In March, 2017, Chinese telecommunications equipment manufacturer ZTE entered into a settlement with U.S. export control and sanctions authorities in connection with a multi-year scheme to re-export U.S.-origin telecommunications equipment to Iran and North Korea using a network of front companies. ZTE also admitted to deliberately concealing and destroying evidence of the scheme to keep it from the U.S. government investigation. ZTE paid a civil and criminal penalty of $1.19 billion and, as part of the settlement, represented that it would take disciplinary action against 39 employees. ZTE entered into a criminal plea agreement and settlement agreements with BIS and OFAC.
Today, the Department of Commerce’s Bureau of Industry and Security issued a denial order finding that ZTE misrepresented the disciplinary actions taken in its periodic reporting under the settlement and, in fact many of the employees were never disciplined. In the order, BIS stated that “[t]he provision of false statements to the U.S. Government, despite repeated protestations from the company that jt has engaged in a sustained effort to turn the page on past misdeeds, is indicative of a company incapable of being, or unwilling to be. a reliable and trustworthy recipient of U.S.-origin goods, software, and technology.” As a result, the Department of Commerce has imposed a seven-year denial order on ZTE (which was previously suspended as part of the settlement), barring ZTE from receiving or dealing in any way in U.S.-origin goods or technology, controlled or otherwise, for that period. BIS’s finding of a sustained pattern of misrepresentation and deception, even during the probationary period following the 2017 settlement, has resulted in a commercially devastating penalty completely cutting off ZTE from all U.S. sources of supply for an extended period.