On April 19, 2023, the US Department of Commerce Bureau of Industry and Security (BIS) entered into a settlement agreement wherein Seagate Technology LLC and Seagate Singapore International Headquarters Pte. Ltd. (collectively, Seagate) agreed to pay a $300 million penalty in order to resolve allegations that Seagate shipped hard drive disks (HDDs) to Huawei Technologies Co. Ltd. (Huawei) in violation of the Export Administration Regulations’ (EAR) Entity List Foreign Direct Product (Entity List FDP) Rule. The $300 million penalty represents the largest standalone, noncriminal penalty in the history of BIS.

Specifically, BIS alleged that on 429 occasions Seagate ordered or caused the export, reexport from abroad, or transfer (in-country) of approximately 7.4 million foreign-produced HDDs valued at approximately $1.1 billion to Huawei entities designated on the Entity List (or where such entities were a party to a transaction without BIS authorization). Significantly, Seagate continued supplying Huawei with the HDDs after Huawei was designated on the Entity List and the Entity List FDP rule was implemented, while the only two other companies capable of producing the HDDs promptly decided, and publicly announced, to cease sales to Huawei.

Interestingly, Seagate stated it “believed [it] complied with all relevant export control laws at the time [it] made the [HDD] sales.” However, BIS takes a different view, and has stated that Seagate “incorrectly interpreted the FDP rule to require evaluation of only the last stage of its HDD manufacturing process rather than the entire process” (emphasis added). In this regard, BIS asserts that the HDD manufacturing equipment Seagate used abroad to manufacture the HDDs was subject to the EAR, the direct product of US-origin technology, and considered a major component of Seagate’s HDD plants. Thus, in the view of BIS, Seagate was prohibited from exporting the HDDs, which were the product of the manufacturing equipment, from third countries to Huawei.

The Seagate settlement stands as a stark reminder that companies engaged in manufacturing abroad with any EAR content should carefully review their overall activities and take a holistic view of their production process for the purposes of the Entity List FDP Rule, which BIS finalized, and has now enforced, in a broad and aggressive manner. 

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