US friendly fire over Huawei ramps up

The US state has proudly announced its biggest ever fine for a domestic company that did business with Huawei.

That company is US hard drive giant Seagate, which now owes the US state $300 million for having the temerity to flog some stuff to sanctioned Chinese telecoms vendor Huawei. The US Department of Commerce’s Bureau of Industry and Security (BIS) expanded its persecution of Huawei in August 2020 in a bid to stop it getting hold of chips. But not everyone got the memo that this new sanction regime also applied to other technological components, it seems.

When questioned about the new regulations soon after, Seagate CFO Gianluca Romano said “So of course we are still going through the final assessment, but from what I have seen until now, I don’t see any particular restriction for us in term of being able to continue to keep the Huawei or any other customers in China.”

Fast forward to this week and Romano couldn’t have been more wrong. BIS issued a press release announcing the $300 million fine for Seagate, declaring in the sub-head that it’s the “Largest Standalone Administrative Penalty in BIS History”. The bureau seems especially indignant that Seagate continued selling to Huawei without its permission and at a time when its two main competitors (presumably Western Digital and Toshiba) had cut off Huawei.

“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,” said Assistant Secretary for Export Enforcement Matthew Axelrod.

“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.”

It’s clear from Axelrod’s crowing that the real significance of this fine, other than a handy cash injection for the US state, is that Seagate is being sacrificed pour encourager les autres. In other words, when BIS and the US state in general say ‘jump’, you answer ‘how high?’. “Those who would violate our FDP rule restrictions are now on notice that these cases will be investigated and charged, as appropriate,” said Director of the Office of Export Enforcement John Sonderman.

“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,” said Seagate CEO Dave Mosley. “We are now moving forward fully focused on executing our strong technology roadmap to support the growing demand for mass data storage solutions.”

Considering the legal pressure and scrutiny Mosley’s statement was written under, it seems to be as close as he felt he could get away with to saying “we still think this is bullshit but what can you do when the government decides to shake you down?” Still, before you think BIS is entirely predatory, bear in mind that it’s allowing Seagate to pay the money in $15 million quarterly instalments.

It’s hard to determine the extent to which Seagate brought this fine upon itself. It was apparently transparent about its decision to keep doing business with Huawei after the 2020 sanctions were introduced, so was there a time soon after that when BIS said it had better stop or else? If so, we have very limited sympathy for Seagate, but it’s hard to believe it would have continued had these likely consequences been made clear.

Meanwhile, US communications regulator the FCC saw fit this week to issue a press release reminding companies of foreign ownership an investment disclosure regulations. Apparently, any company holding FCC licenses or authorizations to provide telecommunications services in the U.S. must receive prior authorization from the FCC before transferring or assigning any ownership stake.

“There are consequences for failing to file accurate or timely information with the FCC about changes related to foreign involvement in companies with access to U.S. communications networks,” said Loyaan Egal, Chief of the Enforcement Bureau (L Egal – love it).  “When it comes to assessing U.S. national security and law enforcement interests, we will be vigilant in ensuring that companies comply with these important disclosure requirements.”

It’s probably not a coincidence that these two announcements were made in the week in which the US passed its Countering Untrusted Telecommunications Abroad Act, which seeks to further pressure other countries into obeying its rules on telecoms vendors. So the message is clear: the US state is ramping up its efforts to use trade policy to wage political war on China and it doesn’t care how many friendly fire casualties that may cause. Comply or else.

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