Data storage company Seagate likely violated US government sanctions by shipping hard drives to Chinese manufacturer Huawei, a Senate committee found.
In March, the Commerce Department’s Bureau of Industry and Security opened an investigation into Seagate over the sales, following 2019 and 2020 sanctions against providing semiconductors to Huawei. That investigation is still ongoing.
Hard drives include controller chips, which would be restricted under the sanctions.
Seagate did sell hard drives to Huawei - but appears to have chosen not to believe that the storage devices are covered by sanctions.
"I don't see any particular restriction for us in terms of being able to continue to ship to Huawei," Seagate CFO Gianluca Romano said in September 2020.
Seagate has yet to apply for any licenses to export hard disk drives to Huawei or its affiliates that are currently on the Commerce Department's Entity List.
After Seagate found out that it was being investigated, it told Senate staff that it had stopped shipping drives to Huawei - but declined to say when it had stopped.
The Republican minority staff "received evidence indicating that Seagate may plan to resume shipments to Huawei once the Chinese company is restructured with an operational data server subsidiary to reroute hard disk drives through the supply chain," the report said.
"The purported intent is to avoid shipping the product through currently prohibited entities, even though the destination is Huawei."
The report said that the violation of the rule was a "reckless disregard of national security law," adding "it appears that Seagate Technology knowingly violated the Foreign Direct Product Rule for more than one year.
"Seagate likely made the strategic calculation to continue violating national security regulations based on the prospect of earning significantly greater profits through market monopolization than the potential cost of regulatory penalties. All unlicensed shipments of prohibited products to Huawei should cease without delay."
The report said that due to the "grave security interests at stake," the Commerce Department should "block additional unlawful shipments and penalize past shipments in violation of this regulation."
A Seagate spokesperson told The Wall Street Journal that the company “complies with all laws applicable to its business and operations, including export control regulations.”
Earlier this year, rival Western Digital said that it had "stopped shipping to Huawei in mid-September 2020 to comply with new rules issued by the Department of Commerce. We requested a license to ship products to Huawei in September 2020. Our application is still pending."
