ZTE Cops To Sanctions Violation In $892M Iran Sales Penalty
By Melissa Daniels
Law360, Los Angeles (March 22, 2017, 10:37 PM EDT) -- ZTE Corp. agreed to pay $430 million and pled guilty to violating the International Emergency Economic Powers Act in Texas federal court on Wednesday as part of an $892 million multiagency settlement agreement over claims it unlawfully shipped technology from the United States to Iran in violation of U.S. sanctions.
Earlier this month, the U.S. Departments of Justice, Commerce and the Treasury announced simultaneous settlement agreements with the Chinese telecommunications giant over its alleged scheme to export U.S.-made electronics to Iran without obtaining proper export licenses.
The DOJ portion saw ZTE on Wednesday enter a guilty plea to the IEEPA charge as well as one count of obstruction of justice and one count of making a material false statement in front of U.S. District Judge Ed Kinkeade.
The company agreed to pay a $287 million criminal fine and $143.5 million criminal forfeiture associated with the plea, according to the judgment. The rest of the total settlement figure includes a $361 million payment to Commerce and a $100.8 million civil penalty to the Treasury’s Office of Foreign Assets Control, according to settlement documents.
The agreement also requires ZTE to submit to three years of corporate probation where an independent corporate compliance monitor will review the company’s export compliance program.
Prosecutors say that from January 2010 to January 2016, ZTE directly or through a third party shipped the technology, which included routers, microprocessors and servers overseas, and then tried to mask its operations.
In early 2010, ZTE began bidding on Iran telecommunications projects which required U.S. components. In December of that year, it signed a contract with the Iranian customer and a company called Beijing 8 Star, which ZTE identified as a possible vehicle for hiding its illegal shipments into Iran, prosecutors said.
“ZTE intended for 8S to be an ‘isolation company,’ that is, ZTE intended for 8S (rather than ZTE) to purchase the embargoed equipment from suppliers and provide that equipment under the contract in an effort to distance ZTE from U.S. export-controlled products, and insulate ZTE from U.S. export violations,” prosecutors said.
In its shipments under the contract, ZTE allegedly did not include the U.S. items on the customs declaration forms, though they were listed in the packing lists inside of the shipments, prosecutors said.
When Beijing 8 Star was deemed an insufficient cover, the company’s executives established new “isolation companies” to supply U.S. technology for projects by embargoed companies, again to conceal ZTE’s role in the scheme, prosecutors said.
ZTE also allegedly hid its actions while it knew it was under grand jury investigation, prosecutors said, including asking companies involved in the Iran sales to sign nondisclosure agreements to keep information about the exports private.
Government officials say ZTE went so far to hide its actions that it established an auto-delete function for the email accounts of employees tasked with sanitizing company databases after the sales, thereby deceiving a forensic accounting firm hired by its own outside counsel.
The settlement announced on March 7 came one year after ZTE was publicly sanctioned for its alleged sales.
If ZTE violates any part of the settlement agreement with the agencies, it could be on the hook for a total of $1.19 billion, as the company faces $300 million in suspended penalties from the Department of Commerce.
The plea agreement culminates a five-year investigation handled by the DOJ, the U.S. Attorney’s Office for the Northern District of Texas, the FBI, the Department of Commerce’s Bureau of Industry and Security and the U.S. Department of Homeland Security, U.S. Immigration and Customs Enforcement’s Homeland Security Investigations, the DOJ said.
Representatives for ZTE didn’t immediately respond to requests for comment on Wednesday.
ZTE is represented by Wendy Wysong of Clifford Chance US LLP and Michael P. Gibson of Burleson Pate & Gibson LLP.
Prosecutors include Assistant U.S. Attorney Mark Penley of the Northern District of Texas and Deputy Chief Elizabeth Cannon of the National Security Divisions’ Counterintelligence and Export Control Section.
The case is USA v. ZTE Corporation, case number 3:17-cr-00120 in the U.S. District Court for the Northern District of Texas.
--Additional reporting by Alex Lawson. Editing by Pamela Wilkinson.
