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Chinese Telecom ZTE Corp in America to plead guilty over Iran sales

ZTE Corp to plead guilty to US criminal charges pay hundreds of millions of dollars in penalties for violating charges that restrict sale of US tech to Iran.

By: Reuters |
Updated: March 3, 2017 3:10:17 pm
Chinese Telecom ZTE Corp, violating US laws,  ZTE to plead guilty, restricting sale of US tech to Iran, International Emergency Economic Powers Act, AT&T Inc, T-Mobile, Sprint Corp, Qualcomm, Microsoft,Intel, Technology, Technology ZTE is expected to plead guilty to conspiring to violate the International Emergency Economic Powers Act, among other charges. ( Image for representation,Source: Reuters)

Chinese telecom equipment maker ZTE Corp is nearing an agreement to plead guilty to US criminal charges and pay hundreds of millions of dollars in penalties over allegations it violated U.S. laws that restrict sale of US technology to Iran, a person familiar with the matter said.

The company has not yet signed a deal with the US Department of Commerce, the US Department of Justice and the US Department of Treasury, cautioned the person, who declined to speak on the record because the negotiations are not public.

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Others noted that with a new US administration prompting changes in personnel at government departments, a final deal may be delayed or even scuttled. But ZTE is expected to plead guilty to conspiring to violate the International Emergency Economic Powers Act, among other charges, the source said, and pay penalties in the hundreds of millions.

A ZTE spokesman declined to comment, as did spokesmen for the Justice and Treasury departments. A spokesman for the Department of Commerce did not respond to requests for comment. An agreement would cap a year of uncertainty for the Shenzhen-based company, which was placed on a list of entities March 2016 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.

One of the world’s biggest telecommunications gear makers and the No. 4 smartphone vendor in the United States, ZTE sells handset devices to US mobile carriers AT&T Inc, T-Mobile US Inc and Sprint Corp. It relies on U.S. companies including Qualcomm, Microsoft and Intel for components.

The listing could have severely disrupted the company’s supply chain, but the Commerce Department granted ZTE a temporary license so US companies could continue to do business with the Chinese firm while it cooperated with the investigation. The temporary license was extended several times, with the latest reprieve expiring on March 29.

The last extension, a ZTE spokesman told Reuters in an email last week, was “a sign of the progress” made. ZTE was working with the U.S. government “toward permanent removal from the Entity List,” the company spokesman said at that time, and under new leadership was conducting business in a way that “meets and exceeds export compliance standards.”

The spokesman’s comments followed a Feb. 14 filing by ZTE to the Shenzhen Stock Exchange. The ZTE filing said it was negotiating with the U.S. Commerce, Treasury and Justice departments to conclude the investigation. ZTE said that the outcome remained uncertain, but that it would likely have a material impact on its financials. ZTE has annual sales of more than $15 billion.

SCRUTINY CAN MEAN COMFORT

The implications of a guilty plea are unclear. Experts said it can result in a denial order, which imposes a complete bar on the receipt of US origin goods and technology. But, as part of a settlement, the order could be suspended for years.

Typically, the reputational taint of a guilty plea on U.S. suppliers or customers would be limited in duration, according to Washington attorney Douglas Jacobson, an export controls and sanctions expert. “In fact, a company that has faced the type of scrutiny that ZTE has … actually gives U.S. suppliers and customers a greater degree of comfort that they will be a compliant company in the future,” said Jacobson, who represents some US suppliers to ZTE.

The Commerce Department released alleged internal documents last year, showing senior ZTE executives instructing the company to carry out a project for dodging export controls in Iran, North Korea, Syria, Sudan and Cuba. ZTE replaced the senior executives allegedly involved, including naming a new president, and also appointed a new, U.S.-based chief export compliance officer. The Shenzhen-based company has a US subsidiary in Richardson, Texas.

Also Read: ZTE to launch its first 5G-compatible gigabit LTE smartphone at MWC: Report

A settlement also would likely include the imposition of a compliance monitor, experts have told Reuters. The uncertainty has already weighed on ZTE’s business. In January, company sources told Reuters that the equipment maker was cutting about 3,000 jobs, or 5 percent of its 60,000 global workforce.

The Commerce Department investigation followed reports by Reuters in 2012 that the company had signed contracts to ship millions of dollars worth of hardware and software from some of America’s best-known technology companies to Iran’s largest telecoms carrier.

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