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BIS imposes $300 million penalty against Seagate Technology LLC related to shipments to Huawei

Seagate Technology fined US$300 million for illegal exports to Huawei, says U.S. Bureau of Industry and Security

Despite recent attempts to disengage from globalisation, it remains an undeniable reality for many businesses around the world. As a result, compliance with international laws and regulations remains critical, and export control regulations are particularly important to ensure compliance, as evidenced by a recent decision by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS).

In its decision, the BIS imposed a civil penalty of US$300 million on Seagate Technology LLC together with its Singapore affiliate on 20 April 2023 for alleged violations of US export control laws. The company is accused of selling hard disk drives (HDDs) to Huawei Technologies Co. Ltd. in violation of the Foreign Direct Product (FDP) regulations without BIS approval. This enforcement action and settlement represents the largest single administrative penalty in BIS history.

Despite the controls imposed by BIS on certain foreign-made items related to Huawei, Seagate announced in September 2020 that it would continue to do business with the company. Seagate became Huawei’s sole supplier of hard disk drives after its only two competitors stopped selling to Huawei. Subsequently, Seagate entered into a three-year strategic cooperation agreement with Huawei, designating Seagate as a “strategic supplier of Huawei” and giving it “priority over other Huawei suppliers”.

Meanwhile,  Seagate received a FDP rule notification from one of its suppliers in January 2021, indicating that any equipment, parts, components, associated technology, and software sold by the supplier would be subject to new FDP restrictions. The notification also stated that a BIS license requirement would be triggered if the equipment was involved in any essential production or development, including product engineering, manufacture, integration, assembly, inspection, testing, and quality assurance, and if the foreign-produced item was destined to or involved a listed Huawei entity. Despite receiving this notification, Seagate continued its shipments to Huawei.

Also in January 2021, Huawei had placed a purchase order for two million HDDs with Seagate. And from e-mails reviewed by the BIS, a Seagate US senior manager expressed excitement upon hearing the news of the new purchase order. Seagate proceeded to sell millions of HDDs to Huawei and repeatedly extended credit lines for Huawei’s purchases. Between January 2021 and September 2021, Seagate authorized extending to Huawei multiple temporary credit lines totaling more than one billion dollars. Interestingly, despite expanding credit to Huawei, Seagate struggled to maintain production to meet Huawei’s demands for more HDDs. Huawei continued to push Seagate to produce more HDDs while their competitors declined to ship to Huawei without a BIS license.

Against this background, the BIS’s investigation found that Seagate engaged in conduct prohibited by export regulations on account of its sales of more than 7.4 million HDDs subject to Huawei without BIS approval.

As part of the BIS settlement, Seagate admitted to the conduct set forth in the Proposed Charging Letter involving Seagate US and Seagate Singapore. The settlement includes a mandatory multi-year audit requirement and a five-year suspended Denial Order.

Companies exporting to an entity subject to the additional FDP rule restrictions should evaluate their entire manufacturing process to determine if specified US technologies or software were used in building the essential tools used in production. Companies that discover violations should submit voluntary self-disclosures to the Office of Export Enforcement (OEE).

This enforcement action underscores the need for companies to comply strictly with BIS export regulations. The settlement sends a clear message to companies that violate the restrictions of the FDP rule that they will be investigated and prosecuted, as BIS demonstrates its continued strong enforcement of U.S. export controls.

The BIS Order, Settlement Agreement and Proposed Charging Letter are available online at the BIS website.

I would like to extend my sincere gratitude to my colleague at our firm, Sam Yip, for his invaluable inspiration and support in crafting this article.

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