China’s ZTE Corporation agreed Tuesday with the DOJ and two other agencies to pay $892 million for knowingly shipping dual-use telecoms equipment to Iran for six years and lying to cover up the trade offenses.
ZTE will plead guilty and pay the DOJ $430 million, with a fine of $287 million and a criminal forfeiture of $143.5 million.
The DOJ filed a criminal information (pdf) Tuesday charging ZTE with one count of knowingly and willfully conspiring to violate the International Emergency Economic Powers Act (IEEPA), one count of obstruction of justice, and one count of making a material false statement.
The DOJ filed the criminal information in federal court in the Northern District of Texas.
ZTE’s plea agreement (pdf) still needs court approval.
ZTE — China’s second-biggest maker of telecom equipment — is also known as Zhongxing Telecommunications Equipment Corporation.
The company also reached settlements Tuesday with the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).
OFAC penalized ZTE nearly $101 million for 251 violations of the Iran trade embargo.
The Commerce Department imposed a total penalty on ZTE of $661 million for Iran and North Korea sanctions violations. (The DOJ and OFAC didn’t mention the North Korea trade violations.) But Commerce suspended $300 million of the penalty during a seven-year probationary period “to deter future violations.”
It’s the biggest civil penalty ever imposed by the Commerce Department and the biggest overall fine and forfeiture ever levied by the U.S. government in an export control case.
ZTE is required to retain a compliance monitor for three years.
For six years starting in early 2010, ZTE helped the Iranian government and its agencies build large-scale telecommunications networks with U.S.-origin equipment and software.
“As a result of the conspiracy, ZTE was able to obtain hundreds of millions of dollars in contracts with and sales from such Iranian entities,” the Commerce Department said.
ZTE also sent 283 shipments of controlled items to North Korea “with knowledge that such shipments violated” the Export Administration Regulations (EAR), Commerce said.
Shipped items included routers, microprocessors, and servers controlled under the EAR for national security, encryption, regional security, and anti-terrorism reasons.
ZTE tried to hide its illegal trade. But in March 2012, Reuters published an article about the sales to Iran. ZTE responded by temporarily stopping new shipments of U.S. equipment to Iran.
By November 2013, ZTE had restarted the sales. Beginning in July 2014, it was again shipping U.S.-origin equipment to Iran in violation of the trade embargo.
ZTE lied to the Commerce Department and other U.S. law enforcement agencies. It said it stopped shipments to Iran as of March 2012 and was no longer violating U.S. export control laws.
The company also hid documents from the outside counsel and forensic accounting firm it had retained to conduct an “independent” investigation.
In early 2016, ZTE formed a 13-member “Contract Data Induction Team” that “destroyed, removed, or sanitized” all materials relating to ZTE’s Iran business that post-dated March 2012, the DOJ said.
Every night, the inside group deleted “all of the team’s emails to conceal the team’s activities.”
ZTE required each team member to sign a non-disclosure agreement. “Under the non-disclosure agreement, team members would be subject to a penalty of 1 million Renminbi (or approximately $150,000) payable to ZTE if it determined a disclosure occurred,” the DOJ said.
Richard L. Cassin is the publisher and editor of the FCPA Blog.