China’s ZTE pleads guilty, settles with U.S. over Iran, NKorea sales

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By Karen Freifeld | NEW YORK

NEW YORK Chinese telecom equipment maker ZTE
Corp has agreed to pay $892 million and plead guilty
to criminal charges for violating U.S. laws that restrict the
sale of American-made technology to Iran and North Korea.

While a guilty plea deals a blow to ZTE’s reputation, the
resolution could lift some uncertainty for a company that relies
on U.S. suppliers for 25 percent to 30 percent of its

A five-year investigation found ZTE conspired to evade U.S.
embargoes by buying U.S. components, incorporating them into ZTE
equipment and illegally shipping them to Iran.

In addition, it was charged in connection with 283
shipments of telecommunications equipment to North Korea.

“ZTE Corporation not only violated export controls that keep
sensitive American technology out of the hands of hostile
regimes like Iran’s, they lied … about their illegal acts,”
U.S. Attorney General Jeff Sessions said in a statement.

ZTE agreed to plead guilty to conspiring to violate the
International Emergency Economic Powers Act, obstruction of
justice for an elaborate cover-up, and making a material false
statement for claims it was complying with regulations

The investigation, spearheaded by the U.S. Department of
Commerce, followed reports by Reuters in 2012 that ZTE had
signed contracts to ship millions of dollars worth of hardware
and software from some of the best-known U.S. technology
companies to Iran’s largest telecoms carrier.

The Justice Department noted one Reuters article in its
statement announcing the plea deal on Tuesday. The original
report can be read here: here

“ZTE acknowledges the mistakes it made, takes
responsibility for them, and remains committed to positive
change in the company,” ZTE Chief Executive Zhao Xianming said
in a statement.

The company’s guilty pleas, which must be approved by a
judge, will take place in U.S. District Court in Texas. The
Shenzhen-based company has a U.S. subsidiary in Richardson,

In March 2016, ZTE was placed on a list of entities that
U.S. firm could not supply without a license. ZTE acted contrary
to U.S. national security or foreign policy interests, the
Commerce Department said at the time.

Commerce will recommend that ZTE be removed from that list
if the company lives up to its deal and a court approves its
agreement with the Justice Department.

ZTE warned last month the penalties could impact its
results. The company has a market capitalization of about 60
billion yuan ($8.7 billion), according to Thomson Reuters

It has continued to do business with U.S. suppliers under a
temporary general license that was extended several times, with
the latest reprieve expiring March 29.

ZTE purchases about $2.6 billion worth of components a year
from U.S. technology companies, according to a company
spokesman. Qualcomm, Microsoft and Intel are among its suppliers.

Items shipped in violation of U.S. export laws included routers, microprocessors and servers controlled under export

Authorities said executives at ZTE approved the scheme to
prevent disclosure of the sales. The scheme included a data team
that destroyed or sanitized materials involving ZTE’s Iran
business after March 2012.

“Despite ZTE’s repeated attempts to thwart the
investigation, the dogged determination of investigators
uncovered damning evidence,” said Douglas Hassebrock, director
of the Commerce Department office that led the investigation.

Last year, Commerce released internal documents showing
senior ZTE executives instructing the company to carry out a
project for dodging export controls in Iran, North Korea, Syria,
Sudan and Cuba.

ZTE replaced executives allegedly involved, including naming
a new president. Last month, it announced that Shi Lirong, who
stepped down as president in April, resigned as a non-executive

The company on Tuesday agreed to a seven-year suspended
denial of export privileges, which could be activated if there
are further violations. A denial order would bar the receipt of
U.S. origin goods and technology.

The denial order is key to keeping ZTE in line, said Eric
Hirschhorn, former Under Secretary at the Commerce Department,
who was involved in the investigation.

“If the suspension is removed, they’ll probably be put out
of business,” he said.

ZTE also agreed to three years of probation, a compliance
and ethics program, and a corporate monitor.

The settlement includes a $661 million penalty to Commerce;
$430 million in combined criminal fines and forfeiture; and $101
million paid to the Treasury’s Office of Foreign Assets Control
(OFAC). The action marks OFAC’s largest-ever settlement with a
non-financial entity.

ZTE also agreed to an additional penalty of $300 million to
the U.S. Commerce Department that will be suspended during a
seven-year term on the condition the company complies with
requirements in the agreement.

In addition to being one of the world’s biggest
telecommunications gear makers, ZTE is the No. 4 smartphone
vendor in the United States, selling handset devices to U.S.
mobile carriers AT&T Inc, T-Mobile US Inc and
Sprint Corp.

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