FBI probes alleged ZTE-Iran deal

PUBLISHED : Saturday, 14 July, 2012, 12:00am
UPDATED : Saturday, 14 July, 2012, 12:00am


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Greater scrutiny looms for Chinese telecommunications equipment makers in the United States after news broke yesterday that the FBI was investigating ZTE, which allegedly sold banned technologies to Iran and sought a cover-up to block a US Department of Commerce probe.

Citing a confidential FBI affidavit, The Smoking Gun website reported that details about ZTE's actions were provided to federal investigators by Ashley Kyle Yablon, a lawyer hired by the Chinese company's subsidiary in Dallas. Yablon allowed the FBI to make a forensic copy of all the files on his office laptop computer.

ZTE spokesman David Dai Shu said yesterday the Shenzhen-based company had no comment.

At the close of trading in Hong Kong yesterday, ZTE issued a profit warning. The company expects its first-half net profit to decline by 60-80 per cent from the same period last year.

The gloomy forecast was caused by lower investment income, foreign exchange losses and the postponement of tenders for network contracts by mainland telecommunications operators, ZTE said in a filing with the Hong Kong stock exchange. The FBI probe may spark further concern among US lawmakers, since Washington had imposed economic, trade, scientific and military sanctions against Iran since 1979. The US House of Representatives' intelligence committee initiated a review last November of the extent to which Chinese companies like Huawei Technologies and ZTE allegedly facilitate Chinese economic espionage and threaten America's critical infrastructure.

Both the FBI and the US commerce department's investigations stem from a Reuters report in March about a Euro98.6 million (HK$933.22 million) contract between ZTE, China's second-largest telecommunications equipment manufacturer, and the government-controlled Telecommunications Company of Iran (TCI) for the supply of a powerful surveillance system.

That deal, which was signed in December 2010, delivered a product that would make TCI 'capable of monitoring landline, mobile and internet communications' across Iran, Reuters said. The 907-page packing list for the system delivered to Iran last year said it included hardware and software components from US technology companies, including Microsoft, Oracle, Cisco Systems, Dell and Symantec. Those are among the technologies subject to the US embargo on that country.

In the FBI affidavit, Yablon said ZTE lawyers discussed shredding documents, altering records and lying to US government officials because the company could no longer 'hide anything' in the wake of the Reuters report.

Yablon told the FBI he hired law firm DLA Piper, at ZTE's direction, to handle the Chinese firm's response to the US commerce department subpoena, which was served in March to seek records about the TCI transaction. Two DLA Piper lawyers were with Yablon at a meeting in April, when ZTE lawyers' suggestions for responding to the subpoena allegedly included 'potential scenarios that would obscure the fact that US-made telecommunication equipment had been shipped to Iran'.

He told the FBI that ZTE may have formed a separate company solely to buy 'US-made goods subject to the US embargo' and set up another firm to integrate those technologies with the system sent to TCI.