On March 23, 2017, ZTE entered into a settlement agreement with the U.S. government to resolve civil and criminal allegations that ZTE violated U.S. sanctions and export control laws by illegally shipping products from the U.S. to Iran and North Korea. Under the agreement, ZTE agreed to pay a combined fine of up to $1.19 billion and agreed not to commit further violations while revoking its export privileges for a period of seven years.  The settlement agreement also made ZTE subject to mandatory periodic reports. In accordance with this requirement, on February 2, 2018, the U.S. government requested a progress report on individuals whose ZTE had previously stated to have been disciplined as part of the Company`s efforts to respond to violations that led to the settlement agreement. ZTE`s progress report showed that the company provided false information about its disciplinary actions and only committed to correcting its previous misrepresentations after receiving the request for information dated February 2, 2018. As a result, the BIS activated the seven-year rejection order and placed ZTE on the list of rejected persons. This decision effectively cut ZTE off from U.S.
components and software and had far-reaching global implications for operators and consumers with ZTE mobile phones. “ZTE has embarked on a sophisticated plan to acquire items from the United States, send the items to Iran and conceal its involvement in those exports. The lawsuit agreement pending before the court alleges that the company`s highest levels of management approved the plan. ZTE then repeatedly lied to federal investigators, its own lawyers, and internal investigators and misled them. His actions were outrageous and deserved significant punishment,” said Deputy Attorney General McCord. “Enforcing U.S. export control and sanctions laws is an important part of the National Security Division`s commitment to protecting U.S. national security. Companies that violate these laws – including foreign companies – will be investigated and held accountable for their actions. Under the terms of the new settlement agreement, ZTE must pay a $1 billion fine and deposit an additional $400 million in suspended deposit account before ZTE is removed from the rejected list. The $1.4 billion fine is in addition to the $892 million ZTE paid under the 2017 settlement agreement, resulting in a total penalty of $2.29 billion.
ZTE will also need to replace its entire board and management team, and retain a team of dedicated compliance coordinators selected by the BIS for ten years. The agreement includes a new ten-year suspended rejection order that can activate the BIS if ZTE commits further violations during the ten-year probationary period. The administration`s decision to rescind ZTE`s rejection order in exchange for the new settlement agreement is strongly rebuked by Congress, which has already introduced several ZTE-targeted amendments to the legislation underway in recent weeks. For example, Senator Chris Van Hollen (D-MD) recently introduced an amendment that has since been included in the Senate National Defense Authorization Bill (NDAA) that would prohibit President Trump from changing sanctions for ZTE unless he confirms to Congress that ZTE has fully complied with U.S. law for a period of one year. And shortly after the Commerce Department announced the new settlement agreement, Senators Tom Cotton (R-AR), Van Hollen and Chuck Schumer (D-NY) introduced a bipartisan amendment to the NDAA that would reintroduce penalties for ZTE once the NDAA went into effect, and called on the president to make certain certifications before the sanctions were lifted. Senator Mark R. Warner (D-VA), vice chairman of the Senate Intelligence Committee and a member of the Senate Banking and Finance Committee, also issued a statement highlighting the U.S.
government`s broader national security concerns about ZTE. The plea agreement, which is subject to court approval, also requires ZTE to undergo a three-year corporate probation period, during which an independent company compliance monitor will review and report on ZTE`s export compliance program. .