Seagate Technology Holdings has agreed to pay a staggering £228 million ($300 million) penalty in a settlement with US authorities for violating export control laws by shipping more than £837 million ($1.1 billion) worth of hard disk drives to China’s Huawei Technologies Co.
Unprecedented Penalty in Export Control History
The fine is the largest stand-alone settlement in the history of the Bureau of Industry and Security (BIS), the US agency responsible for export controls. This record-breaking penalty underscores the US government’s commitment to stifle China’s technological ambitions and bolster national security.
Seagate admitted to the accusations, and as part of the settlement, the company will undergo a mandatory multi-year audit requirement and a five-year suspended denial order, which may deny export privileges if further violations occur.
Defying US Restrictions on Sales to Huawei
Huawei was placed on the US Entity List, a trade blacklist, in 2019 due to national security and foreign policy concerns. This prohibited American firms from doing business with the Chinese technology company without obtaining a government licence.
Despite these restrictions, Seagate sold drives to Huawei between August 2020 and September 2021. The company shipped a total of 7.4 million drives, becoming Huawei’s sole supplier of hard drives after other primary suppliers, Western Digital and Toshiba, ceased shipments in 2020 following the new rule’s implementation.
Seagate’s Misinterpretation of Foreign Product Rule
Seagate argued that its foreign-made drives were not subject to US export control regulations, claiming that the company had correctly interpreted the foreign product rule for manufacturing processes. However, the US government has refuted these claims, stating that Seagate wrongly interpreted the rule.
The company manufactured its drives in multiple countries using equipment subject to the foreign direct-product rule, which prohibits shipping Huawei items that are the direct result of US technology or software.
Penalty Payment and Impact on Seagate’s Financials
The penalty will be paid in instalments of £11.4 million ($15 million) per quarter over five years, starting in October. According to Seagate’s financial performance over the last few years, the fine is roughly equivalent to a quarter of its net income. The company is projected to have a net income of approximately £304 million ($400 million) in calendar 2023 as it faces weaker demand for its products.
Three Compliance Audits and Suspended Export Privileges
In addition to the financial penalty, Seagate has agreed to undergo three audits of its compliance programme. If further violations are found, the company may face a five-year suspended order denying export privileges, severely impacting its ability to conduct business internationally.
A Warning to Other Companies
This unprecedented settlement serves as a warning to other companies that the US government will not hesitate to impose severe penalties for violations of export control laws. It also highlights the importance of adhering to these regulations in order to protect national security and foreign policy interests.