China's ZTE pleads guilty, settles U.S. sanctions case for nearly $900 million

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http://www.reuters.com/article/us-usa-china-zte-idUSKBN16E1X1

Technology News | Wed Mar 8, 2017 | 6:25am EST

China's ZTE pleads guilty, settles U.S. sanctions case for nearly $900 million

By Karen Freifeld and Sijia Jiang | NEW YORK/HONG KONG

NEW YORK/HONG KONG Chinese telecom equipment maker ZTE Corp has agreed to plead guilty and pay nearly $900 million in a U.S. sanctions case, drawing a line under a damaging scandal that had threatened its cut off its supply chain.
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A five-year investigation found ZTE conspired to evade U.S. embargoes by buying U.S. 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.
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ZTE relies on U.S. suppliers for 25 percent to 30 percent of its components, many of which are key to its goods. It purchases about $2.6 billion worth of components a year from U.S. firms, according to a company spokesman. Qualcomm, Microsoft and Intel are among its suppliers.
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The company agreed to a seven-year 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.

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1. From the DoJ PR

https://www.justice.gov/opa/pr/zte-corporation-agrees-plead-guilty-and-pay-over-4304-million-violating-us-sanctions-sending

ZTE Corporation Agrees to Plead Guilty and Pay Over $430.4 Million for Violating U.S. Sanctions by Sending U.S.-Origin Items to Iran

Combined Penalty of $1.19 Billion with Department of Commerce and Department of Treasury Actions Shows All of Government Approach to Sanctions Enforcement

ZTE Corporation has agreed to enter a guilty plea and to pay a $430,488,798 penalty to the U.S. for conspiring to violate the International Emergency Economic Powers Act (IEEPA) by illegally shipping U.S.-origin items to Iran, obstructing justice and making a material false statement. ZTE simultaneously reached settlement agreements with the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). In total ZTE has agreed to pay the U.S. Government $892,360,064. The BIS has suspended an additional $300,000,000, which ZTE will pay if it violates its settlement agreement with the BIS.
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According to documents filed today, for a period of almost six years, ZTE obtained U.S.-origin items – including controlled dual-use goods on the Department of Commerce’s Commerce Control List (CCL) – incorporated some of those items into ZTE equipment and shipped the ZTE equipment and U.S.-origin items to customers in Iran. ZTE engaged in this conduct knowing that such shipments to Iran were illegal. ZTE further lied to federal investigators during the course of the investigation when it insisted, through outside and in-house counsel, that the company had stopped sending U.S.-origin items to Iran. In fact, while the investigation was ongoing, ZTE resumed its business with Iran and shipped millions of dollars’ worth of U.S. items there.

ZTE also created an elaborate scheme to hide the data related to these transactions from a forensic accounting firm hired by defense counsel to conduct a review of ZTE’s transactions with sanctioned countries. It did so knowing that the information provided to the forensic accounting firm would be reported to the U.S. government by outside counsel. Outside counsel was not aware of this scheme and indeed was wholly unaware that ZTE had resumed business with Iran. After ZTE informed its counsel of the scheme, counsel reported – with permission from ZTE – the conduct to the U.S. government.
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