ZTE to replace board, fire senior management under US settlement

ZTE will employ a compliance team at its expense for 10 years and hold two compliance forums in China as part of US settlement for violating export controls

PUBLISHED : Tuesday, 12 June, 2018, 10:20am
UPDATED : Tuesday, 12 June, 2018, 11:04am

ZTE Corp. has agreed to pay an additional US$1 billion in civil penalties to the US Department of Commerce and put US$400 million in escrow to settle its violation of export controls that threatened to put it out of business.

The Shenzhen-based telecommunications company, which had to shut down major operations after the US banned it from buying American parts, will also employ a special compliance coordinator (SCC) and a team of assistants at its expense for a period of 10 years, according to a detailed settlement agreement on the US Commerce Department’s website.

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The entire boards of directors of ZTE Corp. and ZTE Kangxun will be replaced within 30 days of the agreement dated June 7, and all members of senior leadership at or above the senior vice-president level and employees responsible for the export violations will be terminated.

ZTE has five executive vice presidents and more than 12 senior vice presidents, according to a person familiar with the company’s management, who asked not to be named discussing internal company information.

As part of the agreement, ZTE will also hold two public symposiums in China within four years regarding compliance with the regulations, focused on best compliance practices for Chinese companies. ZTE Chairman Yin Yimin, who signed the agreement together with ZTE Kangxun Chairman Pang Shengqing, apologised to ZTE’s employees, customers, shareholders and partners a day after the settlement.

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“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,” Yin said in a June 8 internal letter to employees and obtained by the South China Morning Post.

Since ZTE shut major operations last month, the company has been holding compliance training for its staff, sometimes three times a week, according to employees interviewed.

The US will lift the ban on ZTE after the company pays the US$1 billion additional penalty and puts US$400 million in escrow. The latter sum may be returned if there are no violations in the 10-year probationary period.

The ZTE settlement still faces some hurdles in the US though. The deal has sparked bipartisan resistance, with many lawmakers citing national security as their main concern. White House trade adviser Peter Navarro on Sunday likened the deal to “three strikes you’re out,” referring to two prior violations ZTE committed under the sanctions agreement with the US.

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The Senate began voting late on Monday to start debate on the defence authorisation bill for fiscal 2019, which includes a bipartisan amendment to restore penalties on the Chinese telecom equipment maker. President Donald Trump has said he reviewed the ZTE penalties as a personal favour to Chinese President Xi Jinping ahead of broader trade talks between the world’s two-largest economies.