ZTE to remove board and executive team as part of signed deal with U.S.

ZTE, a telecom equipment maker from China, has signed a preliminary agreement with the U.S. after agreeing to remove the board and executive team and pay a huge penalty.
ZTE US business
The result will be lifting of the 7-year ban imposed by U.S. Commerce Department on buying technology products from U.S. suppliers, Reuters reported. ZTE will also be paying a huge fine as part of the new deal with the U.S.

This will be a big relief for ZTE that stopped major operations since the seven-year ban was imposed on the company in April for breaking a 2017 agreement reached after it was caught illegally shipping goods to Iran and North Korea.

A Commerce Department spokesman said on Tuesday that “no definitive agreement has been signed by both parties.”

The report said preliminary deal includes a $1 billion fine against ZTE plus $400 million in escrow to cover any future violations.

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.

US president Donald Trump tweeted last month that he told Commerce officials to find a way for ZTE to resume operations, later suggesting penalties of a $1.3 billion fine and changes to its board and top management.

ZTE promised to replace its board and executive team in 30 days as part of the deal. It would also allow unfettered site visits to verify that U.S. components are being used as claimed by the company, and post calculations of U.S. parts in its products on a public website, they added.

U.S. companies provide an estimated 25 to 30 percent of components in ZTE’s equipment, which includes smartphones and gear to build telecommunications networks. The new deal indicates that US technology companies will be able to supply components to ZTE.

The ban was imposed after ZTE failed to comply with an agreement with the Commerce Department in 2017, when it pleaded guilty in federal court in Texas to conspiring to evade U.S. embargoes by illegally shipping U.S. goods and technology to Iran. Shenzhen-based ZTE has a subsidiary in Richardson, Texas.

The U.S. government investigation found that ZTE had conspired to evade U.S. embargoes by buying U.S. components, incorporating them into ZTE equipment and illegally shipping them to Iran.

As part of a new agreement, ZTE will retain another compliance contractor in addition to the three-year court-appointed monitor imposed by the plea agreement.

ZTE also agreed to allow U.S. representatives to make site visits without coordinating with Chinese government officials, as required by a non-public agreement between the countries.

Last year, ZTE paid over $2.3 billion to U.S. suppliers including Qualcomm, Broadcom, and Intel, as well as smaller optical component makers Acacia Communications and Oclaro.