Thursday, 27 April 2017

US fines ZTE $1.2bn for shipping kit to Iran, North Korea

By Nick Wood, Total Telecom
Tuesday 07 March 17

Chinese kit maker slapped with record-breaking penalty for 'systemically misleading' authorities.

ZTE has been fined $1.19 billion (€1.13 billion) by the U.S. government for illegally shipping network equipment to Iran and North Korea. The Chinese kit maker was also found to have lied to investigators and destroyed evidence of its misdeeds in order to cover its tracks. As part of a settlement with U.S. authorities, ZTE has agreed to active audit and compliance requirements designed to prevent and detect future violations. If ZTE steps out of line, a seven-year ban on exports of ZTE products containing U.S.-made technology will be triggered…

ZTE has been fined $1.19 billion (€1.13 billion) by the U.S. government for illegally shipping network equipment to Iran and North Korea.

The Chinese kit maker was also found to have lied to investigators and destroyed evidence of its misdeeds in order to cover its tracks.

As part of a settlement with U.S. authorities, ZTE has agreed to active audit and compliance requirements designed to prevent and detect future violations. If ZTE steps out of line, a seven-year ban on exports of ZTE products containing U.S.-made technology will be triggered.

"Those who flout our economic sanctions and export control laws will not go unpunished – they will suffer the harshest of consequences," said commerce secretary Wilbur Ross, in a statement.

"ZTE acknowledges the mistakes it made, takes responsibility for them, and remains committed to positive change in the company," said ZTE chairman and CEO Zhao Xianming.

An investigation by U.S. authorities revealed that between January 2010 and April 2016, ZTE conspired to evade export controls on Iran in order to secure lucrative deals to supply and operate telecom networks there. It did so through the establishment and use of several shell companies.

Shipped items included routers, microprocessors, and servers.

ZTE was also found to have made 283 shipments of controlled products to North Korea with knowledge that by doing so it was violating export rules.

When confronted by the authorities, ZTE falsely claimed to have stopped shipments to Iran in March 2012. It then took measures to destroy evidence that it was still breaking the rules.

This included forming a 13-member team tasked with deleting, removing, or sanitising all materials pertaining to its illicit activities post-March 2012. Members of this team were required to delete their emails on a nightly basis and sign a non-disclosure agreement (NDA) related to any material they destroyed. They faced a $150,000 fine for breaking the NDA.

"Despite ZTE's repeated attempts to thwart the investigation, the dogged determination of investigators uncovered damning evidence of an orchestrated, systematic scheme to violate U.S. export controls by supplying equipment to sanctioned destinations," said Douglas Hassebrock, director of the Bureau of Industry and Security's office of export enforcement, which spearheaded the investigation.

Under the settlement, ZTE has agreed to pay civil penalties of $661 million, $300 million of which will be suspended during the aforementioned seven-year probationary period. It is the largest fine ever imposed by the Department of Commerce's Bureau of Industry Security (BIS).

A U.S. court is also considering imposing a criminal fine of $430.49 million on ZTE. In addition, the company has also agreed to pay the Department of the Treasury's office of foreign assets control (OFAC) $100.87 million.

Including the $300 million suspended civil penalty, ZTE's bill stands at $1.19 billion.

"The results of this investigation and the unprecedented penalty reflects ZTE's egregious scheme to evade U.S. law and systematically mislead investigators," Ross said. "This penalty is an example of the extraordinary powers the Department of Commerce will use to vigorously protect the interests of the United States."

Revelations about the U.S. finding evidence of ZTE's illegal activities emerged in March 2016. The company was threatened with sanctions that would have prevented it from incorporating U.S.-made technology, such as those made by the likes of IBM, Qualcomm and the like, into its equipment.

In February this year, ZTE's Xianming revealed that he expected the company to be fined, warning that any penalties imposed would have a material impact on ZTE's finances. ZTE is due to publish its latest financial results later this month.

"Instituting new compliance-focused procedures and making significant personnel changes has been a top priority for the company," Xianming said. "We have learned many lessons from this experience and will continue on our path of becoming a model for export compliance and management excellence. We are committed to a new ZTE: compliant, healthy and trustworthy."

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