Feds fine Seagate $300M for selling disk drives to Huawei

WASHINGTON – Today, the Department of Commerce's Bureau of Industry and Security (BIS) imposed a $300 million civil penalty against Seagate Technology LLC of Fremont, California (Seagate US) and Seagate Singapore International Headquarters Pte. Ltd., of Singapore (Seagate Singapore) (collectively, Seagate) to resolve alleged violations of U.S. export controls related to selling hard disk drives (HDDs) to Huawei Technologies Co. Ltd. (Huawei) in violation of the foreign direct product (FDP) rule. This historic foreign direct product enforcement case and settlement represents the largest standalone administrative penalty in BIS history. Today's resolution also includes a multi-year audit requirement and a five-year suspended Denial Order.

In August 2020, BIS imposed controls over certain foreign-produced items related to Huawei, as further described below. Despite this, in September 2020, Seagate announced it would continue to do business with Huawei. Seagate did so despite the fact that its only two competitors had stopped selling HDDs to Huawei, resulting in Seagate becoming Huawei's sole source provider of HDDs. Subsequently, Seagate entered into a three-year Strategic Cooperation Agreement with Huawei, naming Seagate as "Huawei's strategic supplier" and granting the company "priority basis over other Huawei suppliers." As alleged in the Proposed Charging Letter, BIS's investigation determined that Seagate engaged in conduct prohibited by the Export Administration Regulations (EAR) by ordering or causing the reexport, export from abroad, or transfer (in-country) of more than 7.4 million HDDs subject to the Huawei FDP rule without BIS authorization.

Additional Background on Today's Action:

BIS issued an order today against Seagate imposing an administrative penalty of $300 million, mandatory multi-year audit requirement, and a five-year suspended Denial Order. As part of the BIS settlement, Seagate admitted to the conduct set forth in the Proposed Charging Letter involving Seagate US and Seagate Singapore.

BIS Case Background:

As described and alleged in greater detail in the Proposed Charging Letter (PCL), between approximately August 17, 2020, and September 29, 2021, Seagate US and Seagate Singapore, working with other Seagate entities, engaged in conduct prohibited by the EAR on 429 occasions. As alleged in the PCL, Seagate ordered or caused the reexport, export from abroad, or transfer (in-country) of approximately 7,420,496 foreign-produced HDDs, valued at approximately $1,104,732,205, to Huawei entities listed on the BIS Entity List or where such entities were a party to a transaction without authorization from BIS. The two other companies capable of making HDDs promptly—and publicly—indicated that they had ceased sales to Huawei. Of the three, only Seagate refused to stop sales and transactions involving Huawei. BIS's $300 million monetary penalty is more than twice what BIS estimates to be the company's net profits for the alleged illegal exports to or involving Huawei. As the transactions progressed, Seagate US repeatedly authorized extending lines of credit to Huawei totaling more than $1 billion dollars between January and September 2021 resulting in an increasing volume of HDD exports to Huawei that the entity was otherwise unable to obtain. In March 2021, Seagate and Huawei even entered into a Long-Term Agreement involving a purchase agreement of over 5 million HDDs and naming Seagate a "key strategic supplier." All the while, Seagate's competitors declined similar exports.

Read the full press release here.