A 300-million-dollar penalty was imposed on Seagate Technology, LCC, by the Bureau of Industry and Security (BIS). These administrative penalties were leveled at the business’s operations in Fremont, California and Singapore and include a five-year suspended Denial Order, which if activated, would terminate the organization’s ability to conduct export business under the Export Administration Regulations (EAR).
Although Seagate CEO, Dave Mosley, denied any wrongdoing, the BIS alleges that the company continued to sell computer disk drives to Huawei in violation of the Foreign Direct Product Rule. It is alleged that Seagate entered an agreement with Huawei to be a strategic supplier when Seagate’s competitors had stopped selling to Huawei.
Background on BIS Controls on Huawei
The BIS took action to prevent the company from acquiring semiconductors that are the direct product of U.S. technologies and software restricted Huawei’s in May of 2020 under the Foreign Direct Product Rule. These actions placed Huawei on the Entity List and effectively banned the export of items to the company. The United States has long held that Huawei products are a threat to information security. The United Kingdom and members of the European Union have voiced those concerns as well, because Huawei is a producer of 5G technologies.
BIS Sends Warning
This $300 million penalty is the largest standalone penalty in BIS history. Matthew Axelrod, Assistant Secretary for Export Enforcement, stated that the settlement is “a clarion call” for businesses conducting exports to comply with BIS export rules. He further stated that any organization subject to FDP restriction need to reassess its manufacturing processes to ensure that U.S. technologies or software are not used in building restricted items. Companies that discover violations were encouraged to submit Voluntary Self-Disclosures (VSD).
BIS Enhancing Enforcement and Prosecution
The BIS under the direction of the Department of Commerce and other export enforcement agencies have been changing the scope and enforcement policies in recent years to address the increased complexities of the international political arena. Export Administration Regulations (EAR) have continually been changing as more items are being added to the Commerce Control List (CCL). Additionally, the agency has increased its focus on the use of sanctions and denied parties lists to protect sensitive technologies.
David Axelrod, Assistant Secretary for Export Enforcement, has stressed on numerous occasions that the BIS intends to hold U.S. companies and foreign subsidiaries accountable for export violations to protect U.S. foreign policy and national security interests.
CVG Strategy Export Compliance Programs
This 300-million-dollar penalty on a multinational business underscore the importance in creating and maintaining viable export compliance programs for technology-based businesses. These programs should be incorporated into an organization’s management system to ensure effective mitigation of risks associated with violations.
CVG Strategy can help you understand Export Administration Regulations, and help you establish a coherent and effective export compliance program. We can perform export control classifications, perform audits, and educate your team. Regardless of whether your business falls under EAR or ITAR, CVG Strategy has the expertise to help.