Court Penalizes ZTE For Violating Probation After Breaking Trade Sanctions

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In short: Dallas, Texas-based U.S. District Judge Ed Kinkeade on Wednesday ruled ZTE violated a probation period imposed on it in early 2017 after the company pleaded guilty to a conspiracy to violate trade sanctions imposed on North Korea and Iran. While the firm was initially set to be subjected to a monitoring period until 2020, that scrutiny will now extend to 2022, as per the judge's order.

Background: The transgressions that led to the penalty were the same that the Commerce Department used as the basis for issuing a denial order to American technology companies this April, forbidding them to sell or license their solutions to the Chinese firm over a seven-year period. The sanction that would have almost certainly bankrupted ZTE in the immediate term was eventually replaced following pressure from President Trump, with ZTE instead agreeing to a $1 billion fine, a $400 million escrow payment, and a broad range of concessions, including a complete revamp of its board of directors and management. Independently of the monitorship extended in Dallas earlier this week, ZTE is also financing a small team of independent auditors that will be scrutinizing it for future trade sanction violations until 2028.

Impact: The Dallas ruling doesn't change a lot of things for ZTE and was largely expected following the company's violation of the 2017 settlement. ZTE is still facing a massively challenging rebuilding mission in the United States, with many industry watchers expressing skepticism about its ability to continue doing business as usual. The short-lived denial order and the bad PR that stemmed from it already delivered a major hit to its stateside ambitions and the trade war between Washington and Beijing that emerged in the meantime doesn't spell good news for its efforts to recover its brand in the country. Depending on the outcome of the November mid-terms, ZTE may find itself facing more investigations in the near future as well given how the DNC has been rather vocal about not allowing the firm to continue operating in the U.S. unchecked, citing national security concerns.

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