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Export Ban on Chinese Company Lifted

Monday, July 16, 2018
Sandler, Travis & Rosenberg Trade Report

The Department of Commerce announced July 13 that it has lifted a ban on exports to Zhongxing Telecommunications Equipment Corporation and ZTE Kangxun Telecommunications Ltd. (collectively, ZTE). DOC took this step 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.

Earlier this year DOC determined that ZTE had violated that agreement, which settled charges that ZTE had committed hundreds of U.S. sanctions violations involving shipments to Iran and North Korea, by making false statements about the steps it took to discipline employees. DOC responded by issuing a seven-year ban on exports to ZTE but President Trump subsequently agreed to a Chinese request to reconsider. That decision has elicited substantial opposition from U.S. lawmakers on both sides of the aisle, and legislation to limit the president’s ability to take such action is under consideration in the House and Senate.

In addition to the steps outlined above, ZTE has agreed to retain for ten years a team of special compliance coordinators selected by and answerable to DOC who will monitor ZTE’s compliance with U.S. export control laws on a real-time basis. DOC has also issued a ten-year denial of export privileges that has been suspended but can be activated in the event of additional violations.

A department press release states that in total these are “the harshest penalties and strictest compliance measures ever imposed in such a case.” They will also set “a new precedent for monitoring to assure compliance with U.S. law” that “vastly improves the speed with which the Department of Commerce can detect and deal with any violations.”

For more information, please contact ST&R’s Export Controls and Sanctions Practice lead Steven Brotherton at (415) 490-1430.

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