US cracks down on Chinese tech firm ZTE, UK issues warning

While the UK’s cyber-security watchdog has warned telecommunications companies against dealing with ZTE, citing “potential risks” to national security, the US has barred firms from selling it components.

The US commerce department has imposed a seven-year-ban on companies selling products and services to ZTE – which makes mobile phones and network equipment – alleging it failed to crack down on personnel who sold sensitive US technology to Iran and North Korea.

ZTE halted trading of its shares in Hong Kong and Shenzhen on Tuesday following the announcement of the US ban, while Beijing warned it would “safeguard” its companies if necessary.

In Britain, the National Cyber Security Centre (NCSC) said, “NCSC assess that the national security risks arising from the use of ZTE equipment or services within the context of the existing UK telecommunications infrastructure cannot be mitigated.”

A letter from the NCSC to companies states that the UK telecoms network already contains a “significant amount” of equipment supplied by Huawei, also a Chinese manufacturer. Adding in equipment and services from another Chinese supplier would “render our existing mitigations ineffective”.

The US Commerce Department said that ZTE lied to American officials about punishing employees who violated US sanctions against North Korea and Iran.

The Chinese company agreed to pay a $1.2-billion fine last year after a US investigation found it had illegally shipped telecommunications equipment to Iran and North Korea.

But instead of punishing those involved, "ZTE paid full bonuses to employees that had engaged in illegal conduct, and failed to issue letters of reprimand," the Commerce Department said in a statement.

As a result, the department said it has imposed a seven-year export ban on ZTE, forbidding American companies from selling parts and providing services to it.

ZTE's smartphones use microchips from Qualcomm and glass from Corning.

“Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behaviour cannot be ignored,” said the US Secretary of Commerce Wilbur Ross.

ZTE works with the UK’s BT in a research partnership, but the British firm said that did not mean it would lead to a commercial deployment of its technology in the UK.

A spokeswoman told the Financial Times, “BT takes the security of the UK’s critical national infrastructure very seriously and has a robust testing regime in place to ensure that the equipment from all suppliers used in our network remains secure.”

ZTE said in a brief statement today, "At present, the company is assessing the full range of potential implications that this event has on the company and is communicating with relevant parties proactively in order to respond accordingly."

ZTE didn't address the developments in the United Kingdom, where the country's National Cyber Security Centre warned phone carriers that using the Chinese company's equipment and services poses risks to national security.

According to CNN, The crackdown on ZTE comes at a delicate time for economic relations between Washington and Beijing. The two sides have threatened each other with waves of new tariffs on tens of billions of dollars of exports.

China's rise as a global tech powerhouse is at the heart of the trade clash. The United States accuses it of stealing American intellectual property and forcing companies to hand over sensitive technology.

Beijing has rejected the allegations, arguing that it is stepping up efforts to protect intellectual property and that any technology transferred from US companies was done so with their permission.