US frees ZTE to trade again

Alan Burkitt-Gray
Published on:

Restrictions lifted today after US government releases ZTE from banned list following fine and legal agreement

US authorities have removed Chinese vendor ZTE from the list of companies that are banned from dealing with US suppliers.

The move – which comes into effect today – means ZTE is free to continue to use hardware and software from US companies such as Qualcomm and Microsoft in its network products and handsets.

ZTE’s CEO Zhao Xianming welcomed the move, saying: “Today, ZTE is turning the page on a challenging chapter in our past and is optimistic of our future. By acknowledging the mistakes we made, taking responsibility for them, and remaining focused on enacting positive change in our company, we are committed to a ZTE that is fully compliant, healthy and trustworthy.”

ZTE announced the end of the ban in a statement to the Hong Kong and Shenzhen stock exchanges.

The US Department of Commerce (DoC) put ZTE on the so-called entity list of banned companies in 2016 after uncovering a plot to export goods to Iran via a number of shadow companies – goods that included US-produced hardware and software. ZTE’s licences explicitly banned Iran, as well as a number of other countries, as final destinations.

ZTE agreed the terms of a settlement with the DoC in early March 2017, but that was subject to a legal agreement and to ZTE pleading guilty in court. The DoC gave ZTE a number of temporary reprieves while the deal was being negotiated.

According to court documents (PDF), the company has already paid the first $361 million of a $661 million fine, plus a $430 million forfeiture and a civil penalty of $100 million.

The final $300 million is suspended for seven years, dependent of ZTE’s continued good behaviour. ZTE has agreed to submit six audit reports listing exports, re-exports and transfers, showing they comply with US regulations. An independent auditor has already been hired for the first three years, and the US government will need to approve that person’s successor.

The CEO and the chief legal officer of ZTE will have to sign off those audits, under penalty of perjury, says the agreement.

Restrictions apply to Iran, North Korea, Syria, Sudan and Cuba, and cover US and non-US products. ZTE may not even discuss trade with those countries for the next seven years.

The legal agreement was signed by Zhao and by ZTE chairman Ye Weimin, as well as by ZTE’s Clifford Chance lawyer, and by Douglas Hassebrock, the director of legal enforcement at the DoC’s Bureau of Industry and Security.

Zhao said: “With this settlement behind us – and coupled with recent efforts to streamline operations and grow ZTE’s innovative leadership around 5G – we anticipate continued growth and business expansion over the next several years as we continue to work with our partners in the US and around the world.”

However, ZTE and its Chinese rival, Huawei, remain banned from supplying telecoms network equipment to major US operators for security reasons.