U.S. Punishes Chinese Tech Company for Trading with Iran

Chinese Flag.
Chinese Flag. (Photo by: Castaneda Luis/AGF/UIG via Getty Images)
Castaneda Luis—AGF UIG

(Reuters) – The United States is imposing export restrictions on China’s ZTE and three other entities over allegations that the telecoms equipment maker developed a scheme to re-export items to Iran in violation of sanctions, the U.S. Commerce Department announced on Monday.

In a public notice, the Commerce Department cited ZTE documents that showed the mobile handset maker planned to use shell companies in the scheme. The export curbs, which take effect on Tuesday, would make it harder for ZTE to acquire U.S. products.

ZTE, based in the southern Chinese city of Shenzhen, can appeal the decision.

Trading in shares of the telecom manufacturer, one of the world’s largest, was halted in Hong Kong and Shenzhen pending the announcement before Asian markets closed. U.S.-listed shares of ZTE were up in a handful of trades in the over-the-counter market.

Chinese officials expressed anger over the U.S. move, which requires suppliers worldwide to seek an export license before shipping any American-made equipment or parts to the company.

“China is opposed to the U.S. citing domestic laws to place sanctions on Chinese enterprises,” Chinese Foreign Ministry spokesman Hong Lei said.

The United States has long banned the sale of U.S.-made technology products to Iran as part of its sanctions, even as China maintains close diplomatic, economic, trade and energy ties with the Tehran government. Last year, the United States and major world powers reached a deal with Iran to loosen economic sanctions in exchange for Tehran curbing its nuclear program.

“We hope this sends a strong message to ZTE, to China, and to other Chinese telecommunications companies who present serious national security risks not only by evading export controls, but by purposefully compromising supply chain security,” said U.S. Representative Adam Schiff of California, the top Democrat on the House Intelligence Committee.

Founded in 1985, ZTE has operations in 160 countries, according to its website.

The Commerce Department investigated ZTE after documents seen by Reuters in 2012 showed that the company had signed contracts to ship millions of dollars worth of hardware and software from some of America’s best-known technology companies to Iran’s largest telecoms carrier, Telecommunication of Iran (TCI), and a unit of the consortium that controls it.

The U.S. companies, which included Microsoft, IBM, Oracle and Dell, have all said they were unaware of the Iranian contracts.

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It was unclear if any of the companies still work with ZTE or what impact the curbs will have on the telecom industry.

The Commerce Department said the export curbs also affect two of ZTE’s Chinese affiliates, ZTE Kangxun Telecommunications Ltd and Beijing 8-Star, and an Iranian company, ZTE Parsian.

Commerce Department investigators obtained internal ZTE documents, some of which had been marked by the company as “Top Secret.” Reuters reviewed some of the documents.

The day after the first Reuters article was published in March 2012, a ZTE spokesman said the company would “curtail” its business in Iran. The company later issued a statement saying: “ZTE no longer seeks new customers in Iran and limits business activities with existing customers.”

Analysts have predicted supply problems for ZTE, whose partners include Intel and Honeywell International in addition to Microsoft and IBM. It also has a relationship with Qualcomm.

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