ZTE admits guilt, settles export squabble

After having been put through the ringer by various U.S. government agencies for the past year over allegations of illegally shipping telecommunications equipment containing U.S. sourced technology to countries on restricted exports lists, ZTE Corp. (0763.HK/000063.SZ)says it has reached settlement agreements with those agencies to put the matter to rest. The agreements call for ZTE to pay criminal and civil penalties of approximately $1.19 billion, $300 million of which could be suspended for good behaviour.

After having been put through the ringer by various U.S. government agencies for the past year over allegations of illegally shipping telecommunications equipment containing U.S. sourced technology to countries on restricted exports lists, ZTE Corp. (0763.HK/000063.SZ)says it has reached settlement agreements with those agencies to put the matter to rest. The agreements call for ZTE to pay criminal and civil penalties of approximately $1.19 billion, $300 million of which could be suspended for good behaviour.

The agreements cover charges levied by the Department of Justice (DOJ), the Department of Commerce's Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC). To settle its problems with the DOJ, ZTE will plead guilty to conspiring to violate the International Emergency Economic Powers Act (IEEPA), obstructing justice, and making a material false statement. The company will pay $430,488,798 for these violations. ZTE's agreement with the BIS calls for it to pay $661 million for violating terms of the Export Administration Regulations (EAR) and the Iranian Transactions and Sanctions Regulations (ITSR). The BIS has agreed to suspend $300 million of this penalty for seven years, assuming ZTE complies with the agreement's terms. ZTE also has agreed to pay $100,871,266 to OFAC.

The agreements with the Department of Justice must be approved by the United States District Court for the Northern District of Texas. This approval is a prerequisite of the BIS agreement as well.

According to the BIS, ZTE knowingly shipped telecommunications technology to Iran that included such U.S. sourced items as routers, microprocessors, and servers in violation of the EAR (see "ZTE faces export sanctions from US Department of Commerce"). The company also made illegal technology shipments to North Korea, the BIS said. The company then attempted to cover up these actions. The period of illegal activity began no later than January 2010 and continued through April 2016, the BIS charged.

"ZTE Corporation not only violated export controls that keep sensitive American technology out of the hands of hostile regimes like Iran's – they lied to federal investigators and even deceived their own counsel and internal investigators about their illegal acts," said U.S. Attorney General Jeff Sessions. "This plea agreement holds them accountable, and makes clear that our government will use every tool we have to punish companies who would violate our laws, obstruct justice, and jeopardize our national security."

"ZTE acknowledges the mistakes it made, takes responsibility for them, and remains committed to positive change in the company," said Dr. Zhao Xianming, ZTE's chairman and CEO via a press statement. "Instituting new compliance-focused procedures and making significant personnel changes has been a top priority for the company. We have learned many lessons from this experience and will continue on our path of becoming a model for export compliance and management excellence. We are committed to a new ZTE, compliant, healthy, and trustworthy."

The Chinese telecommunications technology company went to significant lengths to reach this point. Since the U.S. government agencies first levied the charges in March 2016, ZTE has revamped its senior leadership (including appointment of Dr. Xianming to his current positions), created a CEO-led Compliance Committee with the authority change the company's policies and procedures and oversee support of compliance initiatives, created a compliance department, named U.S. lawyer Matt Bell to the newly created position of chief export compliance officer, expanded its export control compliance manual, implemented a software automation tool that screens shipments from ZTE and certain subsidiaries for export control obligations, and expanded training on export control issues among its staff.

Assuming court approval of these agreements, the BIS will suspend ZTE's position on its Entity list for seven years. The list contains companies found to be in violation of BIS export guidelines; U.S. companies cannot sell products to companies on the list, which would have shut the flow of U.S. sourced components and other technologies to ZTE. The BIS had placed ZTE on the list last March, but granted a series of waivers of its effects that enabled ZTE to engage with its sources while it worked to reach the present agreements. ZTE could find its access to U.S. technology exports revoked if it is found in violation of its agreement with BIS over the seven-year period.

"The agreements we reached will enable us to move forward in a stronger position than ever before," added Dr. Zhao. "We are grateful to all of our customers, partners, employees, and stakeholders who have stood by us throughout this difficult time. With this agreement behind us and our compliance program firmly established, we can confidently grow our business with suppliers, continue to provide innovative technology solutions to our partners, and execute our growth strategies as a new ZTE."

The agreements not only clear away the clouds that hung over ZTE, but those above its suppliers as well. In the optical communications space, those include Acacia Communications, NeoPhotonics, and Oclaro (see "Optical component suppliers brace for ZTE export ban effects").

For related articles, visit the Business Topic Center.

For more information on high-speed transmission systems and suppliers, visit the Lightwave Buyer's Guide.

More in Companies