ZTE reaches USD 1.4 billion settlement to replace 7-year denial of export privileges

On 7 June 2018, U.S. Secretary of Commerce Wilbur Ross announced a new settlement between ZTE, China’s biggest producer of telecom equipment, and the U.S. Commerce Department’s Bureau of Industry and Security (BIS). This settlement will replace the BIS’s order of April 2018, which denied export privileges to ZTE for seven years in relation to US-origin parts and software (see our Legal Alert of May 2018). Under the new settlement, ZTE has agreed to:

• pay USD 1 billion and place an additional USD 400 million in suspended penalty in escrow
• retain a special compliance team, reporting to BIS, for ten years to monitor ZTE’s compliance with US export control laws
• replace the entire board of directors and senior leadership
• a suspended denial of export privileges order which will be activated if ZTE violates US controls laws during a ten-year probation period.

These penalties and compliance measures are in addition to the penalties already paid under the settlement of March 2017 (see In context of March 2017). In the words of Mr Ross, this settlement imposes “the largest penalty it has ever levied” and requires ZTE to “adopt unprecedented compliance measures”.