Another Chinese telecom target?

In the wake of ZTE’s record BIS penalties, export control experts see another case pending with Huawei    Fresh from a victory that stung one of China’s largest telecommunication electronics companies with the biggest penalty in the history of U.S. export control enforcement, a group of Republican lawmakers now wants the Commerce Department to set its sights on another large Chinese company for similar violations.
   Unceremoniously referred to as “F7” in the documents of the Commerce Department’s recent investigation of ZTE Corp., many export compliance experts believe it’s actually Huawei Technologies, a large telecommunications electronics company based in Shenzhen.
   “Now that we have successfully held ZTE accountable for violating U.S. law, we need to take the next step in identifying F7, fully investigating their alleged crimes, and holding them accountable,” Rep. Robert Pittenger, R-N.C., wrote in an April 11 letter to Commerce Secretary Wilbur Ross.
  Other representatives to sign the letter were Mike Rogers, R-Ala.; Chris Smith, R.-N.J.; Robert Aderholt, R-Ala.; Doug LaMalfa, R-Calif.; Dana Rohrabacher, R-Calif.; Randy Weber, R-Texas; Walter Jones, R-N.C.; Sam Johnson, R-Texas; and Brian Fitzpatrick, R-Pa.
   ZTE and Huawei were part of a national security investigation led by the House Permanent Select Committee on Intelligence in October 2012, which identified the two companies as illicitly obtaining U.S.-made electronic components and incorporating them into telecommunications equipment used by the Iranian government. At the time, this committee was chaired by Congressman Rogers.
   Committee staff visited the Shenzhen headquarters of Huawei’s Feb. 23, 2012 to interview senior corporate officers and review the product lines. They came away with more questions than answers, and believed that Huawei’s leadership had stonewalled them on repeated attempts to get answers. Specifically, they sought clarity on the Chinese government’s role, if any, in the company.
   ZTE, also of Shenzhen, was visited by the committee staff in April 2012, with similar findings.
Federal investigators found evidence of blatant misconduct and cover-ups by ZTE as the company skirted U.S. export licensing rules and exported electronic equipment containing U.S. components to Iran and North Korea.

Committee staff visited the Shenzhen headquarters of Huawei’s Feb. 23, 2012 to interview senior corporate officers and review the product lines. They came away with more questions than answers.

   The Commerce Department imposed some of the toughest-ever U.S. export restrictions on ZTE in March 2016 for allegedly breaking U.S. sanctions against Iran by placing it on the Entity List. As a result of the listing, no item subject to the Export Administration Regulations (EAR) could be sold to the listed entities without a license from Bureau of Industry and Security (BIS). Further, no license exceptions apply to such transactions, and such license applications would be reviewed under a policy of denial. Importantly, the restriction applied to items subject to the EAR wherever they were located, so foreign parties had to also abide by the restrictions.
   The Commerce Department subsequently created a “Temporary General License,” a week later, which suspended the restrictions. BIS also has stated that “the temporary general license is renewable if the U.S. government determines, in its sole discretion that ZTE Corp. are timely performing their undertakings to the U.S. government and otherwise cooperating with the U.S. government in resolving the matter.”
   In early March 2017, ZTE was assessed a $1.2 billion penalty by the Commerce, Justice and Treasury departments for illegal shipments of U.S.-made electronics to Iran and North Korea in violation of the EAR and Iranian Transactions and Sanctions Regulations.
   As part of the settlement, ZTE agreed to pay a penalty of $661 million to BIS, with $300 million suspended during a seven-year probationary period to ensure no future violations are committed by the Chinese company. The civil penalty is the largest ever imposed by BIS.
Huawei’s U.S. headquarters in Plano, Texas was served a subpoena from the Commerce Department in June 2016 seeking information about technology including U.S. components that was allegedly exported to Iran, North Korea, Syria and Cuba.
   Why should the U.S. semiconductor and microprocessor industry be paying attention to this export enforcement action?
   “The very same pattern that occurred with ZTE is likely to take place with Huawei,” warned Paul DiVecchio, principal of export compliance consultancy DiVecchio & Associates in Boston. “This move imposed restrictions on U.S. suppliers providing crucial components to ZTE for alleged Iran sanctions violations, a move likely to disrupt Huawei’s global supply chain.”