American Companies Banned from Selling to Chinese Phone Maker ZTE

Apr 17, 2018, 18:12
American Companies Banned from Selling to Chinese Phone Maker ZTE

The Commerce Department said Monday it will prohibit American companies from selling products to ZTE, which violated the terms of a deal made after the USA alleged that ZTE skirted sanctions against North Korea and Iran.

The new restrictive policy from the U.S. Department of Commerce stems from 2017 charges exacted on ZTE, the telecommunications equipment corporation, for illegally shipping American goods to Iran and North Korea. The agreement called for the company to pay $892 million in fines and forfeitures and be subject to an additional $300 million in penalties if it violates the terms of the settlement.

In addition to the monetary penalties, ZTE agreed to perform audits and to make truthful disclosures to federal investigators for the seven year probationary period.

Shares of big U.S. ZTE suppliers fell sharply on the Commerce ban.

ZTE "provided information back to us basically admitting that they had made these false statements", said a senior department official. In particular, ZTE had told the BIS it had disciplined the executives responsible for its illegal deals with Iran and North Korea, but in reality none of the individuals were actually disciplined but rather given bonuses.

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The U.S. action against ZTE is likely to further exacerbate current tensions between Washington and Beijing over trade.

The West warned telecoms operators not to use ZTE equipment because its state ownership raised security fears.

The U.K.'s national Cyber Security Centre warns the telecommunication companies of the country that, "National risks from ZTE equipment and services can not be mitigated".

The Department of Commerce issued an order barring USA exports of sensitive technology to the Chinese company for seven years.

The move Monday by the US Commerce Department against ZTE, which sells smartphones and other telecommunications equipment around the world, comes amid a tense clash between the United States and China over trade and technology.

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Chinese telecoms business ZTE Corp has suspended trading today after Britain's cybersecurity watchdog warned United Kingdom companies against working with the business.

According to Reuters, US manufacturers are estimated to provide up to a third of the components in ZTE's network equipment and smartphones, so the US action could have a disastrous impact on the Chinese business.

Many components were purchased from American Companies by ZTE corp.

"If they can't operate normally because of the USA export ban, that will clearly impact global and Chinese network construction and could affect future 5G rollouts", CICC analysts including Wang Xinglin wrote in a research note Tuesday.

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