March 7, 2017
China's ZTE has agreed to pay a fine of $892 million to settle its year-long trade dispute with US authorities.
The maker of network equipment and phones is pleading guilty to charges that it violated export controls by selling products in Iran that included components made in the US. (See ZTE Faces Trade Restrictions Over Iran Links.)
The hefty fine is equal to about 6% of ZTE's 2015 revenues -- the company has yet to report figures for 2016 -- but a continuation of the dispute could have proven far more damaging for the Chinese vendor.
Export restrictions imposed after charges were first brought against ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) made it hard for the company to obtain hardware and software developed by US companies, with ramifications for ZTE's supply chain.
ZTE is believed to source components from US technology players including IBM Corp. (NYSE: IBM), Intel Corp. (Nasdaq: INTC), Microsoft Corp. (Nasdaq: MSFT), Qualcomm Inc. (Nasdaq: QCOM) and a number of smaller players, which also stood to lose business while the export restrictions were in force. (See US Lifts ZTE Export Ban – Report and ZTE: What On Earth Were They Thinking?)
According to a statement from the US Department of Justice (DoJ), ZTE went to considerable lengths to cover up its illegal activities in Iran: Transactions were carried out through a company called 8S, which ZTE acquired for the specific purpose of distancing itself from any wrongdoing.
"ZTE Corporation not only violated our export control laws but, once caught, shockingly resumed illegal shipments to Iran during the course of our investigation," said US Attorney John Parker in the DoJ's statement. "ZTE Corporation then went to great lengths to devise elaborate, corporate-wide schemes to hide its illegal conduct, including lying to its own lawyers."
In an emailed statement, ZTE said it had agreed to pay a criminal and civil penalty of $892 million as well as an additional fine of $300 million to a division of the US Commerce Department.
That $300 million penalty, however, will be suspended if ZTE complies with various requirements and continues to work with an independent compliance monitor and auditor.
Following the agreement, the Commerce Department is to recommend that ZTE's name be taken off a list of organizations that cannot freely do business with US suppliers.
"ZTE acknowledges the mistakes it made, takes responsibility for them and remains committed to positive change in the company," said Zhao Xianming, ZTE's chairman and CEO. "Instituting new compliance-focused procedures and making significant personnel changes has been a top priority for the company."
For all the latest news from the wireless networking and services sector, check out our dedicated Mobile content channel here on Light Reading. Previously ZTE's chief technology officer, Zhao took charge of the company in April last year when former CEO Shi Lirong quit following the run-in with US authorities. (See ZTE CEO to Quit in US Export-Ban Dispute.) The dispute also led to the resignations at the same time of executive vice presidents Tian Wenguo and Qiu Weizhao. ZTE has subsequently appointed a US lawyer called Matt Bell as chief export compliance officer and taken a number of other steps to improve compliance. Those include the creation of a compliance committee and the development of automated software systems that are designed to screen shipments from ZTE and its subsidiaries for export control obligations. ZTE also said that it had trained more than 45,000 employees on export controls, sanctions laws and company policies in 2016. — Iain Morris, , News Editor, Light Reading
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