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11 June 2018

ZTE apologises after US$1 billion penalty and promises future compliance

Following ban, agreement imposes a US$1 billion penalty on ZTE and installs a US-selected compliance team.

China's biggest listed telecoms company Shutterstock

Promising a new compliance future, ZTE’s chairman apologised to its 80,000 employees and vowed to strengthen compliance practices after the Chinese telecom equipment maker reached a deal with the US to resolve an export ban.The ban, which goes back to a breach of the US embargo on trade with Iran, had prevented the firm from buying the US components it needs to make phones and other devices. The firm agreed to pay a US$1 billion penalty and implement new measures.

Huge losses 

In an internal letter obtained by the South China Morning Post, ZTE chairman Yin Yimin wrote, ‘The activation of the denial order has caused huge losses and the company has paid a huge price. On behalf of the board of directors and management, I would like to apologise to all employees, customers, shareholders and partners.’ He added, “we must realise that this issue mirrored problems in our compliance culture and management. Our management and employees must reflect on this issue and learn the lesson. We should hold the relevant people accountable and avoid similar issues in future.

US-compliance team

The Shenzhen company signed a settlement agreement with the US Department of Commerce’s Bureau of Industry and Security (BIS) on June 7 but the issue cannot be fully resolved until the agreement is approved by the US government and particular conditions are met, Yin said in the letter. US Commerce Secretary Wilbur Ross announced the end of sanctions against ZTE and said a US-selected compliance team is to be installed to prevent further incidents of the sort that initially prompted the Commerce Department to cut ZTE off from its US suppliers. The settlement also requires ZTE to put US$400 million in escrow to cover any future violations and change its board of directors and executive team within a month. That brings total penalties imposed by the US against ZTE to US$2.3 billion.

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