ZTE’s chairman vows no more compliance breaches after US deal and apologises
The US agreement imposes a US$1 billion penalty on ZTE and the installation of a US-selected compliance team
ZTE’s chairman has apologised to all its 80,000 employees and vowed to strengthen compliance practices after the Chinese telecom equipment maker reached a deal with the US to resolve an export ban, by paying a US$1 billion penalty and agreeing to other measures.
“The activation of the denial order has caused huge losses and the company has paid a huge price. On behalf of the board of directors and management, I would like to apologise to all employees, customers, shareholders and partners,” Yin Yimin, ZTE’s chairman, said in a June 8 internal letter to employees and obtained by the South China Morning Post.
“We must realise that this issue mirrored problems in our compliance culture and management. Our management and employees must reflect on this issue and learn the lesson. We should hold the relevant people accountable and avoid similar issues in future,” added Yin in the letter.
ZTE declined to comment on the internal memo.
The Shenzhen company signed a settlement agreement with the US Department of Commerce’s Bureau of Industry and Security (BIS) on June 7 but the issue cannot be fully resolved until the agreement is approved by the US government and particular conditions are met, Yin said in the letter.
US Commerce Secretary Wilbur Ross on Thursday announced the end of sanctions against ZTE in a deal that imposes a US$1 billion penalty on the company and the installation of a US-selected compliance team to prevent further incidents of the sort that initially prompted the Commerce Department to cut ZTE off from its US suppliers.
The settlement also requires ZTE to put US$400 million in escrow to cover any future violations and change its board of directors and executive team within a month. That brings total penalties imposed by the US against ZTE to US$2.3 billion. It’s unclear though at ZTE, as of now, as to what extent management will be further changed, according to a person familiar with the situation.
ZTE has removed and sidelined a number of executives since the outbreak of the incident, including Fan Qingfeng, who has been removed from the party secretary position. Xu Huijun, an executive vice-president and ZTE’s chief technology officer, and Huang Dabin, who oversaw corporate operations, have both been removed. Cheng Gang was replaced in March as chief compliance and legal officer.
The US Commerce Department imposed the export ban on ZTE in April after it was found to have breached the terms of a previous settlement, by paying full bonuses to employees who engaged in the illegal sales of equipment to Iran, failing to issue letters of reprimand to those employees, and then lying about it to US authorities. The ban cut off the firm’s access to important components that go into everything from smartphones to network equipment, forcing it shut major operations.
ZTE has also sent out reprimand letters to 35 current and former employees involved in illegal sales to Iran and is seeking to claw back bonuses from those who have left the company, the Post reported earlier.
After the issue is resolved, ZTE will restore operations swiftly to maintain credibility and fulfil its responsibilities for relevant parties, said Yin in the letter. The Chinese company said it will also continue to strengthen R&D and innovations, using “the strength of every employee”, and contribute to the development of the global ICT industry.
“We must stick to our posts and dispel rumours, have remorse, learn lessons and always adhere to the bottom line of compliance. We must do our best to repay our customers. I hope that we can devote ourselves to hard work and innovation and get the company back into business as soon as possible,” said Yin in the letter.