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US to Lift Export Ban on China's ZTE, Embed 'Compliance Coordinators'

[caption id="attachment_14769" align="aligncenter" width="620"]

Signage is displayed at the ZTE Corp. headquarters in Shenzhen, China, on Monday, June 4, 2018. Photo: Giulia Marchi/Bloomberg[/caption] The U.S. Department of Commerce Thursday announced new sanctions on the Chinese telecom giant ZTE Corp. that will replace the export denial order previously imposed. Both the sanctions and the lifting of the export ban are in many ways unprecedented. In a statement, Secretary of Commerce Wilbur Ross said ZTE has agreed:

  • To pay $1 billion in new penalties and place an additional $400 million in suspended penalty money in escrow, in addition to the $892 million in penalties already paid under a previous agreement, which ZTE breached.

  • To embed a team of U.S.-appointed “compliance coordinators” who will answer to the U.S. government for 10 years. They will monitor ZTE’s compliance with export laws.

  • To replace its entire board of directors and senior leadership at both the parent company in Shenzhen and its other unit, known as ZTE Kangxun Telecommunications. ZTE has previously dismissed at least two general counsel and two compliance officers.

ZTE did not immediately release a statement about the new agreement on its website. Ross’ statement said this is the first time the Commerce Department's Bureau of Industry and Security (BIS) has required compliance coordinators in any case, and collectively these “are the most severe penalt[ies] … imposed on a company” by the bureau. It remains to be seen how Congress will react to the news after some members had strongly opposed lifting the ban. BIS imposed the export privilege ban in April, after ZTE failed to meet all the requirements of a plea deal made with the U.S. Department of Justice in March 2017. The plea deal settled charges that ZTE had illegally sold U.S. telecom parts and products to Iran and North Korea. Ross said the new agreement will suspend the export denial order, but keep it ready to activate “in the event of additional violations during the 10-year probationary period.” Ross concluded, “Today, BIS is imposing the largest penalty it has ever levied and requiring that ZTE adopt unprecedented compliance measures. We will closely monitor ZTE’s behavior. If they commit any further violations, we would again be able to deny them access to U.S. technology as well as collect the additional $400 million in escrow.” It was not immediately clear how the appointment of compliance coordinators affects the U.S. corporate monitor already in place at ZTE. The Commerce Department did not return messages Thursday. Dallas lawyer James Stanton was appointed as monitor by U.S. District Judge Ed Kinkeade, who oversaw the plea deal. Stanton began his duties last July.