Seagate Technology has agreed to pay a penalty of $300 million in a settlement with the United States authorities. The company was penalized for shipping hard disk drives worth over $1.1 Billion to China’s Huawei as it violated the U.S. export control laws, said the Department of Commerce.
National Security Concerns
Seagate sold the said hard drives between August 2020 and September 2021 to Huawei. This was despite the August 2020 rule that restricted sales of certain foreign items made with U.S. technology to the company. In 2019, Huawei was put on the U.S. trade blacklist called Entity List to reduce the sales of U.S. goods to the company following worries regarding national security and foreign policy concerns. The penalty showcases the latest actions taken by Washington to keep China’s sophisticated technology from threatening U.S. security.
After the 2020 rule took effect, Seagate shipped around 7.4 million hard drives to Huawei for about a year, becoming their sole supplier of hard drives. However, the two other primary hard drive suppliers stopped shipments to Huawei after the rule took effect. Although the suppliers were not identified, Western Digital Corp and Toshiba Corp were the other two, the U.S. Senate Commerce Committee said in a 2021 report on Seagate.
Seagate Facing the Consequences
Matthew Axelrod, assistant secretary for export enforcement at the Commerce Department’s Bureau of Industry and Security said: Even after “its competitors had stopped selling to them…Seagate continued sending hard disk drives to Huawei,” “Today’s action is the consequence”
Furthermore, Axelrod said the administrative penalty was the largest in the history of the agency not tied to a criminal case.
Seeing it from Seagate’s Shoes
Seagate’s position was that its drivers were not subject to U.S. export control regulations because they are foreign-made and not the direct product of U.S. equipment.
Seagate CEO Dave Mosley said in a statement-“While we believed we complied with all relevant export control laws at the time we made the hard disk drive sales at issue, we determined that…settling this matter was the best course of action,”
The Government’s Approach
The order issued by the government on Wednesday said that —Seagate wrongly interpreted the foreign product rule to require evaluation of only the last stage of its manufacturing process rather than the entire process. Additionally, the order said that Seagate made drives in China, Northern Ireland, Malaysia, Singapore, Thailand, and the United States, and used equipment subject to the rule.
The Department of Commerce sent the company a “proposed charging letter” in August, as a warning that it may have violated export control laws. The letter gave birth to negotiations that lasted around eight months.
Current Penalty Scenario
The $300 million penalty is due in installments of $15 million per quarter over five years, with the first payment due in October. Seagate also agreed to three audits of its compliance program, and the company is also subject to a five-year suspension order denying its export privileges.
Seagate, amid the settlement, said that it would report financial results of its fiscal third quarter 2023 before the market opens on Thursday, rather than a previous plan for after the close of trade.