Data storage company Seagate will pay the largest stand-alone administrative penalty in the history of the Commerce Department’s Bureau of Industry and Security (BIS) for violating export control restrictions against Chinese telecommunications giant Huawei.
Subsidiaries Seagate Technology, of California, and Seagate Singapore International Headquarters agreed to pay $300 million for their admitted violations of export administration regulations regarding the sale of more than 7.4 million hard disk drives to Huawei entities from August 2020 through September 2021. The value of the hard disk drives surpassed $1.1 billion, according to the BIS.
As part of the settlement, Seagate also agreed to a multiyear audit requirement of its export control compliance program and five-year suspended denial order.
The details: Huawei, a popular target for U.S. scrutiny beginning under the Trump administration, had controls placed on it by the BIS in August 2020 that blocked the sale of items produced abroad using U.S.-origin technology or software to the company. While Seagate’s two competitors reacted to this development by ceasing to do business with Huawei, Seagate announced it would expand its relationship with the company in the form of a three-year strategic cooperation agreement.
“[W]e believed we complied with all relevant export control laws at the time we made the hard disk drive sales at issue,” said Seagate Chief Executive Dave Mosley in a press release.
The BIS—egged on by lawmakers—felt otherwise. The regulator said Seagate violated export administration regulations on 429 occasions regarding the hard disk drive sales.
Compliance considerations: The BIS’s record penalty total is more than twice what it estimated to be Seagate’s net profits for the exports to or involving Huawei.
“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,” said Assistant Secretary for Export Enforcement Matthew Axelrod in the agency’s release.
Director of the Office of Export Enforcement John Sonderman added companies are “now on notice” regarding violations of foreign direct product (FDP) rule restrictions.
“Any company exporting to an entity subject to the additional FDP rule restrictions needs to evaluate its entire manufacturing process to determine if specified U.S. technologies or software were used in building the essential tools used in production,” Sonderman said. “Companies that discover violations should submit voluntary self-disclosures.”
Company response: “We believe entering this agreement with BIS and resolving this matter is in the best interest of Seagate, our customers, and our shareholders,” said Mosley. “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. … We are now moving forward fully focused on executing our strong technology roadmap to support the growing demand for mass data storage solutions.”