ZTE, a multinational telecommunications equipment and systems company has admitted it conspired to violate the International Emergency Economic Powers Act by “illegally shipping U.S.-origin items to Iran, obstructing justice and making a material false statement,” according to the Justice Department.
Specifically, ZTE pleaded guilty to one count of conspiring to unlawfully export in violation of the IEEPA, one count of obstruction of justice and one count of making a material false statement. The company agreed to pay a fine in the amount of $286,992,532 and a criminal forfeiture in the amount of $143,496,266, and submit to a three-year period of corporate probation, during which time an independent corporate compliance monitor will review and report on its export compliance program.
The company simultaneously reached settlement agreements with the U.S. Department of Commerce’s Bureau of Industry and Security and the U.S. Department of the Treasury’s Office of Foreign Assets Control. In total ZTE has agreed to pay the U.S. Government $892,360,064. The BIS has suspended an additional $300 million, which the company will pay if it violates its settlement agreement with the BIS.
According to plea documents filed in the case, between January 2010 and January 2016, ZTE, either directly or indirectly through a third company, shipped approximately $32 million of U.S.-origin items to Iran without obtaining the proper export licenses from the U.S. government. In early 2010, the company began bidding on two different Iranian projects. The projects involved installing cellular and landline network infrastructure. Each contract was worth hundreds of millions of U.S. Dollars and required U.S. components for the final products.
In December 2010, ZTE finalized the contracts with Iranian customers, the Justice Department says. The contracts were signed by four parties: the Iranian customer, ZTE, Beijing 8 Star and ZTE Parsian (ZTE’s subsidiary in Iran).
Court documents explain that ZTE identified Beijing 8 Star as a possible vehicle for hiding its illegal shipments of U.S. items to Iran. It intended to use the company to export U.S.-origin items from China to ZTE customers in Iran. As part of this plan, ZTE supplied 8 Star with necessary capital and took over control of the company.
In early 2011, when ZTE determined that the use of 8 Star was insufficient to hide its connection to the illegal export of U.S.-origin goods to Iran, senior management ordered that a company-level export control project team study, handle, and respond to the company’s export control risks. In September 2011, four senior managers signed an Executive Memo, which proposed that the company identify and establish new “isolation companies” that would be responsible for supplying U.S. component parts necessary for projects in embargoed countries.
The isolation companies would conceal ZTE’s role in the transshipment scheme and would insulate it from export control risks, the Justice Department alleges.
In March 2012, Reuters published an article regarding ZTE’s sale of equipment to Iran. In response, the company made a decision to temporarily cease sending new U.S. equipment to Iran. By November 2013, however, it had resumed its business with Iran.
Beginning in July 2014, ZTE began shipping U.S.-origin equipment to Iran once again without the necessary licenses. Instead of using 8 Star, however, it signed a contract with a new isolation company, which in turn signed contracts with two Iranian customers.
“Despite its knowledge of an ongoing grand jury investigation into its Iran exports, according to plea documents, ZTE took several steps to conceal relevant information from the U.S. government,” a statement by the Justice Department says. “It further took affirmative steps to mislead the U.S. government. In the summer of 2012, ZTE asked each of the employees who were involved in the Iran sales to sign nondisclosure agreements in which the employees agreed to keep confidential all information related to the company’s U.S. exports to Iran.”
ZTE also hid data related to its resumed illegal sales to Iran from a forensic accounting firm hired by defense counsel to conduct an internal investigation into the company’s Iran sales, the government alleges.