ZTE Banned From Using Hardware & Software from US Companies for 7 Years

Nellie Chapman
April 16, 2018

In a move that is sure to damage the company's brand, the United States Department of Commerce banned American-based companies from exporting goods to Chinese phone manufacturer ZTE. "Many banks and companies even outside the U.S. are not going to want to deal with them", said Eric Hirschhorn, a former U.S. Undersecretary of Commerce who was heavily involved in the case.

In March 2017, ZTE settled after the US government discovered that it was shipping USA technology to sanctioned countries such as North Korea and Iran. Third, these reinstated sanctions (denial of export privileges against ZTE) as it relates to the 2015 investigation, according to management, are clearly meant to send a message to Chinese companies doing business with the United States and could be part of a bigger plan in the USA government's recent trade war escalation with China. ZTE pled guilty in a United States federal court to violating US economic sanctions against Iran and North Korea. ZTE also had to dismiss four senior staffers and cut bonuses or otherwise discipline 35 others key employees. ZTE did fire the four execs, but it failed to institute any punishment for those 35 employees.

Now, the U.S. government has banned ZTE from using the hardware or software from the American companies.

Shares of big U.S. ZTE suppliers fell sharply on the Commerce ban. Acacia Communications Inc. shares fell by 34.7%, a drop influenced by the fact that almost a third of the company's 2017 revenue came from ZTE. "It's certainly going to make it very hard for them to produce and will have a potentially significant short and long-term negative impact on the company".

ZTE made false statements to the U.S. Government when they were originally caught and put on the Entity List, made false statements during the reprieve it was given, and made false statements again during its probation. US versions of ZTE phones were found to have a backdoor in 2012.

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The ban in the United States should not really come as a surprise to anyone as steps have been taken over the last few months to make it as unattractive, or illegal, to do business with Chinese firms.

The U.S. government had allowed the company continued access to the U.S. market under the 2017 agreement.

The U.S. government's investigation into sanctions violations by ZTE followed reports by Reuters in 2012 that the company had signed contracts to ship millions of dollars' worth of hardware and software from some of the best known U.S. technology companies to Iran's largest telecoms carrier.

The Commerce Department said in a statement it was revoking ZTE's export license.

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