Deal announced for U.S. to embed ZTE compliance group for 10 years
Thursday, June 7, 2018 at 11:08AM
Richard L. Cassin in China, Wilbur Ross, ZTE, trade sanctions

Secretary of Commerce Wilbur Ross said Thursday that China's ZTE will pay $1 billion in penalties, put $400 million in escrow, and accept a U.S.-appointed compliance department.

According to a Commerce Department statement, the new agreement requires ZTE "to retain a team of special compliance coordinators selected by and answerable to" the Commerce Department for ten years.

"Their function will be to monitor on a real-time basis ZTE’s compliance with U.S. export control laws," the statement said.

Ross said earlier the compliance group will include American compliance professionals.

ZTE is also required under the new agreement to replace the entire board of directors and senior leadership for itself and a subsidiary, ZTE Kangxun Telecommunications Ltd.

"This is the first time [the Commerce Department] has achieved such stringent compliance measures in any case," Thursday's statement said.

The deal will restore ZTE's U.S. trading rights. 

In April, the Commerce Department hit ZTE with a seven-year "denial of export privileges."

The export ban came after ZTE admitted that it lied to the U.S. government about its compliance with the terms of a March 2017 settlement.

In the 2017 case, U.S. authorities alleged in civil and criminal charges that ZTE illegally shipped telecommunications equipment to Iran and North Korea. ZTE was also charged with obstruction for making false statements and destroying export records.

To settle that case, ZTE promised to discipline 35 employees by reducing their bonuses or reprimanding them. Instead it "paid full bonuses . . . and failed to issue letters of reprimand," the Commerce Department said.

April's export denial barred American companies from selling components to Shenzhen-based ZTE and the subsidiary.

After the ban, ZTE had to shut down production. It has 80,000 employees.

American companies supply critical parts for its networking gear and smartphones. San Diego-based chipmaker Qualcomm is a primary ZTE supplier.

The penalties announced Thursday are in addition to the $892 million in penalties ZTE paid to the U.S government under the 2017 settlement agreement.

The new escrow deal gives the United States access to $400 million if ZTE commits future sanctions violations.

“Today, [the Commerce Department] is imposing the largest penalty it has ever levied and requiring that ZTE adopt unprecedented compliance measures,” Secretary Ross said. “We will closely monitor ZTE’s behavior."


Richard L. Cassin is the publisher and editor of the FCPA Blog.

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