U.S. Secretary of Commerce Wilbur Ross announced on Friday the lifting of the ban on U.S. suppliers selling goods to ZTE Corporation following the payment of $400 million, which was placed in escrow. The escrow funds are in addition to the $1 billion penalty imposed by Commerce that ZTE paid to the U.S. Treasury last month.
This is the outcome of a June settlement agreement that included the harshest penalties and strictest compliance measures ever imposed in such a case.
The $1.4 billion paid under the new settlement agreement are in addition to the $892 million in penalties ZTE has already paid to the U.S government under a March 2017 settlement agreement.
ZTE will also be required by the new agreement to retain a team of special compliance coordinators selected by and answerable to the Department’s Bureau of Industry and Security (BIS) for a period of 10 years.
Their function will be to monitor on a real-time basis ZTE’s compliance with U.S. export control laws. This is the first time BIS has achieved such stringent compliance measures in any case.
The Commerce Department’s BIS is the principal agency involved in the implementation and enforcement of export controls for commercial technologies and many military items. The BIS Office of Export Enforcement detects, prevents, investigates and assists in the sanctioning of illegal exports of such items.
The new agreement once again imposes a denial order that is suspended, this time for 10 years, which BIS can activate in the event of additional violations during the ten-year probationary period. Finally, ZTE also has replaced the entire board of directors and senior leadership for both entities.
The purpose of this settlement is to modify ZTE’s behavior while setting a new precedent for monitoring to assure compliance with U.S. law. The unprecedented access afforded the compliance team by this agreement vastly improves the speed with which the Department of Commerce can detect and deal with any violations.
On April 15, 2018, BIS activated the suspended denial order against ZTE in response to ZTE falsely informing the U.S. Government that it would or had disciplined numerous employees responsible for the violations that led to the March 2017 settlement agreement.
ZTE instead rewarded that illegal activity with bonuses. This action followed the March 2017 settlement agreement, in which ZTE agreed to a then record-high BIS civil penalty of $661 million, after engaging in a multi-year conspiracy to supply, build, and operate telecommunications networks in Iran using U.S.-origin equipment in violation of the U.S. trade embargo, and committing hundreds of U.S. sanctions violations involving the shipment of telecommunications equipment to North Korea.
They also made false statements and obstructed justice by creating an elaborate scheme to prevent disclosures to and affirmatively mislead the U.S. Government. In addition to monetary penalties, ZTE had agreed to a seven-year suspended denial of export privileges, which could be activated if any aspect of the agreement was not met and/or if the company committed additional violations of the Export Administration Regulations.