Updated: Banned ZTE agrees $1.4bn penalty from US to start business again

Updated: Banned ZTE agrees $1.4bn penalty from US to start business again

Chinese equipment maker ZTE is poised to come back from the dead after reportedly agreeing a $1 billion fine and belatedly reprimanding 35 employees.

Update from the original story posted on 6 June. On Thursday 7 June US Commerce secretary Wilbur Ross confirmed the deal with ZTE, as predicted. The only extra item is that ZTE has to replace top management within 30 days. The US will appoint its own compliance team that will be embedded within ZTE. 

ZTE should have reprimanded the staff members under a previous agreement with the US Department of Commerce (DoC), and should have removed their bonuses.

Because it didn’t, in April the DoC imposed banned all US companies from supplying ZTE with hardware or software for seven years. As ZTE’s suppliers include Cisco, Dell, Intel, Microsoft, Oracle, Qualcomm and Symantec, that effectively shut down the company.

ZTE’s top management and the 35 executives had conspired to smuggle telecoms kit to Iran in defiance of a US embargo, said the DoC, which leaked documentary evidence bearing the managers’ and executives’ signatures.

Now, according to this morning’s South China Morning Post (SCMP), published in Hong Kong, ZTE has belatedly agreed to reprimand the 35 and to withdraw their bonuses. That sets a challenge for ZTE to recover money from an unknown number of them who have left the company.

Separately, Reuters is reporting this morning that ZTE has agreed to pay $1 billion in fines and put $400 million aside as a guarantee of future good behaviour.

That’s rather more than the penalty the DoC imposed on ZTE in early 2017 – a fine of $1.19 billion, including $300 million as a guarantee, a sum that ZTE lost in April when the DoC imposed its ban.

US president Donald Trump instructed the DoC in mid-May to negotiate a settlement with ZTE, tweeting that he was working with China’s president Xi Jinping on a deal “to get [ZTE] back into business”.

But Trump faces opposition from prominent members of Congress. Chuck Schumer, a Democratic senator representing New York, said last night in response to the Reuters report that Trump “has put China, not the United States, first. By letting ZTE off the hook, the president who roared like a lion is governing like a lamb when it comes to China. Congress should move in a bipartisan fashion to block this deal right away.”

Marco Rubio, a Republican senator from Florida, said: “China is completely clowning the US.”

ZTE is not commenting on the reports. However, it has agreed with the Hong Kong and Shenzhen stock exchanges, where dealings in its shares were halted on 17 April, to post updates every five trading days. The last update (PDF) was on 30 May – which means a further update is due today or tomorrow.

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