US authorities have imposed a $300 million penalty on Seagate Technology Holdings plc, a market leader in data storage solutions, for an alleged violation of export controls. The US Commerce Department has investigated the California-based company's business dealings with Chinese hardware firm Huawei Technologies Co. Limited, specifically for the sale of hard disk drives to operations within mainland China. It has found that Seagate has broken the "foreign direct product (FDP) rule" that was established by the US Government back in 2020. Seagate is said to have sold approximately 7.4 million hard drive units to Huawei after the period in which the new rulings took effect - the total value of these shipments was estimated in the region of $1.1 billion.

The US government's serving of a civil penalty to Seagate appears to be part of a larger drive to prevent North American tech companies from selling advanced computer equipment to Chinese firms. Two other suppliers (not named) of storage solutions had agreed to the government imposed terms and ceased trade with Huawei in 2020. In contrast, Seagate has seemingly become a record breaking heretic according to a statement released yesterday by the Bureau of Industry (BIS) and Security: "This historic foreign direct product enforcement case and settlement represents the largest standalone administrative penalty in BIS history. Today's resolution also includes a multi-year audit requirement and a five-year suspended Denial Order. In August 2020, the Bureau of Industry and Security imposed controls over certain foreign-produced items related to Huawei. Despite this, in September 2020, Seagate announced it would continue to do business with Huawei. 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."Seagate has agreed to the terms and has reached a settlement agreement with the U.S. Department of Commerce. A company issued statement explains that by paying the $300 million fine it: "resolves BIS's allegations that Seagate's sales of hard disk drives to Huawei between August 17, 2020 and September 29, 2021 did not comply with the U.S. Export Administration Regulations. Under the terms of the settlement agreement, Seagate has agreed to pay $300 million to the U.S. Department of Commerce, to be paid in installments of $15 million per quarter over the course of five years, with the first installment due in October 2023. Additional information regarding the terms of the agreement is included in the Form 8-K that will be filed today with the Securities and Exchange Commission."

Dave Mosley, Seagate's chief executive officer shares a similar sentiment: "We believe entering this agreement with BIS and resolving this matter is in the best interest of Seagate, our customers and our shareholders. Integrity is one of our core values, and we have a strong commitment to compliance as evidenced by our global team of international trade compliance and legal professionals - complemented by external experts and outside counsel. 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. We are now moving forward fully focused on executing our strong technology roadmap to support the growing demand for mass data storage solutions."The US Government's statement also makes light of an increased suspicion around the strengthening of the Chinese military through technological advancements and upgrades to equipment. Matthew Axelrod, the Assistant Secretary for Export Enforcement at the BIS, had a few unkind words for the companies involved due to potential security risks posed by foreign agencies: "Even after Huawei was placed on the Entity List for conduct inimical to our national security, and its competitors had stopped selling to them due to our foreign direct product rule, Seagate continued sending hard disk drives to Huawei. Today's action is the consequence: the largest standalone administrative resolution in our agency's history. This settlement is a clarion call about the need for companies to comply rigorously with BIS export rules, as our enforcement team works to ensure both our national security and a level playing field."