ZTE deal: The US Department of Commerce has finally come to an agreement with the Chinese telecom company ZTE (HKSE:0763). 

The agreement requires ZTE to pay nearly $1 billion USD, as well as keep $400 million of penalty in escrow, or in custody of a third party, before the Commerce Department’s Bureau of Industry and Security (BIS) will remove the company off of its Denied Persons List.

ZTE Deal

According to a recent CNBC article, US Secretary of Commerce Wilbur Ross has called the deal “the strictest and largest settlement fine that has ever been brought by the Commerce Department against any violator of export controls.”

The company has agreed that if it violates any of the terms of the agreement it will pay the $400 million and will enter into a ten-year suspension from exporting to the US. 

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ZTE must also replace its existing board of director, management senior leadership roles within 30 days, who will be selected by the BIS.

In regards to this term of the agreement, Ross has said:

“We are literally embedding a compliance department of our choosing into the company to monitor it going forward. They will pay for those people, but the people will report to the new chairman.”

ZTE was originally posted on to the Denied Persons List in April 2018, when it was announced that the US had banned the company from purchasing parts from US companies, such as Alphabet’s (NASDAQ:GOOG) Google and Qualcomm (NASDAQ:QCOM). During this period, ZTE paid penalties worth up to $661 million and entered into a seven-year suspension from exporting. 

The Commerce Department stated that ZTE had been put on the list for “falsely informing the U.S. Government that it would or had disciplined numerous employees responsible for the violations that led to” a previous agreement in March 2017, for the violation of US trade agreements. 

Do you think this agreement will act as a good way to keep ZTE in check?

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