ZTE on April 20 finally issued a formal response to the April 16 ruling by the Department of Commerce that the Chinese communications technology vendor had failed to meet the terms of a disciplinary agreement and therefore would be subject to a seven-year ban on access to U.S. produced communications components and technology (see "U.S. Commerce Dept. finds ZTE violated export disciplinary agreement, bans U.S. component supply"). The company said it has significantly enhanced its compliance capabilities, suggested that the decision to implement the ban was hasty, and said the action "will not only severely impact the survival and development of ZTE, but will also cause damages to all partners of ZTE including a large number of U.S. companies."
The statement details the actions ZTE has taken to improve its compliance procedures. They include:
- established a CEO-led Compliance Committee
- developed a team of "experienced export control compliance experts"
- hired consultants to advise the company on compliance issues
- introduced and implemented the SAP Global Trade System (GTS)
- "organized" compliance training for more than 65,000 employees
- cooperated with the independent monitor the Commerce Dept. designated to oversee ZTE's compliance with the disciplinary ruling
- provided over 132,000 pages of documents
- spent in excess of $17 million in 2017 on compliance-related issues.
However, the company did not offer an explanation for the bonuses paid executives named as complicit in the original export violations nor for the lack of timeliness in delivering letters of reprimand to all employees considered active in the violations. However, it asserted, "It is unacceptable that BIS [Bureau of Industry and Security, the Commerce Dept. unit overseeing the issue] insists on unfairly imposing the most severe penalty on ZTE even before the completion of investigation of facts, ignoring the continuous diligent work of ZTE and the progress we have made on export compliance and disregarding the fact that (1) ZTE self-identified the issues in the correspondence and self-reported by ZTE immediately; (2) the Company has taken measures against the employees who might have been responsible for this incident; (3) corrective measures has been taken immediately; and (4) a prestigious U.S. law firm has been engaged to conduct independent investigation."
In its order imposing the ban, the BIS and the Commerce Dept. said that several of the letters of reprimand that ZTE said in letters dated November 30, 2016 or July 20, 2017 had either already been delivered or would soon be delivered were not sent until a month after the BIS sent a letter of inquiry on February 2, 2018.
"These false statements were not corrected by ZTE even in part until March 2018, more than 15 months from ZTE's November 30, 2016 letter, approximately a year from the Settlement Agreement (which ZTE executed on March 2, 2017) and the March 23, 2017 Order, and nearly eight months from the July 20, 2017 letter. During a conference call on March 6, 2018, ZTE indicated, via outside counsel, that it had made false statements in the November 30, 2016 and the July 20, 2017 letters," wrote Richard R. Majauskas, acting assistant secretary of commerce for export enforcement, in the order that placed the ban in effect.
After citing the damage the ban might have on the company and its U.S. supplier base, ZTE stated that it hopes the issues with the Commerce Dept. can be settled "through communication." The company said it was willing to resort to less friendly means as well.
"In any case, ZTE will not give up its efforts to resolve the issue through communication, and we are also determined, if necessary, to take judicial measures to protect the legal rights and interests of our Company, our employees, and our shareholders, and to fulfill obligations and take responsibilities to our global customers, end-users, partners, and suppliers."
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