The Department of Commerce announced a resolution of its sanction against Chinese entity ZTE, which had appeared to put the company’s future existence in jeopardy. That sanction was an export denial barring American companies from selling components to ZTE and its subsidiary, ZTE Kangxun Telecommunications Ltd. American companies, such as San Diego-based chipmaker Qualcomm, supplied critical parts for its networking gear and smartphones. This sanction came on the heels of an $891 million fine and penalty the company agreed to in March 2017 for its first round of export control violations. The second sanction was for failing to live up to the terms of the DPA the company agreed to in 2017.
In 2017, ZTE agreed to a monitor, who was appointed by the District Court in line with the company’s guilty plea. Under the May 2018 supplemental sanction, ZTE agreed to pay an additional $1 billion in penalties, put $400 million in escrow, and accept a U.S.-appointed compliance department. According to a Department of Commerce press release, the new agreement requires ZTE “to retain a team of special compliance coordinators selected by and answerable to” the Commerce Department for ten years. This new compliance function will essentially serve as the Department of Commerce’s monitor at ZTE and, as the press release noted, “Their function will be to monitor on a real-time basis ZTE’s compliance with U.S. export control laws.”
While a requirement for two monitors is not completely unheard of and has been used in unique circumstances, such as when an anti-corruption settlement encompasses two countries, it is almost unheard of in the export control context. What is not clear is how the Department of Commerce monitors will work with the court appointed monitor. What will happen if the District Court refuses to accept the new Department of Commerce monitor? Or their findings? What if the court-appointed monitor orders ZTE to do something different than the Department of Commerce monitor suggests?
It will be interesting to see in the weeks ahead how the dual monitorship phase plays out, as the Department of Commerce is certainly in unchartered waters.