by Melissa Proctor, Polsinelli, P.C.
On March 7th, ZTE Corporation in China pled guilty in U.S. District Court to charges that it illegally exported U.S.-origin goods to Iran in violation of U.S. law. In so doing, ZTE Corporation agreed to pay $890 million to the U.S. Government, which represents the largest criminal fine and civil penalties that have ever been assessed against a company for violations of U.S. export controls and economic sanctions. In joint settlement agreements with the Commerce Department's Bureau of Industry and Security (BIS), the Treasury Department's Office of Foreign Assets Control (OFAC) and the Department of Justice (DOJ), ZTE Corporation agreed to pay:
$661 million in civil penalties (with $300 million suspended during a 7-year probationary period) to the BIS for unlicensed exports to Iran and North Korea, as well as engage a third-party consultant to perform a series of annual export audits, agree to end-use verifications by the BIS, and provide U.S. export compliance training to employees.
$100 million in civil penalties to OFAC for violations of the Iranian Transactions and Sanctions Regulations.
A $286 million criminal fine, a $143 million criminal forfeiture, and a $1,200 special assessment to the DOJ for conspiracy to violate the International Emergency Economic Powers Act (IEEPA) – a ZTE Corporation must also retain an independent corporate compliance monitor for three years to report on the companies' export compliance program.
It has been widely reported that ZTE Corporation, along with three of its affiliated companies (ZTE Kangxun Telecommunications, Ltd., ZTE Parsian, and Beijing 8-Start International Company), shipped U.S.-origin products through various shell companies to Iran, North Korea, Cuba, Sudan and Syria in violation of U.S. law. Specifically, between 2010 and 2016, ZTE shipped products valued at approximately $32 million to Iran, in connection with the installation of cellular and landline network infrastructure projects in that country, without obtaining the required export licenses from the U.S. government. The company also disseminated a written internal procedure describing the companies' methodology for evading U.S. export controls. ZTE Corporation reportedly sources 40% of its raw materials, parts and components from U.S. suppliers.
Last Spring, the ZTE companies were added to the BIS' Entity List, which identifies individuals and companies that pose risks of diverting products and technology subject to U.S. export laws and regulations to unauthorized end-users and destinations. U.S. companies are prohibited from shipping products or transferring technology to parties designated on the Entity List without a license from the BIS. However, the BIS decided to implement a Temporary General License for two of the companies (ZTE Corporation and ZTE Kangxun) because of their cooperation with the U.S. investigation, thereby allowing U.S. companies to continue exporting to them despite their designation on the Entity List.
This case illustrates the U.S. Government's renewed commitment to rigorous export investigations and enforcement, maintaining Iran as a top country of concern for U.S. national security, and the continuation of joint agency investigations and settlement proceedings in export enforcement cases.
Melissa Proctor is a Shareholder with Polsinelli, P.C. With significant experience in the customs laws and regulations, export controls, economic sanctions, and international trade, Melissa is committed to understanding companies' operations and providing assistance geared toward helping them reach their specific business and operational goals. She may be reached at (602) 650-2002 or via e-mail at firstname.lastname@example.org.
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