ZTE agrees to plead guilty and pay up to $1.2b to settle Iran sanctions case

ZTE has agreed to plead guilty and pay as much as $1.2 billion in penalties to settle allegations that it contravened laws restricting the sale of American technology to Iran, US officials announced on Tuesday.

The Chinese telecommunications hardware maker is pleading guilty to three charges: Conspiracy to unlawfully export, obstruction of justice, and making false statements to federal investigators, according to a plea agreement released by the Department of Justice (DOJ).

ZTE will pay $892 million to the United States, and an additional $300 million, suspended during a seven-year period, if it fails to comply with the requirements of the agreement, which include an independent compliance monitor.

"ZTE Corporation not only violated export controls that keep sensitive American technology out of the hands of hostile regimes like Iran's, they lied to federal investigators and even deceived their own counsel and internal investigators about their illegal acts," Attorney General Jeff Sessions said in a statement.

"This plea agreement holds them accountable, and makes clear that our government will use every tool we have to punish companies who would violate our laws."

Dr Zhao Xianming, who was appointed chairman and CEO of ZTE in April last year, said the company acknowledges its mistakes and is committed to making changes.

"Instituting new compliance-focused procedures and making significant personnel changes has been a top priority for the company. We have learned many lessons from this experience and will continue on our path of becoming a model for export compliance and management excellence," Xianming said. "We are committed to a new ZTE, compliant, healthy and trustworthy.

"We are constantly reviewing and improving policies and procedures to keep up with an ever-changing regulatory landscape and working to reinforce the strategic business advantage a strong compliance program has in the marketplace," added Matt Bell, who was appointed chief export compliance officer in November 2016.

In March 2016, the Commerce Department announced that it would impose a ban on exports by US companies such as Intel, Microsoft, Micron, and Qualcomm to ZTE, the fourth-largest smartphone vendor in the US, after it allegedly shipped $32 million worth of products containing American-made equipment to Iran, either directly or through third-party distributors, between 2010 and 2016 without proper licensing.

The ban was offset by a series of reprieves, with the last reprieve set to expire on March 29.

The Commerce Department's Bureau of Industry and Security will recommend that ZTE be removed from the list of blocked companies if it complies with the plea deal and the court approves the DOJ agreement.

This is not the first time that ZTE has found itself in trouble after doing business in Iran. Following a 2012 investigation by the FBI and Commerce Department, among others, Cisco ended its sales partnership with ZTE. At the time, ZTE was alleged to have set up a network of sub-companies to illegally export products from Microsoft, HP, Oracle, Dell, Cisco, and Symantec to Iran.

In its October 2012 earnings report, ZTE posted a $317 million Q3 loss compared to a $47 million profit for the same time a year prior. The company said in its earnings that it was "adversely affected" by the US investigations.

Later in 2012, fellow Chinese telco hardware manufacturer Huawei was accused of attempting to supply embargoed Hewlett-Packard equipment to an Iranian mobile network operator.

ZTE also found itself embroiled in a Mongolian corruption probe in 2013 following the arrest of a Mongolian tax official who handled ZTE's tax affairs.

At the start of 2017, it was revealed that ZTE would axe 5 percent of its 60,000 global workforce in Q1 2017.

The company has also suffered in the face of increasing competition in its home country, with the Chinese smartphone market favouring Oppo, Vivo, and Huawei.

However, ZTE maintains that its innovation around 5G and its efforts to streamline operations will generate positive financial results in the years to come.