ZTE Corp (中興), the world’s fifth-biggest telecommunications equipment maker, could face steep fines and restrictions on its US operations if it is found to have illegally sold US computer products to Iran.
The FBI has opened a criminal investigation into the Chinese company’s sale of banned equipment, according to an FBI affidavit. Reuters reported in March that ZTE had a US$120 million contract in 2010 with Iran’s largest telecom firm, including supplying US computer equipment. Reuters later reported that ZTE had agreed last year to ship millions of dollars worth of additional embargoed US computer equipment to a unit of the consortium that controls the Iranian telecom.
The US Department of Commerce is also investigating.
The law authorizing US sanctions against Iran allows for a civil penalty up to twice the value of a transaction, which in ZTE’s case would translate to US$240 million or more.
Individuals, such as company employees, convicted under the law can be sentenced to 20 years in prison and companies in the most extreme cases can be cut off entirely from commerce with the US, legal experts said on Friday.
The FBI investigation will also look at alleged attempts by ZTE to cover up its sales to Iran and obstruct the Department of Commerce probe, the FBI affidavit indicates. Any finding of obstruction of justice carries its own wide-ranging and potentially heavy penalties under US law.
ZTE’s China-based spokesman David Shu said in response to questions about the investigations: “We’ve been actively engaging relevant US government departments and we’re cooperating with them on various matters.”
He said that the company’s US subsidiary’s main business is to deliver mobile devices to the US market. He denied it is involved in products for any other market, such as Iran, and said the company is confident in the US subsidiary’s prospects.
“ZTE is wholly committed to transparency and will cooperate in addressing any questions regarding our business,” Shu added.
He declined to comment when asked about allegations of a cover-up.
The US Department of Justice has declined comment.
The FBI investigation was first reported on Thursday by the Smoking Gun Web site.
The potential penalties are part of an extensive sanctions regime that US trade officials and prosecutors have increasingly brought to bear against corporations, even those that are outside US jurisdiction.
“It’s not surprising, though often wrong, to hear companies say, ‘How can that law apply to me? I’m not a US company,’” said J. Scott Maberry, a lawyer who specializes in helping companies comply.
He is not involved in ZTE’s case and was speaking generally.
The penalties fall under the International Emergency Economic Powers Act of 1977. The US Congress, concerned about US technology heading to countries such as Iran, raised the penalties in 2007.
Export violations “have been deemed to be priorities of US policy, and so enforcement capabilities of the agencies have been beefed up. They’re looking at and working on more cases,” said Edward Rubinoff, another lawyer who advises companies, but is not involved in ZTE’s case.
An array of corporations and individuals have found themselves subject to penalties.
Last month, Amsterdam-based ING Groep NV agreed to pay US$619 million for conspiring to violate US sanctions on Iran and Cuba by moving more than 20,000 transactions through the US financial system. Each transaction counted as a violation, raising the company’s exposure to penalties.