ZTE pleaded guilty for the illegal shipment of communication equipments to Iran in violation of U.S. export controls. The company has agreed to pay up to $1.2B in fines.

A five-year investigation found ZTE conspired to evade U.S. embargoes by buying U.S. components, incorporating them into ZTE equipment and illegally shipping them to Iran. ZTE pleaded guilty to three counts in the U.S. District Court for the Northern District of Texas in Dallas. The counts included conspiring to violate the International Emergency Economic Powers Act, obstructing justice and making a material false statement to federal investigators. The company simultaneously reached settlement agreements with the 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).

ZTE has agreed to pay a combined $1.2B penalty. The settlement includes a $661 million penalty to Commerce, $430 million in combined criminal fines and forfeiture and $101 million paid to the Treasury’s Office of Foreign Assets Control (OFAC). But BIS agreed to suspend $300 million of it contingent on ZTE fulfilling the terms of its deal. These penalties were among the largest that these U.S departments have ever imposed on a non-banking company for export violations, according to a report by Ropes & Gray.

There is also a seven-year suspended denial of export privileges, which could be activated if ZTE violates the terms of the agreement, as well as three years of probation, a compliance and ethics program, and a corporate monitor. As part of the deal, the company agreed to hire an independent compliance monitor acceptable to the US government for the three years of its probation.

The company also said it slid to a preliminary net loss of 2.36 billion yuan ($342M) in 2016, its first loss in four years, due to the settlement. But without the fine, it would have logged 3.8 billion yuan ($551M) in profit, 18% higher than a year earlier according to Fortune.

ZTE relies on U.S. suppliers for 25% to 30% of its components. It purchases about $2.6B worth of equipment a year from U.S. firms such as Qualcomm, Microsoft and Intel.

If you look at the outcome, U.S. has sold its products to Iran through ZTE, plus it slapped the company with sanctions and made $1.2B in fines. At the end, U.S. made more money in comparison to a normal situation without sanctions.

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