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U.S. companies banned from selling to China’s ZTE telecom maker

The Commerce Department is banning U.S. companies from selling components to Chinese telecom equipment manufacturer ZTE for seven years. (Video: Reuters)

The Commerce Department on Monday barred U.S. companies from exporting to Chinese telecom equipment maker ZTE for seven years, saying the company had violated a previous settlement of criminal and civil charges for making illegal shipments to Iran and North Korea.

Under the terms of the 2017 settlement, ZTE agreed to pay the United States $1.19 billion in fines and punish the employees involved in breaching U.S. sanctions by shipping telecommunications equipment to Iran and making 283 shipments of microprocessors, routers and servers to North Korea.

The penalty was the largest fine and forfeiture ever levied in an export control case, Commerce said at the time.

The settlement included a denial of the company’s export privileges for seven years, which was suspended based on ZTE’s promises to implement a new compliance program and to punish the employees involved. Senior Commerce Department officials, who insisted on anonymity to brief reporters, said ZTE repeatedly lied to the United States about its treatment of workers who participated in the scheme to outwit U.S. sanctions.

ZTE fired four executives, but others who were supposed to suffer a reduced bonus or letter of reprimand were not penalized.  Commerce said it learned that the company had lied when it requested documentation of the employee discipline.

“ZTE misled the Department of Commerce. Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored,” Commerce Secretary Wilbur Ross said in a statement.

The department’s action comes amid escalating trade tensions between the United States and China. But department officials described the matter as a regulatory action unrelated to the exchange of tariff threats between Washington and Beijing.

ZTE violated U.S. sanctions over a six-year period beginning in 2010 and obtained “hundreds of millions of dollars in contracts” from Iranian enterprises including the government, the agency said.

Commerce began investigating the company two years later following media reports alleging illegal conduct.

Monday’s regulatory move deals ZTE a major blow.

“In essence, it strangles their ability to obtain essential components in the United States,” said David Laufman, a former Justice Department official who oversaw the criminal prosecution of the company. “In the near and medium term, it’s going to be extremely damaging to ZTE.”

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