Wednesday, 26 April 2017

US fine pushes ZTE into the red

By Nick Wood, Total Telecom
Wednesday 08 March 17

Chinese vendor warns of €323.4 million full-year loss on Iran export settlement.

ZTE on Wednesday warned that it will swing to a full-year loss after the U.S. fined it $1.19 billion (€1.13 billion) for illegally shipping network equipment to Iran and North Korea. The company published preliminary full-year results showing a net loss attributable to shareholders of 2.36 billion yuan (€323.36 million), down from a year-earlier profit of CNY3…

ZTE on Wednesday warned that it will swing to a full-year loss after the U.S. fined it $1.19 billion (€1.13 billion) for illegally shipping network equipment to Iran and North Korea.

The company published preliminary full-year results showing a net loss attributable to shareholders of 2.36 billion yuan (€323.36 million), down from a year-earlier profit of CNY3.21 billion for 2015.

"In accordance with the agreements reached by the company with the Bureau of Industry and Security (BIS) of the United States Department of Commerce, the United States Department of Justice (DoJ) and the Office of Foreign Assts Control (OFAC) of the United States Department of Treasury, the company made a provision for relating losses amounting to approximately $892 million for the reporting period," ZTE said, in a statement.

On Tuesday, the Commerce Department announced that ZTE has agreed to pay a civil penalty of $661 million, $300 million of which will be suspended for a seven-year probationary period. A U.S. court is also considering imposing of criminal fine of $430.49 million. In addition, ZTE has also agreed to pay OFAC $100.87 million.

The penalties were levied after an investigation by U.S. authorities found that between January 2010 and April 2016, ZTE systematically evaded export controls covering U.S.-made equipment shipped to Iran.

When confronted with the allegations, ZTE falsely claimed to have stopped the shipments in March 2012. It then set about destroying any evidence pertaining to its illegal activities post-March 2012.

The investigation also found that ZTE flouted sanctions covering North Korea, and made 283 shipments of controlled products to the country.

ZTE has promised to mend its ways, appointing a new CEO in Zhao Xianming, creating an independent compliance department, and appointing U.S. lawyer Matt Bell as its chief export compliance officer. A new, CEO-led compliance committee has also been tasked with implementing changes to the company's policies and procedures.

ZTE also claims to have trained 45,000 staff in export controls and sanctions laws.

Following the settlement and its newly-established compliance programme, Zhao said ZTE can move forward in a stronger position.

"We can confidently grow our business with suppliers, continue to provide innovative technology solutions to our partners, and execute our growth strategies as a new ZTE," he said.

Absent the hefty U.S. fine, ZTE would have generated a full-year net profit attributable to shareholders of CNY3.83 billion. Revenue came in at CNY101.23 billion, up 1% on 2015, while operating profit surged to CNY1.17 billion from CNY320.47 million.

ZTE attributed the growth to foreign exchange gains and increased sales at its carrier networks and consumer businesses.

The company is due to publish its full results on 23 March.

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