Secretary of Commerce Wilbur L. Ross, Jr. today announced that the U.S. Department of Commerce's Bureau of Industry and Security (BIS) has imposed a denial of export privileges against Zhongxing Telecommunications Equipment Corporation, of Shenzhen, China ("ZTE Corporation") and ZTE Kangxun Telecommunications Ltd. of Hi-New Shenzhen, China ("ZTE Kangxun") (collectively, "ZTE").
Denying ZTE export privileges prevents the company from "participating in any way in any transaction" subject to the USA government's Export Administration Regulations, which govern sales of sensitive technology overseas. ZTE agreed to pay $1.19 billion and to a suspended denial of export privileges for seven years, which could be activated if ZTE's violations continued. "Many banks and companies even outside the U.S. are not going to want to deal with them", said Eric Hirschhorn, a former U.S. Undersecretary of Commerce who was heavily involved in the case.
Under terms of the ban, US companies can not export prohibited goods, such as chip sets, directly to ZTE or via another country, beginning immediately. US versions of ZTE phones were found to have a backdoor in 2012.
"ZTE made false statements to the US Government when they were originally caught and put on the Entity List, made false statements during the reprieve it was given, and made false statements again during its probation".
ZTE officials did not immediately respond to requests for comment.
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The National Cyber Security Centre (NCSC) has warned telecoms operators against using hardware and services provided by ZTE - a Chinese state-owned enterprise - because of the "potential risks to the UK's national security".
Douglas Jacobson, an exports control lawyer who represents suppliers to ZTE, called the ban highly unusual and said it would severely affect the company.
Finisar Corporation (NASDAQ: FNSR) said in a 10-k filing it counts ZTE as a major client, but didn't disclose how much revenue the company accounts for.
This is a regulatory action and is unrelated to any ongoing trade-related actions. Despite the fact that it's a company based in China, ZTE was found to be selling technology from the U.S.to Iran through multiple shell companies. The company may still have a chance at redeeming itself in the United Kingdom, but as far as the USA goes, that's a much different story.
Visitors pass in front of the Chinese telecoms equipment group ZTE Corp booth at the Mobile World Congress in Barcelona, Spain, February 26, 2018.