Record fine for Seagate

Seagate was fined a record amount by the U.S. Department of Commerce for continuing to supply hard drives to Chinese company Huawei despite an export ban. Following a dispute, both parties agreed out of court to pay a fine of $300 million, which will be paid in installments.

Export ban flouted

Chinese company Huawei, under scrutiny in the West for its ties to the Chinese regime, landed on a U.S. embargo list in August 2020. For U.S. companies, that meant an export ban, but Seagate did not comply. It continued to supply Huawei until September 2021. The Bureau of Industry and Security, which is part of the U.S. Department of Commerce, estimates that Seagate sold more than 7.4 million hard drives to Huawei during that period, generating a profit of $150 million. Huawei primarily needs the hard drives for its own servers, which the company both sells and uses to run a cloud.

Seagate, unlike its competitors, did not immediately stop all exports to Huawei, but pointed out that the hard drives were manufactured outside the U.S. and shipped from there to China. The Bureau of Industry and Security countered that Seagate was a U.S.-based company and that the hard drives ultimately contained U.S. intellectual property.

Out-of-court settlement

Seagate has now settled out of court with the Commerce Department, suggesting that the company’s arguments would not have held up in court. Dave Mosley, the company’s chief executive, said: “Although we believed we were in compliance with all relevant export control laws at the time of the hard drive sales in question, we have concluded that settling with the BIS and resolving this matter is the best course of action.”

Seagate will pay the penalty, which is double the profit made on the export, in installments over five years. Fifteen million dollars is due each quarter. In addition, Seagate will not be allowed to supply hard drives to Huawei for five years, which is expected to significantly impact the company’s balance sheet.