ZTE Corp to pay $892 mn for violating US sanctions on Iran and N Korea

Chinese telecom equipment maker ZTE Corp yesterday pleaded guilty and agreed to pay $892 million to settle criminal charges for violating US sanctions on Iran and North Korea and obstructing justice.

The penalty is the largest criminal fine imposed in a US sanctions case.

The US government had alleged that the Shenzhen-based company had illegally shipped telecommunications equipment to Iran and North Korea in violation of its Export Administration Regulations (EAR) and the Iranian Transactions and Sanctions Regulations (ITSR). 

As part of the settlement, ZTE, China's second-largest maker of telecom equipment, will pay a penalty of $661 million to Commerce's Bureau of Industry Security (BIS), with $300 million suspended during a seven-year probationary period to deter future violations.

This civil penalty is the largest ever imposed by the BIS and, if the criminal plea is approved by a federal judge, the combined $1.19 billion in penalties from Commerce, the Department of Justice, and the Department of Treasury, would be the largest fine and forfeiture ever levied by the US government in an export control case.

The US government alleged that from January 2010 through April 2016, ZTE conspired to evade the long-standing US embargo against Iran in order to obtain contracts with and related sales from Iranian entities, including entities affiliated with the Iranian Government, to supply, build, operate, and/or service large-scale telecommunications networks in Iran, with US-origin equipment and software.

As a result of the conspiracy, ZTE, which makes smartphones and telecommunications infrastructure equipment, was able to obtain hundreds of millions of dollars in contracts with and sales from such Iranian entities.  Additionally, ZTE undertook other actions involving 283 shipments of controlled items to North Korea with knowledge that such shipments violated the EAR.

Shipped items included routers, microprocessors, and servers controlled under the EAR for national security, encryption, regional security, and/or anti-terrorism reasons.  In addition, ZTE engaged in evasive conduct designed to prevent the US government from detecting its violations.

During the course of the investigation, ZTE made knowingly false and misleading representations and statements to BIS and other US law enforcement agencies, including that the company had previously stopped shipments to Iran as of March 2012, and was no longer violating US export control laws.

ZTE also engaged in an elaborate scheme to prevent disclosure to and affirmatively mislead the US Government, by deleting and concealing documents and information from the outside counsel and forensic accounting firm that ZTE had retained with regard to the investigation.

''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 headed the investigation.

''ZTE acknowledges the mistakes it made, takes responsibility for them and remains committed to positive change in the company,'' said Zhao Xianming, chairman and chief executive of ZTE in a statement.

The US Commerce Department is also investigating ZTE's larger Chinese rival, Huawei, for violating its sanctions on exporting or re-exporting of US technology to Cuba, Iran, North Korea, Sudan and Syria, all of whom are under US sanctions.