Commerce Secretary Wilbur Ross said Thursday that the Trump administration has a struck a deal with Chinese telecom giant ZTE. But under the deal announced Thursday, ZTE will pay an additional $1 billion penalty and put another $400 million in escrow to cover possible future violations.
In addition to the new fine, on top of the $892 million paid to the US government from a previous settlement, the company must also place $400 million in an escrow account with the Bank for International Settlements (BIS).
ZTE has already paid a $1.19 billion fine for violating U.S. sanction. It's important to note that this deal is not confirmed, with Commerce Department spokesman James Rockas saying that "no definitive agreement has been signed by both parties".
The story began last March when ZTE lied to the USA government about disciplining employees responsible for supplying, building, and operating telecommunications networks in Iran with US -supplied components and equipment.
The ban in effect nearly destroyed ZTE as it now relies on many components from American companies. The June 7 settlement is seen as creating a positive environment for also negotiating an end to the current China-US trade war, but Ross said the enforcement action against ZTE is "quite separate and apart" from the trade issue.
Qualcomm supplies parts for ZTE phones, and its shares rose today on the news. This brings the total penalties against ZTE to $2.29 billion, including the $400 million which will be placed in escrow.
According to a report from Reuters, ZTE has reached a deal with United States authorities that would lift a ban that prevents it from buying parts from usa suppliers. "They will pay for those people, but the people will report to the new chairman, because we are also having them replace the entire management and the entire board". Instead of disciplining all employees involved, the department said, ZTE had paid some of them full bonuses and then lied about it. For other US companies, ZTE is a supplier.
The deal includes a $1 billion penalty against ZTE and a US-chosen compliance department to be embedded into the company. Their function will be to monitor ZTE's compliance with US export control laws. "When it comes to China, despite his tough talk, this deal with ZTE proves the president just shoots blanks". Post calculations of USA parts in the company's products would also have to be on a public website. We will closely monitor ZTE's behavior.
ZTE supplier Oclaro Inc rose nearly 1 percent while Acacia Communications Inc was down 1.5 percent.
The company was fined $1.2 billion past year.