Seagate slapped with R5.4 billion fine for selling hard drives to Huawei

The US Commerce Department Bureau of Industry and Security (BIS) has imposed a $300-million (R5.4-billion) fine on storage manufacturer Seagate for violating export controls by selling millions of hard disk drives (HDDs) to Huawei.

The BIS said the “historic” foreign direct product enforcement case and settlement represented the largest standalone administrative penalty in the entity’s history.

The BIS implemented export controls over certain foreign-produced items that use US technology in August 2020.

Huawei was among the Chinese companies on a blacklist that would require companies to first seek authorisation from BIS before exporting their products to Huawei or its affiliates.

Despite this, Seagate announced it would continue to conduct business with Huawei in September 2020.

“Seagate did so despite the fact that its only two competitors had stopped selling HDDs to Huawei, resulting in Seagate becoming Huawei’s sole source provider of HDDs,” BIS said.

“Subsequently, Seagate entered into a three-year Strategic Cooperation Agreement with Huawei, naming Seagate as ‘Huawei’s strategic supplier’ and granting the company “priority basis over other Huawei suppliers.”

A BIS investigation found that Seagate had since sold around 7.42 million foreign-produced HDDs worth about $1.1 billion (R19.9 billion) to Huawei.

BIS estimated that the fine, equivalent to about 27% of the value of the hard drives sold, was more than twice Seagate’s estimated profits for the alleged illegal exports to or involving Huawei.

The company will now also be subjected to a multi-year audit requirement.

Huawei was first placed on a US Entity List in May 2019 over its close ties to the Chinese government.

That required companies to get a special licence to export, re-export, and transfer many types of Huawei goods.

US authorities said there was reasonable cause to believe that the Chinese tech giant had been involved in activities that compromised the country’s national security or foreign policy interests.

In August 2020, the US ramped up its trade war with Huawei by banning companies with a US presence from exporting hardware with technologies developed in the US to Huawei.

That has cut Huawei off from the latest tech components — including smartphone chips.

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Seagate slapped with R5.4 billion fine for selling hard drives to Huawei