Seagate to pay $300 million in fines for shipping 7 million hard drives to Huawei

April 19 Reuters ) – Seagate Technology Holdings PLC ( STX.O ) has agreed to pay a $300 million fine in a settlement with U.S. authorities for shipping $1.1 billion worth of hard disk drives to China’s Huawei in violation of U.S. export control laws. This was announced by the Ministry of Trade on Wednesday.

Seagate sold the drives to Huawei between August 2020 and September 2021 despite an August 2020 rule restricting the sale of certain foreign goods 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 due to national security and foreign policy concerns.

The punishment represents the latest in a series of moves 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 2020 rule took effect and became Huawei’s sole supplier of hard drives, the Commerce Department said.

The other two primary suppliers of hard drives stopped shipping to Huawei after the new rule took effect in 2020, the department said. Although not identified, Western Digital Corp ( WDC.O ) and Toshiba Corp ( 6502.T ) were the other two, the U.S. Senate Commerce Committee said in a 2021 report on Seagate.

The companies did not respond to requests for comment.

Even after “competitors had stopped selling to them … Seagate continued to ship hard drives to Huawei,” Matthew Axelrod, assistant secretary for export enforcement at the Commerce Department’s Office of Industry and Security, said in a statement. “Today’s action is the consequence.”

Axelrod said the administrative penalty was the largest in the agency’s history not linked to a criminal case.

Seagate’s position was that foreign-made drives were not subject to US export control regulations, mainly because they were not a direct product of US equipment.

“While we believed we were in compliance with all relevant export control laws at the time we sold the hard drives in question, we decided that … resolving this matter was 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 evaluation of only the final phase of the manufacturing process rather than the entire process.

Seagate made drives in China, Northern Ireland, Malaysia, Singapore, Thailand and the United States, the order said, and used equipment, including test equipment, subject to the rule.

In August, the US Department of Commerce sent the company a “proposed bill of lading” warning the company that it may have violated export control laws. The letter started about eight months of negotiations.

Reuters broke the news of the bill of lading 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 in October. It also agreed to three revisions to its compliance program, and is subject to a five-year suspended order denying its export privileges.

The company said in light of the settlement that it would report its financial results for the third quarter of 2023 before the market opens on Thursday, instead of an earlier plan for after the close of trading.

Reporting by Karen Freifeld; editing by Chris Sanders and Grant McCool

Our standards: Thomson Reuters Trust Principles.

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