On March 8, 2016, the US Department of Commerce’s Bureau of Industry and Security (“BIS”) added major Chinese telecommunications company Zhongxing Telecommunications Equipment (“ZTE”) and three ZTE affiliates to the BIS Entity List, alleging that the ZTE entities developed a scheme to re-export controlled items to Iran in violation of US export controls and sanctions laws. (See Steptoe advisory here for more information.) BIS subsequently published and renewed several times a temporary general license authorizing exports, reexports, and transfers to ZTE and its affiliate ZTE Kangxun without a license.
After months of negotiation, on March 7, 2017, ZTE entered into a settlement agreement with the US Department of the Treasury’s Office of Foreign Assets Control, the Department of Justice (“DOJ”), and BIS. As part of the settlement, ZTE has agreed to enter a guilty plea for conspiring to violate the International Emergency Economic Powers Act by illegally shipping US-origin items to Iran, obstructing justice, and making a material false statement. ZTE also faces a combined penalty of $1.19 billion; BIS will suspend $300 million of this obligation, which ZTE will be required to pay if it violates the settlement agreement. ZTE will have ongoing compliance obligations, including agreeing to a 3-year corporate probation period, submitting to an independent corporate compliance monitor for review and reporting on ZTE’s export compliance program, and cooperating fully with DOJ regarding any criminal investigation by US law enforcement authorities. Please check the blog in coming days for more insights and analysis from Steptoe.