The Man From FCPA is continually reminded that much of the basis of compliance is grounded in wisdom imparted by our parents. Today, we are reminded of one of the most basic ones: Do not lie. 

That lesson apparently did not reach Chinese state-owned telecom company ZTE, which engaged in one of the most basic violations of protocols when it apparently lied to the Justice Department about actions it had agreed to take when it secured its Deferred Prosecution Agreement for export control violations. 

The falsehood came after ZTE agreed in its DPA to discipline certain Chinese employees who had engaged in the underlying export control violations in the first instance. But more than failing to discipline the employees, it paid full bonuses to them and then lied about it to U.S. regulators. For this egregious action, the U.S. government banned American companies from selling hardware and software to ZTE for a period of seven years. The ban is seen as a threat to the company’s very existence, as most of its smartphones are constructed with parts from U.S. manufacturers such as Qualcomm and Google. 

ZTE has objected, saying the penalty is too severe and will hurt U.S. manufacturers more than it hurts ZTE. The company has also sought and obtained permission to present additional information to the Commerce Department. The problem? ZTE can only present information on the damages it will sustain from the additional penalty, not that it failed to comply with the underlying requirement in its DPA. While it is not entirely clear, it appears ZTE in some manner disciplined its former CCO for this failure, either terminating or demoting him. 

The bottom line is that your parents were right: It never pays to tell a lie. This common bit of wisdom applies exponentially when you are an international concern, under a DPA for your past sins and have agreed to engage in certain remedial actions. It is one thing not to complete your remediation on time; it is quite another to violate your DPA and then lie about it to regulators.  

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