transactions. Additionally, Seagate agreed to undergo three compliance audits, with one conducted by an independent third-party consultant.

Implications and Consequences

The settlement serves as a stark reminder for companies about the necessity of strict adherence to BIS export rules. The significant penalty underscores the seriousness with which the U.S. government treats violations relating to national security and the integrity of international trade laws.