Boy did they settle with ZTE too soon.
ZTE Takes Another Sanctions Hit For Lying To US Gov't
Share us on: By Alex Lawson
Law360 (April 16, 2018, 1:20 PM EDT) -- The Trump administration on Monday issued an order effectively barring U.S. companies from shipping components to ZTE Corp. after discovering that the Chinese telecom giant lied to the government in the probationary period that followed its $892 million settlement for sanctions violations last year.
Following ZTE's admission of making unlawful sales of U.S. technology items to Iran and North Korea, the company paid a hefty fine and agreed to take disciplinary actions against the executives and employees who spearheaded the illicit sales.
But the U.S. Department of Commerce soon discovered that even though ZTE said it had reprimanded those employees, the company had in fact paid them bonuses, in open defiance of the settlement terms.
"ZTE made false statements to the U.S. government when they were originally caught and put on the Entity List, made false statements during the reprieve it was given and made false statements again during its probation." Commerce Secretary Wilbur Ross said. "ZTE misled the Department of Commerce. Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored."
Part of the settlement agreement struck last year stipulated that any further malfeasance from ZTE would trigger a seven-year denial of export privileges for the company, effectively locking it out of the U.S. production pipeline. The lies about employee disciplinary action were significant enough to trigger that penalty, in the eyes of Commerce.
It is the latest bombshell in a case that sent shockwaves through both the telecommunications industry and the sanctions bar. The $892 million penalty also came with $300 million in suspended penalties if the terms were breached, potentially putting the company on the hook for $1.19 billion, the largest penalty ever applied in a U.S. sanctions case.
For now, the $300 million penalty remains in stasis, as Commerce is only issuing the denial of export privileges to ZTE. This means that instead of needing special licensing permission from the government to sell to ZTE, U.S. firms looking to sell components to the company will now automatically be barred from doing so.
Monday's announcement was triggered by false statements ZTE made to the U.S. government, which has become a common theme in the ZTE saga.
Part of the reason the initial monetary penalty against the company was so steep was the considerable steps it took to conceal its dealings from the government. For instance, Commerce found that some of the sales to North Korea came after the investigation had begun and ZTE knew it was on notice.
Additionally, the company went so far as to hide data relating to its dealings that it established an autodelete 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.
--Editing by Stephen Berg
