ZTE to pay $1B penalty in deal with US Commerce Department

China's ZTE said it ceased major operations last month due to the ban

Commerce Secretary Wilbur Ross said today that ZTE has agreed to pay the largest penalty ever levied by the department's Bureau of Industry and Security (BIS), and that the company will "adopt unprecedented compliance measures". In addition, the company will put $400 million into an escrow account, which the US can access if it finds ZTE to be out of compliance with the agreement. The deal also includes a new 10-year ban that is suspended unless there are future violations.

ZTE was fined US$1.2 billion in March 2017, but in April, Washington banned the sale of crucial USA components to the firm after finding it had lied multiple times and failed to take action against employees responsible for sanctions violations.

Early reports claimed that ZTE had already signed an agreement with the USA with these terms, but a spokesperson in touch with Politico says that "no definitive agreement has been signed by both parties".

It wasn't exactly a blazing fast process, costing ZTE billions as the Chinese multinational telecommunications equipment and systems company essentially had to shut down operations for the better part of two months, but you can probably expect phones like the Android Go-powered Tempo Go to be back in stock soon enough.

The denial order put ZTE's future into jeopardy because it relies on US components for so many of its products. At the same time, it continued to ask the US government to lift the ban.

The ban on ZTE became a key focus in crunch trade talks between Washington and Beijing, and a deal to lift it was struck as U.S. President Donald Trump seeks trade concessions from China and negotiations continue to avoid a trade war between the world's two largest economies. Specifically, some observers are looking for China's Ministry of Commerce to finally approve Qualcomm's bid to purchase NXP.

"The Commerce Department plans to amend its 2017 settlement agreement and count the $361 million ZTE paid as a part of that, allowing the United States to claim a total penalty of as much as $1.7 billion, the sources said".

The deal includes a $1 billion penalty against ZTE, and a compliance team, chosen by the U.S., will be embedded at the company, Commerce Secretary Wilbur Ross told CNBC Thursday morning.

Yin's letter said the issue will not be fully resolved until the US government approves the agreement and unspecified conditions are met, according to the Post.

"The Chinese are well aware there's a new marshal in town", Ross said.

The May ban came after the government determined that ZTE violated terms of a 2017 settlement by failing to fire employees involved with illegally shipping U.S. equipment to Iran and North Korea. Apparently, a part of the reason is that ZTE wants to replace a top executive with one from another company which the USA considers a potential threat, so we'll have to wait and see where things go from here... For other US companies, ZTE is a supplier. For example, Gogo Wireless uses ZTE equipment for its in-flight connectivity systems.

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