Seagate has been hit with a massive $300 million fine by the U.S. Department of Commerce [PDF] for violating export control restrictions imposed on Huawei in 2020. The report shows that the U.S. Department of Commerce states that Seagate shipped millions of hard drives to Huawei in 2020 – 2021 and become the sole supplier of HDDs to the company while its rivals Toshiba and Western Digital refrained to work with the conglomerate.
Seagate shipped 7.4 million hard drives to Huawei on 429 occasions between August 2020 and September 2021 without obtaining an export license from the U.S. Department of Commerce's Bureau of Industry and Security. Those drives were worth around $1.104 billion back then, a significant sum for Seagate, which revenue totaled $10.681 billion in 2021.
To settle the matter, Seagate has agreed to pay the $300 million fine in quarterly instalments of $15 million over five years starting in October 2023. The civil penalty of $300 million is more than double the estimated net profits that Seagate made from the alleged illegal exports to or involving Huawei, according to BIS. In fact, $300 million is a record fine for BIS.
"Today's action is the consequence: the largest standalone administrative resolution in our agency's history," said Matthew S. Axelrod, Assistant Secretary for Export Enforcement. "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."
As of mid-August 2020, the U.S. Department of Commerce's Bureau of Industry and Security mandated that any company planning to sell semiconductor hardware, software, equipment, or any other asset using American intellectual property to Huawei and its entities must obtain a special export license. The export controls on Huawei mostly pertain to semiconductors. However, Seagate's hard drives also fall under the export-controlled items category because they use controllers and memory designed with electronic design automation tools developed by American companies and produced using U.S.-made equipment.
These export licenses were subject to a presumption of denial policy, meaning they were difficult to obtain. However, multiple companies were granted appropriate licenses between 2020 and 2022, which allowed Huawei to acquire various products that were developed or manufactured in the United States.
Seagate did not apply for an appropriate license and said in September, 2020, that its drives could be shipped to Huawei without a license, an opinion that was not shared by its rival Western Digital. Since Huawei was not supposed to get HDDs at all, republican senator Roger Wicker wondered in mid-2021 how exactly the sanctioned company obtained such storage devices and whether three global makers of hard drives complied with the export rules.
As it turned out, although Toshiba and Western Digital ceased to sell HDDs to Huawei, Seagate continued to do so. In fact, the company became Huawei's exclusive hard drive supplier and even signed a three-year Strategic Cooperation Agreement and then a Long-Term Agreement to purchase over five million HDDs with the Chinese conglomerate in 2021.
"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 Axelrod.
The HDD maker has also committed to conducting three compliance audits to ensure it adheres to Export Administration Regulations. One of the audits will be conducted by an independent third-party consultant chosen by Seagate.
