On 16 April 2018, the US Department of Commerce announced that it had activated a 7-year denial of export privileges order in respect of Chinese telecoms company ZTE (Zhongxing Telecommunications Equipment Corporation and ZTE Kangxun Telecommunications Ltd) (previous blog).
Today (7 June 2018), the Department of Commerce has announced that ZTE has agreed to “severe additional penalties and compliance measures” to replace the 7-year denial order. Under the new agreement, ZTE must pay $1 billion and place an additional $400 million in suspended penalty money in escrow before it can be removed from the Denied Persons List (these penalties are in addition to the $892 million in penalties ZTE had already paid to the US government under the March 2017 settlement agreement – see previous blog). Under the new agreement, ZTE will also be required to retain a team of special compliance coordinators for a period of 10 years, whose function will be to monitor on a real-time basis ZTE’s compliance with US export control laws. ZTE will also be required to replace its entire board of directors and senior leadership for both entities. Finally, as before, the new agreement imposes a suspended denial order (this time for 10 years), which the Department of Commerce can activate in the event of additional violations during the 10-year probationary period. Collectively, these are the “most severe penalty” the US Department of Commerce has ever imposed on a company.