The Chinese telecommunications group ZTE has agreed to additional penalties and compliance measures to replace the United States Commerce Department’s denial order imposed as a result of ZTE’s violations of a March 2017 settlement agreement.

Under the new agreement, ZTE must pay $1 billion and place an additional $400 million in escrow before Commerce’s Bureau of Industry and Security (BIS) will remove ZTE from the Denied Persons List. These penalties are in addition to the $892 million in penalties ZTE has already paid to the US government under the March 2017 settlement agreement. BIS is the principal agency involved in the implementation and enforcement of export controls for commercial technologies and many military items.

ZTE will also be required to retain a team of special compliance coordinators selected by and answerable to BIS for a period of 10 years. Their function will be to monitor on a real-time basis ZTE’s compliance with US export control laws. ZTE is also required to replace the entire board of directors and senior leadership for both its entities. The new agreement once again imposes a denial order that is suspended for 10 years, which BIS can activate in the event of additional violations during the ten-year period.

On April 15, BIS activated the suspended denial order against ZTE in response to ZTE falsely informing the US Government that it would or had disciplined numerous employees responsible for the violations that led to the March 2017 settlement agreement.

ZTE instead rewarded that illegal activity with bonuses.  This action followed the March 2017 settlement agreement, in which ZTE agreed to a then record-high BIS civil penalty of $661 million, after engaging in a multi-year conspiracy to supply, build, and operate telecommunications networks in Iran using US-origin equipment in violation of the US trade embargo, and committing hundreds of US sanctions violations involving the shipment of telecommunications equipment to North Korea. ZTE also made false statements and obstructed justice by creating an elaborate scheme to prevent disclosures to and affirmatively mislead the US Government.  In addition to monetary penalties, ZTE had agreed to a seven-year suspended denial of export privileges, which could be activated if any aspect of the agreement was not met and/or if the company committed additional violations of the Export Administration Regulations.

ZTE said it had closed its doors as a result of not being able to access US suppliers under BIS’s April action.

“BIS is imposing the largest penalty it has ever levied and requiring that ZTE adopt unprecedented compliance measures,” said Secretary of Commerce Wilbur Ross. “We will closely monitor ZTE’s behavior. If they commit any further violations, we would again be able to deny them access to US technology as well as collect the additional $400 million in escrow.”

The first settlement with ZTE set a record for civil and criminal penalties in an export control case.  The new agreement sets another record, bringing total penalties assessed on ZTE to $2.29 billion.