The Department of Commerce’s Bureau of Industry and Security (BIS) announced its “largest standalone administrative penalty in BIS history.”
The resolution with Seagate Technology (Seagate US) and Seagate Singapore includes a $300 million penalty, a mandatory multi-year audit requirement, and a five-year suspended denial order for alleged violations of U.S. export controls regarding the sale of hard disk drives (HDDs) to Huawei, BIS announced. As part of the settlement, announced April 19, Seagate admitted to the conduct.
Background on Huawei
In May 2019, Huawei and certain of its non-U.S. affiliates were added to the Entity List, which imposes additional licensing requirements on, and limits the availability of most license exceptions for, exports, reexports, and transfers (in-country) of all items subject to the Export Administration Regulations (EAR) destined to, or involving, the listed Huawei entities. The Entity List designation was based on the U.S. government’s determination that there is “reasonable cause to believe that Huawei has been involved in activities contrary to the national security or foreign policy interests of the United States,” BIS stated in its final rule.
In August 2020, BIS imposed controls over certain foreign-produced items “to better address the continuing threat to U.S. national security and U.S. foreign policy interests posed by Huawei and its non-U.S. affiliates.” Specifically, BIS imposed a license requirement on certain foreign-produced items when “there is knowledge that a listed Huawei entity is a party to the transaction; and the foreign-produced item is produced by an overseas plant or major component of a plant that is itself a direct product of U.S.-origin technology or software subject to the EAR and specified in certain Export Control Classification Numbers,” BIS said.
For items subject to the foreign direct product (FDP) rule, “Huawei may not receive such items or act as a party to the transaction—for example, as the “purchaser,” “intermediate consignee,” “ultimate consignee,” or “end-user”—without a license from BIS.
Export Control Violations
Despite these requirements, between approximately August 2020 and September 2021, Seagate US and Seagate Singapore, in collaboration with other Seagate entities, engaged in conduct prohibited by the EAR on 429 occasions “when they ordered or caused the reexport, export from abroad, or transfer (in-country) of over 7.4 million HDDs, valued at more than $1.1 billion, to Huawei Technologies or other Huawei entities listed on the BIS Entity List and/or where listed Huawei entities were a party to a transaction involving such items without a license or other authorization from BIS,” according to BIS’s Proposed Charging Letter.
Seagate continued its sales and transactions even after its only two competitors had seized selling HDDs to Huawei. Furthermore, in March 2021, Seagate and Huawei entered a three-year strategic cooperation agreement involving a purchase agreement of over five million HDDs and naming Seagate a “strategic supplier.”
“Those who would violate our FDP rule restrictions are now on notice that these cases will be investigated and charged, as appropriate,” said John Sonderman, director of the Office of Export Enforcement (OEE). “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.”
Seagate’s Response
“We believe entering this agreement with BIS and resolving this matter is in the best interest of Seagate, our customers, and our shareholders,” Seagate Chief Executive Officer 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 engaging with BIS and settling this matter was the best course of action.” 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.