April 19 Reuters ) – Seagate Technology Holdings PLC ( STX.O ) agreed to pay a $300 million fine in a settlement with US authorities for shipping more than $1.1 billion worth of hard disk drives to China’s Huawei that violates US export control laws, the Department of Commerce said Wednesday.
Seagate sold the drives to Huawei between August 2020 and September 2021 despite an August 2020 rule restricting the sale of certain foreign items made with US technology to the company. Huawei was placed on the Entity List, a US trade blacklist, in 2019 to reduce sales of US goods to the company amid national security and foreign policy concerns.
The sanction represents the latest in a series of actions by Washington to keep sophisticated technology from China that could support its military, enable human rights abuses or otherwise threaten US security.
Seagate shipped 7.4 million drives to Huawei in about a year after the rule took effect in 2020 and became Huawei’s sole supplier of hard drives, the Commerce Department said.
The other two major suppliers of hard drives stopped shipping to Huawei after the new rule took effect in 2020, the department said. Although they were not identified, Western Digital Corp ( WDC.O ) and Toshiba Corp ( 6502.T ) are the other two, the US Senate Commerce Committee said in a 2021 report on Seagate.
The companies did not respond to requests for comment.
Even after “its competitors stopped selling them … Seagate continued to ship hard disk drives to Huawei,” said Matthew Axelrod, assistant secretary for export enforcement at the Bureau of Industry and Security of Commerce Department in a statement. “Today’s action is the consequence.”
Axelrod said the administrative penalty is the largest in the agency’s history that is not tied to a criminal charge.
Seagate’s position is that its foreign drives are not subject to US export control regulations, essentially because they are not a direct product of US equipment.
“While we believe we complied with all relevant export control laws at the time we negotiated the sale of the hard disk drive, we have determined that … the settlement of this matter is the best course of action,” Seagate CEO Dave Mosley said in a statement.
In an order issued Wednesday, the government said Seagate misinterpreted the foreign product rule to require testing only at the final stage of its manufacturing process rather than the entire process.
Seagate manufactured the drives in China, Northern Ireland, Malaysia, Singapore, Thailand, and the United States, the order said, and used equipment, including test equipment, that was subject to the rule.
In August, the US Department of Commerce sent the company a “proposed charge letter,” warning the company that it may be in violation of export control laws. The letter began about eight months of negotiations.
Reuters reported the charging letter in October.
Seagate’s $300 million fine is to be paid in installments of $15 million per quarter over five years, with the first payment due in October. It also agreed to three audits of its compliance program, and is subject to a five-year suspended order denying its export privileges.
The company said in light of the agreement that it will report fiscal third quarter 2023 financial results before the market opens on Thursday, instead of a previous plan for after the close of trading.
Reporting by Karen Freifeld; editing by Chris Sanders and Grant McCool
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