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.
“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.
“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.”