Chinese telecom giant ZTE Corp. has agreed to “severe additional penalties and compliance measures” to replace the U.S. Commerce Department’s Bureau of Industry and Security (BIS) denial order that was recently levied on it.
The announcement was made on Thursday by Secretary of Commerce Wilbur Ross.
In March 2017, ZTE agreed to pay a combined civil and criminal penalty of $1.19 billion for violating sanctions laws by sending U.S.-origin items to Iran. The plea agreement also required ZTE to submit to a three-year period of corporate probation, during which time an independent corporate compliance monitor would review and report on ZTE’s export compliance program.
In April, in response to its violation of the terms in the Justice Department settlement, the BIS imposed a “denial of export privileges” against Zhongxing Telecommunications Equipment Corp. of Shenzhen, China, and ZTE Kangxun Telecommunications of Hi-New Shenzhen, China.
A denial of export privileges prohibits a person from participating in any way in any transaction subject to the order. It is unlawful for other businesses and individuals to participate in any way in an export transaction subject to the restrictions placed on a denied person. The government’s action meant that American companies were prohibited from selling parts and software to ZTE for seven years.
Under the new agreement, which originated from trade talks between the White House and China, ZTE must pay $1 billion and place an additional $400 million in suspended penalty money in escrow before the BIS will remove ZTE from the Denied Persons List. These penalties are in addition to the $892 million in penalties ZTE has already paid to the U.S. government under the March 2017 settlement agreement.
ZTE will also be required by the new agreement to retain a team of special compliance coordinators. selected by and answerable to the BIS, for a period of 10 years. Its function will be to monitor on a real-time basis ZTE’s compliance with U.S. export control laws. This is the first time the BIS “has achieved such stringent compliance measures in any case,” Ross said.
ZTE is also required under the new agreement to replace the entire board of directors and senior leadership for both entities.
The agreement also, once again, imposes a denial order that is suspended, this time for 10 years, which the BIS can activate in the event of additional violations during the ten-year probationary period. “These collectively are the most severe penalty BIS has ever imposed on a company,” Ross said.
“BIS is imposing the largest penalty it has ever levied and requiring that ZTE adopt unprecedented compliance measures,” he added. “We will closely monitor ZTE’s behavior. If they commit any further violations, we would again be able to deny them access to U.S. technology as well as collect the additional $400 million in escrow.”
“The purpose of this settlement is to modify ZTE’s behavior while setting a new precedent for monitoring to assure compliance with U.S. law,” a statement from the Commerce Department says. “Embedding compliance officers into the company vastly improves the speed with which the Department of Commerce can detect and deal with any violations.”
The Commerce Department’s BIS is the principal agency involved in the implementation and enforcement of export controls for commercial technologies and many military items. The BIS Office of Export Enforcement detects, prevents, investigates, and assists in the sanctioning of illegal exports of such items.