Cisco Systems has washed its hands of Chinese telecommunications equipment maker ZTE, Reuters reports, after it was revealed that ZTE was selling Cisco-branded networking equipment to Iran.
This year, the Shenzhen, China-based firm has been reported as selling restricted and banned computer equipment developed by Cisco and other U.S.-based companies to Iran's telecoms firms. According to the publication, ZTE agreed to ship U.S. products -- including Cisco switches -- to firms based in the country last year.
Following investigations conducted by the Federal Bureau of Investigation (FBI), the U.S. Commerce Department and the companies involved which allegedly uncovered the sales, ZTE's Texas-based subsidary general counsel claimed that its parent firm tried to cover its tracks, "including possibly shredding documents", according to Reuters.
A criminal probe has been launched by the FBI in response.
David Dai Shu, a ZTE spokesman, said:
"ZTE is highly concerned with the matter and is communicating with Cisco. At the same time, ZTE is actively cooperating with the U.S. government about the probe to Iran. We believe it will be properly addressed."
Citing a source close to the matter, the publication said that although the Cisco-ZTE partnership has been in place for over seven years, it has been "rocky" at times. Potentially, the latest revelation that American computer equipment has been shipped to Iran may have been the last straw.
In addition, Cisco's chief executive John Chambers said that the firm doesn't tolerate "direct or indirect" sales to embargoed countries, which includes Iran.
When rival telecom firm Huawei began competing against Cisco in emerging markets five years ago, Cisco saw ZTE as a means to claw back market share by offering cheaper products -- manufactured locally -- through reseller and licensing agreements. However, the partnership has its share of problems, including disagreements over the U.S. market.
In a report due for release later today, it is expected that a congressional committee will recommend that Huawei and ZTE should not be allowed to do business with U.S. firms and government agencies, as the firms pose a security threat. According to reports, the U.S. House of Representatives' Intelligence Committee is expected to say that U.S. mergers and acquisitions should be out of the question, which will no doubt impact both of the companies' growth forecasts.
Both companies deny the allegations.
ZDNet reached out to a Cisco spokesman, who chose not to comment at this time.