March 10, 2017

DOJ Catch Of The Week — ZTE Corporation

By the C|C Whistleblower Lawyer Team

This week’s Department of Justice “Catch of the Week” goes to ZTE Corporation.  On Tuesday, the Chinese telecom equipment maker agreed to enter a guilty plea and pay a $430 million penalty for conspiring to violate the International Emergency Economic Powers Act by illegally shipping U.S.-origin items to Iran.  ZTE simultaneously reached settlements with the Department of Commerce’s Bureau of Industry and Security (BIS) and the Department of the Treasury’s Office of Foreign Assets Control for a total government payout of $892 million.  In addition, the BIS suspended an additional $300 million which ZTE will pay if it violates the settlement.  See DOJ Press Release.

The settlements relate to ZTE’s shipment of roughly $32 million worth of U.S.-origin items to Iran without obtaining the proper export licenses from the U.S. government.  The products were supplied in connection with two Iranian contracts for the installation of cellular and landline network infrastructure.  Each contract was worth hundreds of millions of dollars and required U.S. components for the final products.  But ZTE took various measures to conceal its delivery of the U.S. products. 

ZTE also took various steps to interfere with the government’s investigation of this conduct by, for example, directing employees involved in the Iran sales to sign nondisclosure agreements to keep confidential all information related to the company’s U.S. exports to Iran.  The company also hid data related to its illegal sales from a forensic accounting firm hired to conduct an internal investigation and report its findings to the DOJ and U.S. law enforcement.  Part of this effort was through a “contract data induction team” comprised of ZTE employees whose job it was to “sanitize the databases” of all information related to the Iran business.

In announcing the settlement, the government signaled its commitment to take a strong stand against companies violating U.S. export controls.  According to U.S. Attorney General Jeff Sessions:

ZTE Corporation not only violated export controls that keep sensitive American technology out of the hands of hostile regimes like Iran’s – they lied to federal investigators and even deceived their own counsel and internal investigators about their illegal acts.  This plea agreement holds them accountable, and makes clear that our government will use every tool we have to punish companies who would violate our laws, obstruct justice and jeopardize our national security.

Acting Assistant Attorney General for National Security Mary B. McCord echoed this strong sentiment, noting that “[t]he enforcement of U.S. export control and sanctions laws is a major component of the National Security Division’s commitment to protecting the national security of the United States.  Companies that violate these laws – including foreign companies – will be investigated and held to answer for their actions.”

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