DALLAS/ SHENZHEN: March 07, 2017. ZTE, a provider of telecommunications systems, mobile devices and enterprise technology solutions, has been fined US$892.36 million with a further $300 million suspended for seven years, for the illegal shipment of telecomm equipment to Iran and North Korea between 2010 and 2016.
According to the U.S. Department of Commerce (DoC), it is the largest criminal and civil penalty ever levied by its Bureau of Industry Security (BIS) following a five-year investigation by the BIS and the U.S. Attorney's office in North Texas, the Department of Justice, the FBI and the Department of Homeland Security.
Despite long-standing embargoes against Iran and North Korea, ZTE and its Texas-based subsidiary conspired to supply, build, operate, and service large-scale telecom networks for companies associated with the Iranian government, according to the DoC statement.
The DoC said ZTE obtained contracts worth "hundreds of millions of dollars" to export U.S.-manufactured routers, microprocessors and servers to Iran, and then re-export 283 shipments from Iran to North Korea.
Despite saying it had stopped shipping to Iran in March 2012, ZTE allegedly continued to do so by using a number of shell companies while setting up a scheme to hide the information from an independent counsel and forensic accounting firm investigating its corporate governance.
ZTE also formed a 13-member 'Contract Data Induction Team' to destroy, remove or sanitize all documents relating to the company's Iran business that post-dated March 2012. The team members were forced to sign a non-disclosure agreement about what they were doing and faced a US$150,000 penalty if ZTE determined they had disclosed anything.
Commenting on the fines, ZTE chairman and CEO Zhao Xianming said he "acknowledges the mistakes [the company] made, takes responsibility for them, and remains committed to positive change". Zhao replaced his predecessor in April 2016.
In anticipation of the DoC sanctions, last November ZTE appointed its ZTE USA legal counsel Matt Bell to head its export compliance department. Bell is a former compliance officer for Kellogg Brown & Root and consultant with Ernst & Young and KPMG. "We are creating a global team of experienced compliance professionals, and our compliance trainings have been strengthened and reinforced at every level of the company," Bell declared.
At the end of a statement acknowledging its criminal behavior the company added: "ZTE is committed to corporate social responsibility and is a member of the UN Global Compact." For the six months ending June 2016, the company reported a turnover of RMB 47.7 billion and a net profit of RMB1.76 billion.