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U.S. judge extends term of ZTE monitor: Here’s why

Jaclyn Jaeger | October 5, 2018

A U.S. district court judge has extended for two more years the term of ZTE’s court-appointed compliance monitor after the telecommunications company violated a condition of its probation resulting from U.S. sanctions violations.

In an order issued Oct. 3, Judge Ed Kinkeade of the U.S. District Court for the Northern District of Texas, extended the term of the compliance monitor through March 22, 2022 (the original term would have ended in 2020). Kinkeade appointed the monitor last year to review and report on ZTE’s export compliance program, after ZTE paid a record-high combined civil and criminal penalty of $1.19 billion for violating U.S. sanctions by sending U.S.-origin items to Iran.

In a denial order issued in April 2018, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) said it had “determined ZTE made false statements to BIS in 2016, during settlement negotiations, and 2017, during the probationary period, related to senior employee disciplinary actions the company said it was taking or had already taken.” BIS added that ZTE’s false statements were reported to the U.S. government only after BIS requested information and documentation showing that employee discipline had occurred. 

“ZTE made false statements to the U.S. government when they were originally caught and put on the entity list, made false statements during the reprieve it was given, and made false statements again during its probation,” Secretary of Commerce Wilbur Ross said in a statement.

These false statements covered up the fact that ZTE paid full bonuses to employees that had engaged in illegal conduct and failed to issue letters of reprimand. “ZTE misled the Department of Commerce,” Ross added. “Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored.”

On June 7, 2018, BIS then reached a superseding settlement agreement with ZTE, in which ZTE admitted that it made false statements to the U.S. government in a July 2017 letter. ZTE later provided a copy of that letter to the monitor, “thereby relaying the same false statements to the monitor,” Kinkeade’s order states.

“Because ZTE furnished the monitor with false statements, the court finds that the defendant violated a condition of its corporate probation,” the order states. As a result, the monitor recommended modifying ZTE’s probation.

Consequently, the court has modified the terms of ZTE’s probation by ordering the monitor to “continually monitor and assess ZTE’s compliance with U.S. export laws.” The monitor must also continue to look over “compliance of ZTE’s subsidiaries and affiliates worldwide with U.S. export laws.”

“The monitor’s assessments and reports shall encompass, without limitations, ZTE’s compliance program and all related policies, practices, procedures, and systems regarding all exports, reexports, or transfers (in-country) or other activities that are subject to the Act, the regulations, and the prevention, detection, and reporting of violations of U.S. export controls.”