Canada: OFAC Fines China-Based ZTE $1.2 Billion: Implications For Canadian Companies

In this Update

  • U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) announced a record-breaking fine against China-based ZTE
  • The fine is the largest ever imposed by OFAC against a foreign non-financial institution
  • Commerce Secretary Wilbur Ross has warned that "These penalties are just the first example of the extraordinary powers Commerce will use" to enforce U.S. trade laws
  • OFAC's regulations, along with those of other U.S. agencies, are increasingly broad and could negatively impact Canadian companies unwittingly exporting U.S. components and technology in their export business
  • Key considerations for Canadian companies


On March 7, 2017, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) announced a record-breaking fine against Chinese telecommunications giant ZTE Corp. and its subsidiaries as part of a settlement following a five-year joint investigation by the Departments of Treasury, Commerce, and Justice. The US$1.192-billion penalty is the largest fine ever imposed against a non-financial institution. In this particular case, ZTE took extraordinary measures to conceal its violations, which is one of the factors that contributed to the OFAC's decision to impose the large fine. Nonetheless, the fine levied against ZTE serves to reinforce the increasingly broad reach of OFAC regulations and their application to both U.S. and foreign companies, and the severe consequences of violating U.S. economic sanctions regulations. Canadian companies, whether in the financial sector or other sectors that have links to the U.S., that incorporate U.S. components or technology in their products, or use U.S. currency in their transactions, can be subject to investigation and possibly enforcement action under several U.S. trade and anti-terrorism laws.

The grounds for enforcement in this case was ZTE's use of U.S.-origin components in its Chinese telecom products exporting business to both Iran and North Korea. On this basis, Canadian companies can easily become entangled under OFAC economic sanctions and U.S. export restriction-related regulations, including those administered by the Department of Commerce and the State Department, when exporting Canadian goods containing U.S. components or technology to countries subject to U.S. trade restrictions. In particular, Canadian companies that manufacture goods using NAFTA supply chains to source components and for sales overseas are particularly vulnerable. The risk arises from the fact that U.S.-originating parts, which are subject to U.S. foreign trade policies, can become part of their exports from Canada in violation of laws administered by U.S. agencies.

In this case, ZTE's active concealment of its violations and the fact that this investigation spanned five years both contributed to the record-breaking fine.

However, the imposition of such large fines can be expected to continue under the administration of President Trump, where trade policy is framed around the America-first rhetoric. Foreign companies, whether in the financial sector or other sectors, would be prudent to take note that non-U.S. companies who ignore U.S. export control laws and economic sanctions laws may face extremely high fines and other punitive measures. Commerce Secretary Wilbur Ross announced to reporters in connection with the ZTE enforcement that, "These penalties are just the first example of the extraordinary powers Commerce will use." His statement reaffirms similar indications provided by the new U.S. administration that it will target non-U.S. companies who violate U.S. trade laws and are seen to be competing unfairly against U.S. businesses.


OFAC is responsible for administering and enforcing economic and trade sanctions against U.S. and non-U.S. entities based on U.S. foreign policy and national security goals. In its role, OFAC has the authority to impose trade restrictions and economic sanctions, and thereby limit what companies can sell outside the U.S. if the exported goods and technology contain U.S.-originating components or technology. OFAC also has the power to freeze assets that are within U.S. jurisdiction. OFAC is part of the U.S. Treasury Department, and it exercises jurisdiction in relation to economic and trade sanctions in conjunction with other U.S. agencies, such as the Department of Commerce, which focuses on export controls of civilian goods and technology, and the U.S. State Department which, under the International Traffic in Arms Regulations, controls the transfer of U.S. munitions and related technology.

Although OFAC's control spans across industries, the quantum of fines levied against ZTE has historically been reserved for financial institutions accused of financing illicit trading:

  • Commerzbank AG (March 11, 2015): US$258 million for use of payment practices that interfered with the implementation of U.S. economic sanctions, including deleting or omitting references to Iranian financial institutions and replacing the originating bank information with Commerzbank's name in payment messages sent to U.S. financial institutions; and
  • BNP Paribas SA (June 30, 2014): US$963 million for engaging in a systemic practice of concealing or omitting references to information about U.S.-sanctioned parties in 3,897 financial and trade transactions. The OFAC sanction was part of an $8.9-billion joint settlement with federal and state government agencies and represented the largest sanction ever issued by the U.S. government.

OFAC settlement agreement

As part of the agreement, ZTE has entered into separate settlements and plea arrangements with each of the relevant U.S. government agencies.

The OFAC settlement requires ZTE to pay $100,871,266 for its violations of the Iranian Transactions and Sanctions Regulations. In the agreed statement of facts set out in the settlement signed by ZTE, the company acknowledged that it not only knew its actions were in violation of U.S. sanction regulations, but it  knowingly developed a massive and complex scheme intended to deceive and evade U.S. detection, including using isolation companies to provide a pass-through buffer for Iran-destined goods, removing ZTE logos and markings from shipments, using code-names for goods sent to U.S. embargoed countries, and authorizing a team of IT employees to engage in a project to sanitize and delete references to the company's improper dealings.

If ZTE's criminal plea is approved by the federal court, an additional US$430,488,798 in combined criminal fines and forfeitures will be owed to the Department of Justice, and a US$661,000,000 penalty — of which US$300,000,000 is suspended during a seven-year probationary period — to the Department of Commerce.

Implications for Canadian Companies

The ZTE enforcement is the latest example of OFAC flexing its regulatory muscle — financial institutions are no longer the sole target for sizeable economic sanctions penalties.

With uncertainty surrounding the impending NAFTA renegotiations, the OFAC sanctions against ZTE add further risk and insecurity for Canadian companies engaging in international transactions and, in particular, those who rely on or may have to increase their reliance on NAFTA supply chains, to comply with amended NAFTA rules of origin, or depend on the U.S. financial and banking system.

The zealous enforcement actions against ZTE should serve as a reminder to Canadian companies to remain vigilant about business practices when engaging in international transactions. While Canadian companies are now becoming familiar with the requirement for compliance with anti-corruption statutes and the extra-territorial reach of the U.S. Foreign Corrupt Practices Act, there is generally less knowledge and understanding of the extra-territorial reach of wide-ranging U.S. economic sanctions and export control laws.

The following is a non-exhaustive list of trade restrictions considerations for Canadian companies engaging in overseas business:

  1. Product awareness – Where does each input for my product, whether components or technology, originate from?
  2. Identify relevant U.S. trade policies and laws – Are there U.S. policies and laws that relate to these types of goods and technology and the country we ship to?
  3. Persons involved – Are any U.S. persons including Canadian personnel who are U.S. nationals involved in the export transactions to U.S. sanctioned countries?
  4. Compliance – Is there a company compliance policy in place that assists us in ensuring that goods with U.S.-originating components or technology are not exported in breach of U.S. trade laws?
  5. Self-reporting – If a breach of U.S. trade laws is detected, what steps are in place for self-reporting the breach, mitigating against potential fines, and ensuring compliance on a go-forward basis?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.