ZTE Expects to Pay Hefty Penalties Over Trade With Iran

ZTE expects to pay hefty penalties from its settlement with the United States over trade with Iran.

As President Trump took the oval office, sanctions against Iran have been heated up. A few days ago we got the news that the internet retail giant Amazon may face penalties after disclosing that it “processed and delivered” to accounts between 2012 to 2016 which violates U.S. sanction laws against Iran. And it’s not only Amazon, a few weeks ago Apple also started removing Iranian apps due to the U.S. sanctions on Iran. “Apps facilitating transactions for businesses or entities based in Iran may not comply with the Iranian Transactions Sanctions Regulations (31CFR Part 560) when hosted on the App Store,” Apple’s support team replied to one of the Iranian apps that have been removed from the App Store.

ZTE, the largest listed telecommunications equipment supplier of China is about to pay a hefty fine for violating long-standing trade sanctions implemented on Iran. ZTE chairman Zhao Xianming, who was appointed to this position last year, in a regulatory filing on Tuesday said:

“… Reference is made to the announcements of the Company dated 9 March 2016, 23 March 2016, 28 March 2016, 6 April 2016, 28 June 2016, 19 August 2016 and 18 November 2016, in relation to the decisions of the Bureau of Industry and Security of the Department of Commerce of the United States of America and relevant updates (the “Announcements”). Unless otherwise defined, capitalized terms used in this announcement shall have the same meanings as defined in the Announcements.

The Company has been actively cooperating and communicating with relevant U.S. government departments in order to reach a conclusion of the investigation as disclosed in the Announcements. Currently, the Company is negotiating with the U.S. Commerce Department, the U.S. Department of Justice and the U.S. Department of Treasury on the settlement issues, the outcome of which is expected to result in penalties (including but not limited to a fine and other relevant liabilities under U.S. laws) imposed on the Company by relevant U.S. government departments. The outcome of the settlement issues still remains uncertain but will likely have a material impact on the financial conditions and operating results of the Company. The Company will make announcements of material development of the above matters as soon as practicable. Shareholders and potential investors of the Company are advised to pay attention to further announcements made by the Company and investment risks.”

The Bureau of Industry and Security of the US Department of Commerce struck ZTE with export restrictions on March 7, which prohibited suppliers from shipping any US-made types of equipment and parts to the Chinese company. According to the export restrictions law, any supplier that wants to export goods from U.S. to ZTE should apply for a license to do so. The US restrictions also cover subsidiaries of ZTE, Shenzhen ZTE Kangxun Telecommunications, ZTE Parsian (an Iranian company) and Beijing 8-Star International Co. “The filing suggests that the saga between ZTE and the US is coming to an end, but that the end result is likely to be a hefty financial penalty for the Chinese company,” Paul Haswell, a partner at international law firm Pinsent Masons, told the South China Morning Post. “We can expect that ZTE will be required to change its operating procedures to ensure there is no risk of it infringing trade compliance laws in the future.”

On March 24, the Bureau of Industry and Security of the Department of Commerce of the United States of America made a minor change to their ruling to create a temporary general license so that the ZTE could export the equipment to Iran until June 30. The Bureau extended this temporary general license on June 28, August 19 and on November 18. The latest extension is until February 27.

ZTE had signed contracts to ship millions of dollars (€98.8M) worth of hardware and software from some of America’s best-known tech firms to Iran’s largest telecom carrier, Telecommunications Company of Iran. The hardware and software, which were delivered to Iran in 2011, included hardware and software components from US technology firms such as Microsoft, Oracle, Cisco Systems, Dell and Symantec, according to a 2012 report on the product’s packing list.

If no settlement or extension of the temporary general license were reached before the deadline, U.S. suppliers would be banned from doing business with ZTE, which could cut off much of the Chinese company’s supply chain. ZTE relies on U.S. suppliers for about one-third of its components.

At the end, U.S. keeps making money selling hardware and software to Iran indirectly and putting fine on the companies which work with Iran directly to make even more money. Drop us a comment and tell us what do you think on this issue?