On March 7, 2017, Zhongxing Telecommunications Equipment
Corporation ("ZTE"), a Chinese multinational
telecommunications equipment manufacturer, reached an agreement
with the U.S. Treasury Department's Office of Foreign Assets
Control ("OFAC"), the U.S. Department of Commerce's
Bureau of Industry and Security ("BIS"), the U.S.
Department of Justice's National Security Division and the U.S.
Attorney's Office for the Northern District of Texas for a
combined civil penalty of $1.19 billion for sanctions and export
control violations. This is the largest penalty ever levied by the
U.S. government for sanctions violations by a non-financial
institution and the largest penalty ever levied for an export
According to the U.S. government, ZTE conspired to build
telecommunications networks in Iran using U.S.-origin technology,
in violation of U.S. sanctions and export controls. ZTE also made
shipments of controlled U.S.-origin equipment, including routers,
microprocessors, and servers, to North Korea, in violation of U.S.
export controls. Allegedly, ZTE's most senior executives were
aware of the firm's activities in Iran.
OFAC began its investigation into ZTE's activity in 2012,
when reports of potential sanctions violations appeared in the
media. ZTE subsequently halted its activity with Iran. In 2013,
according to the government, ZTE's senior management
made the decision to resume the activity and formulated a plan
to hide and delete evidence of the violations.
OFAC found that ZTE willfully and recklessly disregarded U.S.
sanctions laws and that senior executives knew of this activity,
and that there was a long-term pattern of conduct by ZTE designed
to mislead the U.S. government. Other aggravating factors include
OFAC's findings that the activity caused significant harm to
the U.S. sanctions program and that ZTE is a sophisticated
multinational company with a compliance program that was either
nonexistent or ignored.
In March 2016, ZTE began to cooperate with OFAC, which was also
taken into account in determining the penalty value. ZTE agreed to
pay a penalty of $100,871,266 to OFAC to settle potential civil
liability for violations of the Iranian Transactions and Sanctions
Regulations. Overall, OFAC uncovered 251 prohibited transactions
with a combined value of $39,622,972.
Additionally, ZTE reached a settlement agreement with BIS for
violations of the Export Administration Regulations for shipments
of telecommunication equipment to Iran and North Korea. BIS imposed
a record-high penalty of $661 million.
ZTE also agreed to enter a guilty plea and to pay a $430,488,798
criminal penalty for conspiring to violate the International
Emergency Economic Powers Act, obstructing justice and making a
material false statement. According to the U.S. government, ZTE
went to extreme measures to hide evidence of its transactions with
Iran, including the formation of a team inside the company to
"sanitize the databases" of all information related to
the illegal transactions. ZTE also allegedly hid its activity from
its own outside counsel and from a forensic accounting firm hired
by outside counsel.
While sanctions and export control laws have changed
significantly in recent years and are likely to change further
under the new administration, U.S. enforcement efforts have been
consistently aggressive. This enforcement action underscores the
potential for large fines being levied against non-financial
companies in the sanctions and export control space.
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