ZTE has plead guilty to allegations that it violated U.S. laws relating to its involvement in the transfer of U.S. telecom equipment to both Iran and North Korea, as well as lying to federal investigators by insisting that such shipments had stopped. The settlement of $892 million and guilty plea relates to a period between 2010 and 2016 when ZTE shipped over $30 million in U.S.-based products to Iran, as well as took part in over 280 shipments of controlled items to North Korea.
Aside from the poor optics of such deals, ZTE was breaking U.S. laws that prohibit sales of U.S.-made technology to the two countries. Officially, ZTE agreed to plead guilty to violating the International Emergency Economic Powers Act, obstruction of justice, and making a material false statement.
The division of ZTE we're discussing here isn't necessarily the same we're used to talking about on Android Central. Beyond making consumer-facing products like phones under the same brand, ZTE is also a massive business in telecommunication and internet infrastructure equipment around the world — precisely the type of products we're talking about in relation to this settlement. In this case, ZTE was involved with shipping routers, processors and servers.
ZTE, for its part, issued a complete press release with its reaction to the settlement. In the release, which you can read in full below, ZTE's CEO Dr. Zhao Xianming said:
"ZTE acknowledges the mistakes it made, takes responsibility for them, and remains committed to positive change in the company. Instituting new compliance-focused procedures and making significant personnel changes has been a top priority for the company. We have learned many lessons from this experience and will continue on our path of becoming a model for export compliance and management excellence. We are committed to a new ZTE, compliant, healthy and trustworthy."
Above and beyond the $892 million in penalties under the settlement, an additional $300 million will be paid to the U.S. Commerce Department if ZTE fails to comply with requirements set by the settlement over the next seven years.
ZTE Corporation Reaches Settlement with U.S. Authorities
March 7, 2017, Shenzhen, China – ZTE Corporation （0763.HK / 000063.SZ）today announced that it has entered into a global settlement with the U.S. government regarding its historical conduct relating to U.S. export controls and sanctions. While the agreement with OFAC takes effect immediately, the agreement with DOJ is pending approval from the United States District Court for the Northern District of Texas. Similarly, Court approval of the DOJ agreement is a prerequisite before BIS will issue its settlement Order.
As part of the resolution, ZTE has agreed to a criminal and civil penalty of $892,360,064, and an additional penalty of $300,000,000 to BIS that will be suspended during the seven-year term on the condition that the Company complies with the requirements in the agreement with BIS and that ZTE will continue to work with an independent compliance monitor and auditor.
"ZTE acknowledges the mistakes it made, takes responsibility for them, and remains committed to positive change in the company," said Dr. Zhao Xianming, Chairman and CEO of ZTE Corporation. "Instituting new compliance-focused procedures and making significant personnel changes has been a top priority for the company. We have learned many lessons from this experience and will continue on our path of becoming a model for export compliance and management excellence. We are committed to a new ZTE, compliant, healthy and trustworthy."
Dr. Zhao was named Chairman and Chief Executive Officer of ZTE Corporation in April 2016 with a mandate to lead a new ZTE with a best-in-class export compliance program. "The agreements we reached will enable us to move forward in a stronger position than ever before," continued Dr. Zhao. "We are grateful to all of our customers, partners, employees and stakeholders who have stood by us throughout this difficult time. With this agreement behind us and our compliance program firmly established, we can confidently grow our business with suppliers, continue to provide innovative technology solutions to our partners, and execute our growth strategies as a new ZTE."
"ZTE has made tremendous progress in building a world-class compliance program and I look forward to working with others in the company's leadership to further build and improve our operations and processes," said Matt Bell, who was appointed Chief Export Compliance Officer in November 2016. "We are creating a global team of experienced compliance professionals, and our compliance trainings have been strengthened and reinforced at every level of the company. We are constantly reviewing and improving policies and procedures to keep up with an ever-changing regulatory landscape and working to reinforce the strategic business advantage a strong compliance program has in the marketplace. Our global legal and compliance professionals will continue to work together to identify risk across the company and continually improve the effectiveness of our overall compliance program."
Under Dr. Zhao's direction, ZTE remains focused on enhancing its procedures and controls and continuing to create a strong compliance culture throughout the organization. During recent months, the company has invested in extensive reforms to create a leading export compliance program including the following actions:
- New CEO and Company Leadership. ZTE appointed Dr. Zhao as Chairman and Chief Executive Officer and made major changes to the senior management team, all of whom have a mandate of leading a new ZTE with a best-in-class export compliance program.
- New Compliance Committee. ZTE created a Chief Executive Officer-led Compliance Committee with the authority and remit to significantly change the Company's policies and procedures, and provide greater oversight of support for the compliance initiatives.
- Restructured Legal and Compliance Departments. ZTE removed compliance from the responsibility of the legal department and created a separate compliance department with increased headcount to build the compliance program with full independence.
- New U.S. Lawyer Named Chief Export Compliance Officer. A new Chief Export Compliance Officer, U.S. lawyer Matt Bell, was hired with responsibility for overseeing the continued development and improvement of the global export compliance program. Mr. Bell has experience developing and improving compliance programs for major multinational companies throughout his career.
- Expanded Export Control Compliance Manual. ZTE issued a new Export Control Compliance Manual created in conjunction with the review of BIS to provide more detailed guidance to the employees. ZTE also now requires an annual Compliance Commitment Agreement from all employees.
- New Automated Tools and Processes. ZTE implemented a software automation tool which screens shipments from ZTE Corporation and certain subsidiaries for export control obligations. The system is used to determine which items are subject to the Export Administration Regulations (EAR), provides embargo and restricted party screening on the transactions, and places shipments on hold that require detailed classification analysis, application of license exceptions, or application of licenses when necessary. ZTE continues to make significant investments in automation to roll this out to its subsidiaries around the world.
- Global Export Controls Training. ZTE trained over 45,000 employees on export controls and sanctions laws and company policies in 2016. ZTE is continuing these general awareness trainings in 2017 while also rolling out more targeted training for critical functions such as sales, procurement, R&D and supply chain. BIS will recommend that ZTE be removed from the Entity list, conditioned on court approval of the DOJ agreement, entry of the plea, and the issuance of BIS's settlement Order.
"ZTE has created strong partnerships with many U.S. suppliers that support nearly 130,000 high-tech jobs," Dr. Zhao emphasized. "Coupled with recent efforts to streamline operations and our innovative leadership around 5G, ZTE will be well-positioned for positive overall performance. The company anticipates continued growth and business expansion over the next several years as we continue to work with our partners around the world."