ZTE agrees to $1B fine and management overhaul for US lifeline

Javier Stokes
June 10, 2018

After facing a near-certain death earlier this year when Commerce Secretary Wilbur Ross imposed crippling sanctions on the company for violating an agreement with the US government, a deal brokered in part by President Donald Trump has saved the Chinese company.

"Under the new agreement, ZTE must pay $1 billion and place an additional $400 million in suspended penalty money in escrow before BIS will remove ZTE from the Denied Persons List". ZTE was assessed $2.29 billion in civil and criminal penalties by the Commerce Department and other US agencies since a year ago. Commerce Department spokesman James Rockas told Reuters on Tuesday that "no definitive agreement has been signed by both parties".

The decision amounted to a death sentence to ZTE, which relies on USA parts and which announced that it was halting operations. The ban crippled the company, and it ceased "major operating activities" one month later.

In case you haven't been following along, ZTE previously agreed to certain conditions back in March 2017 after they were found to have ignored USA sanctions and shipped products to both North Korea and Iran.

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According to Reuters, the company has agreed to pay a total of $1.7 billion in penalties in a settlement with the Commerce Department.

As part of the new agreement, which was signed off [again] by Secretary Ross, ZTE has been given 30 days to replace its entire board of directors and senior leadership. Instead of disciplining all employees involved, the department said, ZTE had paid some of them full bonuses and then lied about it.

ZTE, which employs around 75,000 people worldwide, buys key components from a range of U.S. companies, including chips from Qualcomm and Intel. Post calculations of U.S. parts in the company's products would also have to be on a public website. We imposed a work team chosen by us within the company, financed by it and subordinated to the new executives, to closely monitor their activities, said the high official in the Squawk Box program of such television station. The company will also have to keep a team of "compliance coordinators" for the next 10 years, which will be selected by the DoC. He said the penalties should serve as a very strong deterrent for "other potential bad actors" to force compliance with USA trade restrictions. The president expressed a desire to get the Chinese firm "back into business" and today that is a step closer to happening.

The suppliers include Qualcomm, Broadcom, and Intel Corp, as well as smaller optical component makers Acacia Communications Incand Oclaro. The US government will receive up to $1.7 billion in fines as part of the settlement.

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