The US Department of Commerce released a statement today banning American companies from selling to the Chinese phone manufacturer Zhongxing Telecommunications Equipment (ZTE) Corporation for seven years.
The announcement comes after ZTE Corp. pleaded guilty to illegally shipping US telecommunications equipment to other countries.
According to the Department of Commerce Bureau of Industry and Security (BIS), the China-based company shipped the equipment to Iran and made false statements to the BIS during and after the investigation and trial.
Wilbur L. Ross, Jr., the US Secretary of Commerce, has said that ZTE Corp. “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.”
The company was meant to reprimand employees that had participated in illegal conduct but instead did not issue any letters of reprimand and paid bonuses to employees.
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The Department of Commerce did not discover this until the BIS requested documents that showed that that employee discipline had occurred.
“ZTE misled the Department of Commerce. Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored,” said Secretary of Commerce Ross.
According to Reuters, several American companies have already been affected by the ban, including Massachusetts-based Acacia Communications (NASDAQ:ACIA) and California-based Oclaro Inc. (NASDAQ:OCLR).
Acacia shares have gone down more than 30%, while Oclaro shares have only gone down approximately 15%.
There is a high chance that ZTE Corp. will take a hit financially from the ban, as it has sold products to American phone companies AT&T Inc. (NYSE:T), T-Mobile US Inc. (NASDAQ:TMUS) and Sprint Corp. (NYSE:S), and “has relied on U.S. companies including Qualcomm Inc, Microsoft Corp and Intel Corp for components,” according to Reuters.
The ban may result in more tension between the US and China.
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