Our cover story, ZTE Exports to Iran, is important for two reasons. It shows the organized evasion structures that companies deploy and it also shows the stamina of the Institutions to go after such evasions.

ZTE has been charged with violating US laws and illegally shipping US-origin items to Iran, justice obstruction and material falsifications. Caught on the wrong side of the law, ZTE has entered a guilty plea, agreed to pay $892 mn in penalties plus it will pay another $300 mn if it violates its settlement agreement with the US Commerce Department’s BIS. The company has also agreed to submit itself to corporate probation for three years during which time an independent corporate monitor will report on ZTE’s export compliances.

The International Emergency Economic Powers Act of US deals with regulating trade and commerce with foreign enemy sources. And it was invoked for the first time by the US government during the Iran hostage crisis, the longest hostage taking of diplomats in International history. Fifty two diplomats were held hostage in Tehran for 444 days after the Islamic Republic supporters overran the US embassy there. So exports to Iran have long been a red line, particularly US-origin items are a no-go zone.

And it is precisely this, which ZTE has pleaded guilty to. The guilt admission came because non-admission would have led to a federal indictment. That, in US law means shutting down of business. The criminal fine component of the penalties that ZTE is paying is the biggest criminal fine ever to have been paid in IEEPA prosecution. 

All this comes on the back of a 5 year joint investigation into ZTE’s export practices, by the US Department of Justice’s National Security Division, the US Attorney’s Office for the Northern District of Texas, the FBI, the BIS and the Department of Homeland Security, US Immigration and Customs Enforcement’s Homeland Security Investigations.

In 2012, the FBI did search and seizure operation of ZTE offices and took away laptops. ZTE stopped temporarily but resumed soon using other companies as vehicles to ship US-origin items from China to Iran. Between January 2010 and January 2016, ZTE, either directly or indirectly through this process, shipped $32,000,000 of US-origin items to Iran. It changed the hidden conduit companies, sanitized data, put internal communications to auto-delete, made its employees sign NDAs coupled with heavy penalty of RMB 1 mn incase someone decided to be a canary. And, ZTE lied regularly in court. Read our cover story for complete details.