In Wilbur Ross' first public announcement, the former hedge fund manger and current Trump commerce secretary announced that China's telecommunications giant ZTE has agreed to pay a total of $1.2 billion in penalties and plead guilty to violating U.S. sanctions on Iran, selling US technology to Tehran, and obstructing a federal investigation, ending a five-year probe that has raised trade tensions between the U.S. and China. The penalty was among the largest ever in a sanctions case.
ZTE was accused that over a six-year-long period, it planned to obtain technology products from the U.S., incorporate them into ZTE equipment and ultimately ship the equipment to Iran. The company agree to settle because as the WSJ adds, it avoided a more-devastating supply cutoff of U.S. components, which the Commerce Department slapped on ZTE in March 2016 and immediately suspended as a settlement was negotiated. Without key components such as Qualcomm processors for its smartphones, ZTE’s ability to produce some of its major products could have been crippled in a matter of months, putting it at the risk of bankruptcy.
The Chinese telecom giant will pay an initial fine of $892 million as part of the settlement, and will plead guilty to conspiring to violate the International Emergency Economic Powers Act, among other charges, in the agreement with the U.S. Department of Commerce, Department of Treasury and Department of Justice.
“The highest levels of management within the company approved the scheme,” and the company “repeatedly lied to and misled federal investigators,” said Mary McCord, who runs the Justice Department’s national security division.
The Commerce Department investigation followed reports by Reuters in 2012 that ZTE had signed contracts to ship millions of dollars worth of hardware and software from some of the best-known U.S. technology companies to Iran's largest telecoms carrier.
"ZTE acknowledges the mistakes it made, takes responsibility for them, and remains committed to positive change in the company," ZTE Chairman and Chief Executive Zhao Xianming said on Tuesday in a statement. An agreement caps a year of uncertainty for the Shenzhen-based company, which in March 2016 was placed on a list of entities that U.S. suppliers could not work with without a license. ZTE acted contrary to U.S. national security or foreign policy interests, the Commerce Department said at the time.
Commerce will recommend that ZTE be removed from that list if the company lives up to its deal and a court approves its agreement with the Justice Department.
According to Reuters, ZTE said it has agreed to an additional penalty of $300 million to a division of the Commerce Department that will be suspended during a seven-year term on the condition that the company complies with requirements in the agreement. The settlement includes $101 million to settle potential civil liability for Iran sanction violations. The action marks the Treasury’s Office of Foreign Assets Control's largest settlement to date with a non-financial entity.
One of the world’s biggest telecommunications gear makers and the No. 4 smartphone vendor in the United States, ZTE sells handset devices to U.S. mobile carriers AT&T, T-Mobile US and Sprint. It relies on U.S. companies including Qualcomm, Microsoft and Intel for components.