Commerce will not ignore the Chinese telecom manufacturer’s ‘egregious behavior’ by making false statements to the Bureau of Industry and Security.
U.S. individuals and entities again are prohibited from exporting to China-based telecom equipment maker ZTE.
The Commerce Department announced Monday it has lifted the suspension of a denial of export privileges to ZTE after U.S. officials found company employees made false statements to the Bureau of Industry and Security in 2016 and 2017.
“ZTE made false statements to the U.S. government when they were originally caught and put on the entity list; made false statements during the reprieve it was given; and made false statements again during its probation,” Commerce Secretary Wilbur Ross said in a statement. “Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored.”
ZTE in March 2017 agreed to a combined civil and criminal penalty and forfeiture of $1.19 billion after illegally shipping telecommunications equipment to Iran and North Korea, making false statements and obstructing justice “through preventing disclosure to and affirmatively misleading the U.S. government,” Commerce said in a Monday press release.
ZTE at that time also agreed to a seven-year suspended denial of export privileges, with the possibility of the denial being reactivated if “any aspect of the agreement” wasn’t met or if the company committed more violations of the Export Administration Regulations, Commerce said.
Ending more than a year of sanctions on the firm, BIS in March 2017 removed ZTE Corporation and ZTE Kangxun Telecommunications Ltd. from the entity list after the company pleaded guilty to, among other things, conspiring to violate the International Emergency Economic Powers Act through illegally shipping U.S.-origin items to Iran.
But BIS more recently discovered the company made false statements to the agency in 2016, during settlement negotiations, and in 2017, during the “probationary period,” relating to senior employee disciplinary actions the company said it was taking or had already taken, Commerce said.
The statements hid the fact that ZTE paid full bonuses to employees who had engaged in illegal conduct and failed to issue letters of reprimand, Commerce said.
BIS became aware of the false statements after requesting information and documentation showing employee discipline had occurred, Commerce said.
ZTE, through its legal department, “informed us that they were going to take action, and specifically, what action was being taken against the individuals,” a senior BIS official said during a Monday call with reporters. “They affirmed in a subsequent letter that those actions had been taken [and] had been fully executed.”
Although ZTE said the reported actions effectuated an understanding by employees about the “importance” of complying with U.S. regulations governing exports to China, BIS subsequently learned from ZTE’s legal counsel “that they had not taken any of those actions that they purported that they had fully implemented and took against employees” initially involved in illegal behavior, the official said.
The export denial suspension was set forth based, in part, on ZTE commitments to implement a “best-in-class” compliance program and to communicate honestly with the U.S. government, another senior BIS official said.
Asked whether there’s any chance that BIS again would suspend the export denial order based on any actions ZTE might take henceforth, the first official said, “I can’t speculate on the future.”
That official cautioned that BIS action isn’t linked to any Section 301 process that the Trump administration is taking with regard to China.
The Office of the U.S. Trade Representative on April 3 released a list proposing duties to cover about 1,300 tariff lines of Chinese products after finding through an investigation pursuant to Section 301 of the Trade Act of 1974 that China is unfairly forcing U.S.-based investors to transfer technology and intellectual property to Beijing.
Section 301 allows USTR to impose trade remedies to counter any foreign country’s “unreasonable” acts, policies and practices found to have denied U.S. companies “fair and equitable” commercial treatment and market access.
Responding to a Chinese retaliation threat, President Donald Trump on April 5 instructed USTR to consider whether tariffs to cover $100 billion worth of goods, in addition to $50 billion announced on April 3, might be appropriate under Section 301, and if so, to identify the subject products.
“The timing of this is somewhat unfortunate because it could make it seem like they’re connected,” the BIS official said. “This is an enforcement action; it’s a regulatory action pursuant to an ongoing investigation that we discovered, by their admission, that they have presented, falsely, information to the U.S. government.”
ZTE no longer spared from export denial
