On Monday, April 16, the U.S. Department of Commerce announced a ban on American companies from selling components to China-based company ZTE — known for creating smartphones and other mobile gadgets. The decision came after it was revealed the company allegedly made false statements to U.S. officials. Since then, ZTE has raised concerns about the company’s survival, and has faced further security-related problems in the United Kingdom.
In response to the crisis, ZTE claims it is taking steps to rectify the internal problems which led up to the ban, and a solution to the problem. In a statement given to the Hong Kong Stock exchange, ZTE said it has, “taken steps and is taking steps to comply with the denial order. The company is making active communications with relevant parties and seeking a solution.”
The actions include a committee focusing in compliance, which is overseen by ZTE’s CEO and experts in the matter, along with additional training for staff. ZTE said it has learned from, “past experiences on export control compliance.”
The ban imposed on ZTE by the Department of Commerce makes it illegal for U.S. companies to sell any products and services to the company; but how did it reach this stage?
Last year, ZTE agreed to settle with the United States government for $892 million for violating laws that prohibit the sale of American technology to Iran and North Korea. Between 2010 and 2016, the company shipped $32 million worth of equipment to Iran that included U.S. components without authorization. The Chinese mobile giant then lied to investigators when it declared the dealings had stopped.
In addition to the fine, the company was subject to a seven-year, $300 million suspended penalty if the company violated the settlement. Not only did ZTE agree to participate in routine monitoring and auditing, but it was also placed on a list of companies U.S. suppliers are banned from doing business with unless there is government approval.
Upon pleading guilty to conspiracy to unlawful export, obstruction of justice, and making false statements to federal investigators, it appeared ZTE was committed to making a positive change. In a statement released amid the events, ZTE’s Chief Export Compliance Officer — U.S.-based lawyer Matt Bell — expressed the company would restructure its legal department as well as institute new policies, training, and automated tools to keep up with regulations.
Part of the agreement included letting go of four of its senior employees and disciplining 35 others by reducing their bonuses or reprimanding them, Reuters notes. But according to the Department of Commerce, ZTE rewarded its employees for illegal conduct instead.
While the company admitted it fired its four employees, it did not disclose that the rest of its staff received full bonuses rather than letters of reprimand. The company’s false statements were reported to the U.S. government after the Bureau of Industry and Security requested documentation showing proof that employee discipline had occurred.
The Department of Commerce determined ZTE made false statements to the Bureau of Industry and Security specifically in 2016 and 2017. The statements had been in relation to disciplinary actions the company claimed it had taken or was planning on taking toward its senior employees.
“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,” U.S. Secretary of Commerce Wilbur Ross said in a statement.
Updated on April 23: Added in news of ZTE’s efforts to change sales ban.
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