May 7, 2018, the Department of Commerce has come to a settlement agreement with Chinese company ZTE of $1.19 billion in combined civil and criminal penalties for the illegal shipment of telecommunications equipment to Iran and North Korea by subsidiary entities Zhongxing Telecommunications Equipment Corporation and ZTE Kangxun Telecommunications Ltd.
From January 2010 through April 2016, ZTE obtained hundreds of millions of dollars in contracts with and sales from Iranian entities to supply, build, operate, and/or service large-scale telecommunications networks in Iran, the backbone of which would be U.S.-origin equipment and software. Additionally, ZTE undertook other actions involving 283 shipments of controlled items to North Korea with the knowledge that such shipments violated the Export Administration Regulations (EAR).
The BIS investigation, beginning in 2012 in response to allegations of illegal conduct surfacing in media reports, spanned a duration of 5 years. While initially slowing its exports to Iran in response to a BIS administrative subpoena to ZTE’s USA affiliate, ZTE USA, Inc., following a meeting of senior managers chaired by its then-CEO, ZTE made plans to resume transshipments to Iran that would continue during the course of the investigation.
ZTE made numerous false statements and misleading representations to BIS and other U.S. law enforcement agencies, including that the company had previously stopped shipments to Iran as of March 2012 and was no longer violating U.S. export control laws. ZTE also engaged in an elaborated scheme to prevent disclosure to and affirmatively mislead the U.S. Government, by deleting and concealing documents and information from the outside counsel and forensic accounting firm that ZTE had retained with regard to the investigation.
As part of the settlement, ZTE has agreed to pay a penalty of $661 million to BIS, with $300 million suspended during a seven-year probationary period to deter future violations. If the criminal plea is approved by a federal judge, the combined $1.19 billion in penalties from Commerce (BIS), the Department of Justice, and the Department of the Treasury would be the largest fine and forfeiture ever levied by the U.S. Government in an export control case.