China’s ZTE pleads guilty, settles US sanctions case for nearly US$900 million
NEW YORK/ HONG KONG: Chinese telecom equipment maker ZTE Corp has agreed to plead guilty and pay nearly US$ 900 million in a US sanctions case, drawing a line under a damaging scandal that had threatened its cut off its supply chain.
While the fine was larger than expected, ZTE, also a major smartphone maker, reported robust underlying earnings for 2016 and was upbeat in estimates for the first quarter.
That and the resolution of the case helped its Hong Kong-listed shares surge 6 per cent.
A five-year investigation found ZTE conspired to evade US embargoes by buying US components, incorporating them into ZTE equipment and illegally shipping them to Iran.
In addition, it was charged in connection with 283 shipments of telecommunications equipment to North Korea.
“ZTE Corporation not only violated export controls that keep sensitive American technology out of the hands of hostile regimes like Iran’s, they lied ... about their illegal acts,” US Attorney General Jeff Sessions said in a statement.
ZTE relies on US suppliers for 25 per cent to 30 per cent of its components, many of which are key to its goods.
It purchases about US$ 2.6 billion worth of components a year from US firms, according to a company spokesman.
Qualcomm, Microsoft and Intel are among its suppliers.
“ZTE acknowledges the mistakes it made, takes responsibility for them, and remains committed to positive change in the company,” ZTE chief executive Zhao Xianming said in a statement.
The company agreed to a sevenyear suspended denial of export privileges, which could be activated if there are further violations, as well as three years of probation, a compliance and ethics program, and a corporate monitor.
It also agreed to an additional penalty of US$ 300 million that will be suspended during the sevenyear term on the condition the company complies with requirements in the agreement.
When asked about the ZTE case, Chinese Foreign Minister Wang Yi said relevant departments of the government would continue to pay attention as to whether Chinese firms were receiving fair treatment.
“The Chinese government consistently opposes foreign governments putting unilateral sanctions on Chinese companies.
At the same time, we have always asked our companies to operate legally abroad,” he told a news conference without elaborating.
Tim O’Toole, a Washington D.C.-based lawyer with Miller & Chevalier specialising in sanction cases, said US court documents suggest ZTE’s attempts to obstruct the investigation were the main reason for a penalty significantly higher than in similar cases.
“What seems really important to US regulators is whether a company or individual after the investigation starts is seen to continue to evade the sanctions and also obstruct the investigation,” he said. — Reuters