U.S. Government Places Export Restrictions on ZTE for Violating Iran Sanctions

On March 7, 2016, the U.S. Commerce Department announced that beginning on Tuesday, March 8, export restrictions will take effect on China‘s state-controlled ZTE Corporation and three of its affiliates, ZTE Kangxun Telecommunications, Beijing 8‑Star and ZTE Parsian for violations of U.S. export controls on Iran.  The restrictions placed on ZTE will require any suppliers using U.S. equipment and/or technology to apply for an export license before exporting to the Chinese company.

The announcement comes after an investigation by Reuters in 2012 alleging that ZTE signed contracts to ship millions of dollars worth of hardware and software to Telecommunication Co. of Iran (TCI), and a unit of one of its shareholders, which was reportedly controlled by the Iranian Revolutionary Guards Corps (IRGC), in violation of U.S. sanctions.  Internal ZTE documents obtained by the U.S. government describe the ways in which ZTE exported U.S. products through shell companies to avoid being caught for violating U.S. sanctions on Iran, indicating the presence of a sophisticated effort by ZTE to purposely break export control laws.

Incriminating language included in these documents (that were allegedly signed by top ZTE officials, including its President, Shi Lirong) included:

– “(ZTE) has ongoing projects in all five major embargoed countries — Iran, Sudan, North Korea, Syria and Cuba”, adding that “all of these projects depend on U.S.-procured items to some extent, so export control obstacles have arisen.”

– ‘‘‘R&D employees at the U.S. Research Centers often Travel Between China and the U.S. carrying R&D data‘‘_This already severely violates the law.‘

ZTE suspended the trading of its shares on the Hong Kong and Shenzhen stock exchanges on Monday, March 7, when the export restrictions were announced.  These restrictions are expected to result in significant supply problems for the company, specifically in computer chips and software.  ZTE has major trading relationships with a number of U.S. companies, including Qualcomm, IBM, Dell, Oracle Corp. and Microsoft.