Counting the cost

ZTE pleads guilty to illegal exports to Iran and coverup    The Chinese telecommunication giant ZTE Corp. pled guilty in U.S. district court March 22 for conspiring to violate the International Emergency Economic Powers Act (IEEPA) by illegally exporting U.S.-origin items to Iran and agreed to massive accompanying fines.
   The guilty plea, first agreed March 7, also included charges that the company obstructed justice and made numerous false statements to federal investigators. Specifically, ZTE admitted guilt to one count of each of the three charges.
   The company agreed to pay a fine of $286.9 million, a criminal forfeiture of $143.5 million, and submit to a three-year period of corporate probation. An independent corporate compliance monitor will review and report on ZTE’s export compliance program during its probation, the Justice Department said.
   At the time ZTE agreed to plead guilty to the charges March 7, the company reached settlement agreements with the Commerce Department’s Bureau of Industry and Security (BIS) and the Treasury Department’s Office of Foreign Assets Control (OFAC) totaling $892.4 million in fines. BIS suspended an additional $300 million, which ZTE will pay if it violates its settlement agreement with the export control enforcement agency.
   According to plea documents filed in the case, between January 2010 and January 2016, ZTE used a third company to ship $32 million in U.S.-origin items to Iran without obtaining the required U.S. government export licenses.
   In early 2010, ZTE began bidding on two different Iranian projects. The projects involved installing cellular and landline networks. Each contract was worth “hundreds of millions of dollars and required U.S. components for the final products,” the Justice Department said.
   In December 2010, ZTE finalized the contracts with its Iranian customers. According to court documents, the contracts included four parties: the Iranian customer, ZTE, Beijing 8 Star and ZTE Parsian (ZTE’s subsidiary in Iran). ZTE used Beijing 8 Star (8S) as a way to hide its illegal U.S.-origin shipments to Iran.
   “It intended to use 8S to export U.S.-origin items from China to ZTE customers in Iran,” the Justice Department said. “As part of this plan, ZTE supplied 8S with necessary capital and took over control of the company.”
   While 8S was a party to the contracts, ZTE actually purchased and shipped the embargoed goods under the contract.
   “In its shipping containers, it packaged the U.S. items with its own self-manufactured items to hide the U.S.-origin goods,” the department said. “ZTE did not include the U.S. items on the customs declaration forms, though it did include the U.S.-origin items on the packing lists included inside of the shipments.
   “In early 2011, when ZTE determined that the use of 8S was insufficient to hide ZTE’s connection to the illegal export of U.S.-origin goods to Iran, senior management of ZTE ordered that a company-level export control project team study, handle and respond to the company’s export control risks. In September 2011, four senior managers signed an Executive Memo, which proposed that the company identify and establish new ‘isolation companies’ that would be responsible for supplying U.S. component parts necessary for projects in embargoed countries. The isolation companies would conceal ZTE’s role in the transshipment scheme and would insulate ZTE from export control risks.”
   News outlet Reuters exposed ZTE’s sale of equipment to Iran in a March 2012 article. ZTE immediately ceased shipments of U.S. equipment, but quietly resumed this activity in November 2013. Although the company was already under investigation by U.S. regulatory agencies, it continued to hide U.S.-origin items to Iran through the start of 2016.