ZTE pays $400 million into escrow, BIS removes ZTE from denied persons list.

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ZTE Company Logo from Wikipedia/ZTE.com

This just in, ZTE has complied with the terms of their agreement and placed $400 million into escrow. As a result, the US Department of Commerce, Bureau of Industry Security has terminated the April 15, 2018 denial order and removed ZTE from the denied persons list. The full release from the US DOC, BIS website can be found here.

Here’s a listing of all previous ZTE posts on this blog:

ZTE and Commerce sign escrow agreement – denial ban is one step closer to being lifted.

ZTE Open for US Business – sort of and only until August 1, 2018.

ZTE deal is good to go – House bill does not include Senate language “undoing” ZTE deal.

ZTE pays $1 billion fine, $400k into escrow soon.

In-depth details of the ZTE deal.

Senate passes amendment to undo Trump’s ZTE deal.

Deal reached between the US and ZTE.

ZTE facing $1.7 billion penalty?

The real reason Trump is working to reverse the 7 year ZTE ban? To help U.S. companies!

CNBC reports the US and ZTE are working on alternatives to the denial order issued against ZTE back in April of this year.

ZTE estimated to lose $3.1 billion due to US sanctions (Bloomberg).

Deal reached to allow ZTE to purchase U.S. hardware and software?

ZTE may need to change management and board in order to access US suppliers.

ZTE report to the HKEX on the impact of the US denial order: “major operating activities of the Company have ceased”.

ZTE and Huawei banned for sale to US military personnel.

ZTE banned from purchasing US technology for 7 years.

 

 

 

ZTE pays $1 billion fine, $400k into escrow soon.

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Photo by Luke Hui on Pexels.com

According to CNN Money, ZTE has paid the $1 billion dollar fine and will place an additional $400,000 into escrow soon.

This current payment of $1 billion is on top of the $1 billion ZTE paid last year.

Check back for more ZTE developments.

Check out my other ZTE-related blog posts:

In-depth details of the ZTE deal.

Senate passes amendment to undo Trump’s ZTE deal.

Deal reached between the US and ZTE.

ZTE facing $1.7 billion penalty?

The real reason Trump is working to reverse the 7 year ZTE ban? To help U.S. companies!

CNBC reports the US and ZTE are working on alternatives to the denial order issued against ZTE back in April of this year.

ZTE estimated to lose $3.1 billion due to US sanctions (Bloomberg).

Deal reached to allow ZTE to purchase U.S. hardware and software?

ZTE may need to change management and board in order to access US suppliers.

ZTE report to the HKEX on the impact of the US denial order: “major operating activities of the Company have ceased”.

ZTE and Huawei banned for sale to US military personnel.

ZTE banned from purchasing US technology for 7 years.

Senate passes amendment to undo Trump’s ZTE deal.

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ZTE logo, credit: Wikipedia

As has been widely reported, the Senate passed “H.R. 5515: National Defense Authorization Act for Fiscal Year 2019” with an amendment that would undo Trump’s ZTE deal. The full text of the bill can be found here.

The actual amendment is included in Section 6702 of the bill. A copy and paste of only Section 6702 can be found at the bottom of the post. The amendment would reinstate the ZTE ban. As you are aware, the US Department of Commerce issued a denial order in April of this year banning ZTE from buying software and hardware from any US supplies for 7-years. Without access to Qualcomm chips, google Android software and other US components, ZTE would be effectively out of business. Evidence of this has also been reflected in ZTE’s stock price – which has already declined by 23% following yesterday’s passage of the Senate bill with the ZTE amendment.

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Tom Cotton official Senate photo and author of ZTE amendment

It has been reported that Trump will meet with legislators on Wednesday, June 20th to work out a deal removing this language. As the Senate bill moves to reconciliation in the House, it will be an important meeting as Trump will be able to make a deal with Republican lawmakers prior to reconciliation taking place. As the committee members involved in reconciliation are chose from Republican leadership in the House and Senate, Trump is hoping a deal can be made to remove the amendment.

In the meantime, we will have to just wait and see. A denial order against ZTE only hurts US companies that supply chips, components and software to one of the largest phone manufacturers in the world. Additionally, the ZTE deal allows US oversight of a Chinese-based telecommunications company – this would never happen if ZTE closes and opens up as a new company.

If you have any questions how this may impact your business or any questions regarding export compliance, contact David Hsu at 832-896-6288 or by email at dhsu@givensjohnston.com.

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For your reference, below is the amendment reinstating ZTE’s ban (if approved):

SEC. 6702. PROHIBITION ON MODIFICATION OF CIVIL PENALTIES UNDER EXPORT CONTROL AND SANCTIONS LAWS AND PROHIBITION ON CERTAIN TELECOMMUNICATIONS EQUIPMENT.

(a) Prohibition On Modification Of Penalties.—

(1) IN GENERAL.—Notwithstanding any other provision of law, no Federal official may modify any penalty, including a penalty imposed pursuant to a denial order, implemented by the Government of the United States with respect to a Chinese telecommunications company pursuant to a determination that the company has violated an export control or sanctions law of the United States until the date that is 30 days after the President certifies to the appropriate congressional committees that the company—

(A) has not, for a period of one year, conducted activities in violation of the laws of the United States; and

(B) is fully cooperating with investigations into the activities of the company conducted by the Government of the United States, if any.

(2) REINSTATEMENT OF PENALTIES OR SUSPENDED ORDER.—

(A) IN GENERAL.—If, before the date of the enactment of this Act, any penalty imposed pursuant to the order of the Acting Assistant Secretary of Commerce for Export Enforcement entitled “Order Activating Suspended Denial Order Relating to Zhongxing Telecommunications Equipment Corporation and ZTE Kangxun Telecommunications Ltd.” (83 Fed. Reg. 17644), and dated April 15, 2018, is reduced or eliminated, or that order is suspended, on such date of enactment, that penalty shall be reinstated to the penalty in place before such reduction or elimination, or that order shall be reinstated, as the case may be.

(B) ADDITIONAL MODIFICATIONS.—Any modification to a penalty imposed pursuant to the order described in subparagraph (A) on or after the date of the enactment of this Act shall be subject to the requirements of paragraph (1).

ZTE estimated to lose $3.1 billion due to US sanctions (Bloomberg).

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Photo by Manuel Joseph on Pexels.com

Bloomberg news reported that China’s ZTE Corp is estimated to lose at least 20 billion yuan ($3.1 billion) due to Washington’s ban on U.S. firms hardware and software. The Bloomberg article cited unnamed sources.

Bloomberg also reports that ZTE is hopeful that the United States and China will be able to reach a deal that would remove the ban and has a plan in place allowing the telecoms firm to “swing idled factories into action within hours” of the ban being officially lifted.

Deal reached to allow ZTE to purchase U.S. hardware and software?

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ZTE Campus in Shenzhen, Guangdong Province, People’s Republic of China; By Brücke-Osteuropa – Own work, Public Domain

According to a Wall Street Journal article dated May 22nd, the US and China have reached a tentative deal on what steps ZTE could take in order for the Trump administration to remove the ban preventing U.S. companies from selling hardware and software to ZTE.

As previously mentioned on this blog, U.S. companies were barred for selling components and software to ZTE for a period of 7 years due to ZTE not complying with the terms of a 2017 plea deal for violations related to shipping US equipment to Iran and North Korea.

Citing sources close to the negotiation, the WSJ reported ZTE would need to make management changes, changes in the board and payment of additional fines.

Check back for more updates to the ongoing ZTE issue as they become available.

For any questions about denial orders, ZTE, customs or trade law, contact David Hsu at 832-896-6288 or by email at dhsu@givensjohnston.com.

ZTE report to the HKEX on the impact of the US denial order: “major operating activities of the Company have ceased”.


According to a May 10, 2018 filing with the Stock Exchange of Hong Kong (HKEX) online here, ZTE announced the April 2018 BIS Denial Order has resulted in “major operating activities of the Company have ceased”.

Earlier in April 2018, the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce (Commerce) issued a Denial Order against ZTE for failing to comply with the terms of a plea deal reached in 2017 after ZTE plead guilty for illegally shipping US equipment to Iran and North Korea. One often cited plea deal was for ZTE to reprimand responsible employees and deny bonuses to those employees. However, BIS determined ZTE did pay full bonuses and kept 35 employees who violated the law.

A “Denial Order” bans American companies from exporting parts to ZTE. In the instant case, ZTE is faced with a 7-year Denial Order and can no longer receive Qualcomm Snapdragon chips (84% of all ZTE phones use Snapdragon chips) and Google Android updates.

The HKEX release further states that, “the Company maintains sufficient cash”, and ends with ZTE indicating they would seek a modification or reversal of the Denial Order and update investors as soon as possible.

It will be interesting to see the second quarter ZTE results if the Denial Order is not reversed – ZTE’s shipped 75% of their smartphone shipments to the US in the first quarter of 2018.

ZTE banned from purchasing US technology for 7 years.

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ZTE Corporate Campus in Shenzhen, China; Photo Credit: Brücke-Osteuropa from Wikipedia

On Monday, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) imposed a denial of export privileges against ZTE, composed of Zhongxing Telecommunications Equipment Corporation, of Shenzhen, China (“ZTE Corporation”) and ZTE Kangxun Telecommunications Ltd. of Hi-New Shenzhen, China (“ZTE Kangxun”).

Background

In March of 2017, ZTE agreed to pay civil and criminal penalty and forfeitures totaling $1.19 billion for shipping telecommunications equipment to Iran and North Korea, making false statements, and obstructing justice by preventing disclosure to and misleading the U.S. Government. In 2017, ZTE also agreed to a seven-year denial of export privileges if ZTE committed additional violations.

Commerce found ZTE made several violations such as making false statements to BIS in 2016 and making false statements about disciplinary actions against employees involved in the shipment of equipment to Iran and North Korea.

Result

By activating the seven-year denial of export privileges, ZTE is prohibited from participating in any way in any transaction subject to the EAR. The prohibition also makes it unlawful for businesses and individuals to participate in an export transaction subject to the EAR with a denied person (ZTE).

If you have any questions about how the recent ZTE order may effect your business, or have any other BIS, EAR or export compliance issues – contact experienced trade attorney David Hsu at 832.896.6288 or by email at dhsu@givensjohnston.com.