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Export Ban Sought on Chinese Telecom Companies for Sanctions Violations

Monday, January 21, 2019
Sandler, Travis & Rosenberg Trade Report

Bipartisan legislation introduced in both the House (H.R. 602) and Senate (S. 152) Jan. 16 would direct the president to impose denial orders banning the export of U.S. parts and components to Chinese telecommunications companies that are in violation of U.S. export control or sanctions laws.

According to a press release from Sen. Tom Cotton, R-Ark., this bill includes the following provisions.

- establishes that it is U.S. policy to enforce denial orders banning the export of U.S. parts and components to Chinese telecom companies that have violated U.S. export control laws or sanctions

- directs the president to impose the same strict penalties originally faced by ZTE on any Chinese telecom firm found to be in violation

- ensures that penalties for violations are not withdrawn until a year-long pattern of compliance and cooperation proves that policies surrounding systematic lawbreaking by Chinese telecom firms have been changed

- prohibits any executive agency official from modifying any penalty imposed on Chinese telecom companies, their agents, or affiliates until the president certifies that the company has not violated U.S. laws for one year and is cooperating fully with U.S. investigations

- highlights the congressional role in overseeing executive branch export control and sanctions determinations regarding Chinese telecom companies

The press release notes that this legislation follows news that the chief financial officer of Huawei was arrested on charges of violating U.S. sanctions. “Chinese telecommunications firms like Huawei represent a growing threat to American national security,” said Rep. Mike Gallagher, R-Wis. “As state-directed enterprises, they ultimately report to the Chinese Communist Party and will be employed where and whenever possible to undermine American interests and those of our allies. This bipartisan legislation sets a simple standard: if a Chinese telecommunications firm is found to have violated U.S. sanctions moving forward, it will be subject to the same severe punishment originally imposed on ZTE.”

In 2018 the Department of Commerce issued a seven-year ban on exports to Zhongxing Telecommunications Equipment Corporation and ZTE Kangxun Telecommunications Ltd. (collectively, ZTE) after determining that ZTE had violated an agreement settling charges that it committed hundreds of U.S. sanctions violations involving shipments to Iran and North Korea. However, the ban was subsequently lifted after ZTE fulfilled several requirements, including paying a $1 billion penalty, replacing its entire board of directors and senior leadership, and placing an additional $400 million in suspended penalty money in escrow. ZTE previously paid $892 million in penalties to the U.S. under a March 2017 settlement agreement.

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