China's ZTE apologizes after paying 'disastrous price' in U.S. sanction case

Virginia Carson
June 10, 2018

Commerce Secretary Wilbur Ross said on Thursday the US government had reached a deal with ZTE that reverses a ban on it buying parts from USA suppliers, allowing China's No. 2 telecommunications equipment maker to get back into business.

In April, the Commerce Department barred ZTE from importing USA components for its cell phones and other telecom equipment for seven years, a penalty imposed for allegedly deceiving US regulators after it settled charges last year of sanctions violations.

ZTE also wanted to be more present in the American smartphone market, but the April shutdown had complicated that plan.

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The Commerce Department blocked ZTE's access to US suppliers in April, saying the company violated a 2017 sanctions settlement related to trading with Iran and North Korea and then lied about the violations. But under the deal announced Thursday, ZTE will pay an additional $1 billion penalty and put another $400 million in escrow to cover possible future violations. ZTE also exported similar material to North Korea.

The company will pay a $1 billion fine and agree to establish and pay for an in-house compliance team staffed by USA experts, Ross told CNBC. Once the Shenzen-based company completes this side of the deal, the US Commerce Department's Bureau of Industry and Security (BIS) intends to remove it from the country's denial order list.

The ban in effect nearly destroyed ZTE as it now relies on many components from American companies. Last month, Trump tweeted that he was looking for a way for ZTE to "get back into business, fast" because there were "too many jobs in China lost" from ZTE's shutdown.

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And last week, the Daily Beast reported that a day after the president said he wanted to help ZTE, the tech company hired the Mercury Public Affairs firm to lobby on its behalf in Washington. As a result, the Commerce Department enacted a seven-year sanction on ZTE, which was part of the initial guilty plea but suspended, pursuant to ZTE carrying out the other steps it promised.

U.S. Secretary of Commerce Wilbur Ross announced that ZTE will pay a $1 billion fine for its recent violations. Today, commerce secretary Wilbur Ross told CNBC that the United States struck a deal with ZTE to return it to business.

ZTE must hire a new compliance team selected by the U.S. Commerce Department for a 10-year term. The Chinese authorities' involvement, on the backdrop of ongoing trade negotiations with the USA, have saved ZTE from almost-certain death.

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