US Court Ends China’s ZTE Probation

A judge in Texas has ended the five year probation for Chinese telecom firm ZTE, marking the end of a US criminal case.

It began back in March 2017, when ZTE pleaded guilty to exporting US technology to North Korea and Iran in violation of US trade sanctions. The Chinese firm was fined $1.19 billion by the US Department of Commerce, the largest-ever US fine for export control violations.

However the company was permitted to continue working with US companies, on the condition that it reprimand a list of 39 employees involved with the export violations.

US probation

But in 2018 ZTE was found to have been in violation of those conditions, having fired only four senior officials on the list, and continuing to provide bonuses to the other 35.

As a result, in April 2018 the Department of Commerce banned US companies from providing parts to ZTE for seven years.

The move would have led to ZTE’s permanent shutdown, if not for a reprieve handed out by the US as part of a trade deal with China.

Under the conditions of a June 2018 settlement, ZTE paid a further $1bn fine, placed $400m in penalty funds in escrow and replaced its entire senior management and established a compliance department selected by the US Department of Justice.

ZTE and Huawei, both headquartered in Shenzhen, China, have been targeted by the US as posing a national security risk.

Huawei, the world’s largest telecommunications equipment manufacturer, has been on the US’ national security Entity List since May 2019.

Visa violations

But Reuters reported that US District Judge Ed Kinkeade this week decided not to punish ZTE for alleged visa fraud

This concerns a separate case that is currently pending in Atlanta, Georgia.

In March 2021, a ZTE research director and professor at the Georgia Institute of Technology were accused of abusing the US visa system to bring Chinese nationals to America to work for ZTE.

While ZTE has not been charged in the visa case, Judge Kinkeade held a hearing in Dallas last week on the fraud allegation as a possible violation of ZTE’s probation.

In his ruling, the judge found ZTE was legally responsible for the actions of the former ZTE research director (Jianjun Yu, who reportedly left ZTE in 2019).

However Reuters reported the judge decided to not take any further action against ZTE, which had already reached the maximum term of probation and, ZTE argued, had already been fined the maximum as well.

In his Tuesday ruling, the judge noted that ZTE argued the visa-fraud related events occurred more than three years ago, and that new leadership had brought an improved export compliance program.

“The Company has made strides,” the judge was quoted by Reuters as saying, adding that ZTE’s export control and compliance programs were effectively “nonexistent” when it was originally sentenced.

He said he considered ZTE’s compliance a mitigating factor, but that its record of compliance could be summarised in one word: “sometimes.”

National security

ZTE in a statement to Reuters said it was “proud of the significant improvement in the company’s compliance program and culture.” It said the improvement had been acknowledged over the years.

In November 2021, President Joe Biden signed new legislation to prevent Huawei Technologies or ZTE Corp from receiving new equipment licenses from US regulators.

Indeed, this week’s ending of ZTE’s five-year-long probation saga, doesn’t change the fact that government officials in the US are banned from using ZTE and Huawei products.

The ruling also doesn’t change ZTE and Huawei’s status as a national security threat, which bars telecommunications providers from using government subsidies to purchase ZTE equipment.

But ZTE will be hoping the end of its probation could help it regain traction in the US in the future.