US com­pa­nies barred from sell­ing to China’s ZTE for seven years

Financial Chronicle - - COMPANIES - STEVE STECKLOW & KAREN FREIFELD

THE US depart­ment of com­merce is ban­ning Amer­i­can com­pa­nies from sell­ing com­po­nents to lead­ing Chi­nese tele­com equip­ment maker ZTE Corp for seven years for vi­o­lat­ing the terms of a sanc­tions vi­o­la­tion case, US of­fi­cials said on Mon­day.

The Chi­nese com­pany, a top smart­phone seller in the United States, pleaded guilty last year in fed­eral court in Texas for con­spir­ing to vi­o­late US sanc­tions by il­le­gally ship­ping US goods and tech­nol­ogy to Iran. It paid $890 mil­lion in fines and penal­ties, with an ad­di­tional penalty of $300 mil­lion that could be im­posed.

As part of the agree­ment, Shen­zhen-based ZTE Corp promised to dis­miss four se­nior em­ploy­ees and dis­ci­pline 35 oth­ers by ei­ther re­duc­ing their bonuses or rep­ri­mand­ing them, se­nior com­merce depart­ment of­fi­cials told Reuters. But the Chi­nese com­pany ad­mit­ted in March that while it had fired the four se­nior em­ploy­ees, it had not dis­ci­plined or re­duced bonuses to the 35 oth­ers.

ZTE “pro­vided in­for­ma­tion back to us ba­si­cally ad­mit­ting that they had made these false state­ments,” said a se­nior depart­ment of­fi­cial. “That was in re­sponse to the US ask­ing for the in­for­ma­tion.”

“We can’t trust what they are telling us is truth­ful,” the of­fi­cial said. “And in in­ter­na­tional com­merce, truth is pretty im­por­tant.”

Dou­glas Ja­cob­son, an ex­ports con­trol lawyer who rep­re­sents sup­pli­ers to ZTE, called the ban highly un­usual and said it would se­verely af­fect the com­pany.

“This will be dev­as­tat­ing to the com­pany, given their reliance on US prod­ucts and soft­ware,” said Ja­cob­son. “It’s cer­tainly go­ing to make it very dif­fi­cult for them to pro­duce and will have a po­ten­tially sig­nif­i­cant short and long-term neg­a­tive im­pact on the com­pany.”

ZTE has sold hand­set de­vices to US mo­bile car­ri­ers AT&T, T-Mo­bile US and Sprint Corp. It has re­lied on US com­pa­nies in­clud­ing Qual­comm, Mi­crosoft Corp and In­tel Corp for com­po­nents.

The US ac­tion against ZTE is likely to fur­ther ex­ac­er­bate cur­rent ten­sions be­tween Wash­ing­ton and Bei­jing over trade.

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