China’s Zhongxing Telecommunications Equipment Corporation and ZTE Kangxun Telecommunications Limited, and their subsidiaries and affiliates, (collectively, ZTE), reached a historic combined $1.19 billion settlement with the US government on March 7, 2017. This settlement resolves export controls and sanctions violations associated with shipments of US-origin equipment to Iran and North Korea. ZTE pled guilty to criminal charges, including obstruction of justice, and reached settlements with the US Department of the Treasury’s Office of Foreign Assets Control (OFAC), the US Department of Commerce’s Bureau of Industry and Security (BIS), and the US Department of Justice (DOJ), concluding a long-running US government investigation into ZTE.
The government investigation resulted in ZTE entities being added to the BIS Entity List in March of 2016 (on which we previously advised), a notable occurrence due to ZTE’s size and international trading presence. ZTE is one of the world’s largest telecommunications equipment manufacturers with operations in 160 countries and significant business relationships with major US companies. Due to their inclusion on the Entity List, a license was required to export, re-export, or transfer (in-country) items subject to the Export Administration Regulations (EAR) to the listed ZTE entities. A license was also required for any transaction in which one of the named entities, “act[ed] as purchaser, intermediate consignee, ultimate consignee, or end user of items subject to the EAR.” However, BIS issued, and extended several times, a temporary general license to ZTE during the settlement negotiations (on which we have also previously written). The US government used the Entity List designations, along with the temporary general license, as additional leverage to assure the company’s cooperation in resolving the matters under investigation. For more information on the historic settlement, please see our advisory.