ZTE to pay $1B penalty in deal with US Commerce Department

Saturday, 09 Jun, 2018

It was reported that last month T-Mobile was going to walk away from an agreement worth more than $1 billion to distribute ZTE smartphones, among other products, in the U.S.

USA companies provide an estimated 25 to 30 percent of components in ZTE's equipment, which includes smartphones and gear to build telecommunications networks. A Commerce Department spokesman said that "no definitive agreement has been signed by both parties".

Under the agreement, ZTE will pay the U.S. government a $1.4 billion penalty and replace the company's leadership with a new team.

The penalties are in addition to the $892 million in penalties ZTE already paid. Further fees could be assessed for a grand total as much as $1.7 billion.

The deal includes a $1 billion penalty against ZTE and a compliance team, chosen by the United States, will be embedded at the company, Commerce Secretary Wilbur Ross told CNBC Thursday morning.

Following the ban on selling USA -made hardware (and potentially software) to ZTE earlier this year, it appears that the company may have reached a compromise with the us government, according to Reuters.

Although the company dismissed four senior officials for their part in the scandal and installed a compliance team and new procedures at a cost of more than $50 million, it did not discipline a further 35 staff involved - a failure which prompted the U.S. government's action. Hopefully this time ZTE respects the wishes of the US government to not sell to banned countries and ultimately this may lead to China and the USA finally coming to a real agreement on the larger on-going trade discussion. The White House didn't respond to a request for comment.

President Donald Trump has drawn criticism from members of Congress for trying to reach a deal to save ZTE and the jobs it provides to Chinese workers. ZTE reached an agreement to turn over $1.19 billion and punish executives involved in the scheme, but in April the USA determined that the company hadn't lived up to its promises. "We will closely monitor ZTE's behavior", Commerce Secretary Wilbur Ross said.

Mr Ross said the fine was the largest penalty ever levied by Commerce's Bureau of Industry and Security and pledged to continue monitoring ZTE's behaviour.

After having been found to have sold equipment to sanctioned countries such as Iran and North Korea, ZTE was previously fined $1.19 billion. They will simply monitor the compliance of the company with the US export control laws. The company has also agreed to a decade of inspections to ensure compliance with USA export control laws. It was blocked from purchasing parts from US companies, sanctions that had crippled the company.

USA goods exported to China a year ago totaled US$130 billion while Chinese imports to the USA totaled US$506 billion.