CCO Insights

Rumor: ZTE Nearing Big Settlement for Compliance Failures

ZTE Corp, a Chinese telecom company with annual revenue exceeding $15 billion, is rumored to be finalizing a guilty plea to pay hundreds of millions to the United States in conjunction with allegations of illegal sales to Iran.  Reuters first reported the pending plea today here.  Reuters’ source, who declined to speak on the record, suggested ZTE may be working with the Departments of Justice, Commerce, and Treasury. 

This isn’t the first bump in the road for the Chinese telecom giant.  Last year, ZTE was placed on a list of companies that cannot receive American exports without a license after the U.S. alleged that the company had schemed to avoid Iran sanctions.  ZTE sells direct-to-consumer products to big American players like AT&T, T-Mobile, and Sprint and has received a series of temporary licenses that have allowed American companies to continue business relationships with ZTE while it cooperates with U.S. enforcement agencies.  Such cooperation was confirmed by ZTE’s February corporate filing. 

We all know that negotiations with U.S. agencies are not exactly balanced – but this seems especially tricky.  Important to consider – In this situation, ZTE has been cooperating with the U.S. while the same agencies were deciding whether to issue the temporary licenses that were necessary for ZTE to maintain its American business channels.  That’s a tough negotiating position to say the least.

ZTE has already undertaken mitigation efforts including removal of the executives who were allegedly involved.  More importantly perhaps, ZTE has appointed an American Chief Export Compliance Officer.  An experienced attorney in export control and sanctions, Matt Bell joined the company in October 2016.  He has a history of working with and developing best in class compliance programs.

These efforts by ZTE will likely ease the reputational issues that typically come along with a guilty plea of this magnitude.  While not guaranteed, it would be a good guess that ZTE will be required to have a monitor, so replacing the bad actors and demonstrating executive-level commitment is a good start. 

ZTE has not commented on the matter.

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