Seagate Fined $300 Million for Huawei Violations

Commerce’s Bureau of Industry and Security (BIS) has imposed a $300 million civil penalty on Seagate Technology LLC and its Singapore subsidiary for alleged violations of U.S. export controls related to selling hard disk drives (HDDs) to Huawei Technologies Co. Ltd.

This penalty is the largest standalone administrative penalty in BIS history and 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. Despite this, in September 2020, Seagate announced it would continue to do business with Huawei.

Seagate became Huawei's sole source provider of HDDs after its two competitors ceased sales to the Chinese company. Seagate subsequently entered into a three-year Strategic Cooperation Agreement with Huawei, granting the company priority over other Huawei suppliers.

BIS's investigation found that Seagate allegedly violated the Export Administration Regulations (EAR) by ordering or causing the reexport, export from abroad, or transfer (in-country) of over 7.4 million HDDs subject to the Huawei foreign direct product (FDP) rule without BIS authorization.

“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 Assistant Secretary for Export Enforcement Matthew S. Axelrod. “Today’s action is the consequence:  the largest standalone administrative resolution in our agency’s history. 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.” 

“Those who would violate our FDP rule restrictions are now on notice that these cases will be investigated and charged, as appropriate,” said Director of the Office of Export Enforcement John Sonderman. “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.  Companies that discover violations should submit voluntary self-disclosures to OEE.” 

 BIS issued an order against Seagate imposing a $300 million administrative penalty, a mandatory multi-year audit requirement, and a five-year suspended Denial Order. Seagate admitted to the conduct set forth in the Proposed Charging Letter involving both the U.S. and Singapore entities.

Between August 17, 2020, and September 29, 2021, Seagate allegedly engaged in prohibited conduct on 429 occasions, exporting approximately 7,420,496 foreign-produced HDDs, valued at about $1.1 billion, to Huawei entities listed on the BIS Entity List or where such entities were a party to a transaction without BIS authorization. The other two HDD manufacturers had publicly ceased sales to Huawei, but Seagate continued transactions involving the Chinese company. BIS's $300 million penalty is over twice the estimated net profits from the alleged illegal exports to Huawei.

As transactions progressed, Seagate repeatedly authorized extending lines of credit to Huawei totaling more than $1 billion between January and September 2021, resulting in an increasing volume of HDD exports. In March 2021, Seagate and Huawei entered into a Long-Term Agreement involving a purchase agreement of over 5 million HDDs, naming Seagate a "key strategic supplier." Meanwhile, Seagate's competitors declined similar exports

The BIS Order, Settlement Agreement, and Proposed Charging Letter are available online here.