Remember the Myth of Arthur Andersen—that if you go to trial in a corruption case and lose, the company will be irreparably harmed and even destroyed. It was cited by almost every compliance practitioner, Justice Department lawyer, general counsel, and even chief executive as the reason never to go to trial in a corruption case: A loss could end your company. That myth was debunked in the book The Chickensh*t Club where Jesse Eisenger said it was a PR campaign developed by two consultants for the company. Arthur Andersen was on the verge of collapse for a whole host of business-related reasons, and the guilty verdict for destruction of documents had little or nothing to do with the company going under. 

The ZTE sanctions case, however, is a prime example of a company being forced out of business through a regulatory sanction. In April, ZTE announced it was halting operations after the U.S. Department of Commerce assessed an additional penalty above the $1.2 billion fine levied on it in 2016. This additional penalty banned shipments of U.S. technology to ZTE for seven years for ZTE’s failure to follow the deferred prosecution agreement it was under, actively breaking it and then lying about it to regulators. This additional sanction essentially cutoff ZTE from its suppliers, and it could not make cell phones. It also (allegedly) put some 75,000 Chinese employees out of work. 

In a new twist, President Trump came out supporting the Chinese company, tweeting: “Too many jobs in China lost!” He then added: “Commerce Department has been instructed to get it done!” Leaving aside the issue of the President ordering a U.S. regulator to rescind a fine he does not like, it points out how dramatically regulators can impact the lifeblood of any organization. There has been no evidence presented that the additional sanction was a regulatory overreach based upon the company’s conduct (or lack thereof). Indeed, the court-appointed monitor has not publicly reported any violation(s) of the DPA by ZTE. 

The ghost of Arthur Andersen appears in the form of a U.S. president criticizing U.S. regulators for penalizing a Chinese company for failing to fulfill the terms of a U.S. criminal settlement. What will it mean going forward?

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