HONG KONG — An American judge ruled
probation for violations of US sanctions against Iran may end, freeing the Chinese technology company from some control after years of government oversight.
The decision by the federal judge in Texas effectively ends ZTE’s five-year review period under a Dallas attorney appointed to monitor the company’s compliance with the terms of its 2017 settlement agreement, which resolves the sanctions charges.
ZTE is the world’s fourth largest manufacturer of telecommunications equipment and a major builder of 5G networks in China. The company is actually blocked from selling its equipment in the United States, where officials consider it a security threat, even though it was a significant playing in the US smartphone market before pleading guilty.
The decision removes one limitation, as the company appears to be regaining ground after a series of harsh penalties from the United States, including huge fines and a list of exports from the then president.
Donald Trump‘s administration. It remains subject to a Washington-based compliance monitor for another six years.
ZTE shares in Shenzhen rose 10% and hit their trading limit, while shares in Hong Kong rose 27%.
In his ruling, U.S. District Judge Ed Kinkeade said Tuesday that ZTE’s probation could end, despite what he said was the company’s connection to a separate visa fraud case. That case was brought by the Justice Department against a former ZTE researcher last year and does not mention ZTE as an accused. In making his decision, Judge Kinkeade noted mitigating factors, including that ZTE had made progress in improving its compliance practices.
But the judge in his ruling casts doubt on the extent of the company’s reforms, writing that the company’s’ record of compliance can be summed up in one word – ‘sometimes’. ”
The Wall Street Journal reported in October that the court-appointed monitor, James Stanton, had tried to extend his own term beyond Tuesday’s expiration of ZTE’s probation and threatened ZTE if the company refused to accede, citing persons familiar with the matter.
Mr. Stanton did not immediately respond to a request for comment. He earlier called the Journal report inaccurate without commenting further.
At a full-day hearing last week in Dallas, attended by more than a dozen lawyers for ZTE and nearly two dozen people working for the monitor, Judge Kinkeade acknowledged that ZTE had complained privately to the judge about the monitor’s behavior.
Following the decision on Tuesday, Shenzhen-based ZTE said it was committed to building a comprehensive compliance system. “The company has full confidence in the efficient operation and continuous improvement of the compliance management system,” the company said.
The decision concludes a chapter in a legal saga stemming from ZTE’s 2017 settlement and resolves allegations that it violated U.S. sanctions against Iran. In the settlement, ZTE agreed to pay $ 900 million and admitted to orchestrating a six-year conspiracy to acquire US technology, send it to Iran and mask its involvement through a network of front-line companies.
In 2018, the Trump administration accused ZTE of violating the terms of that agreement and, as a punishment, placed the company on an export resort list, with devastating effect. The Department of Commerce ordered ZTE to pay an additional $ 1 billion and replace its senior management with get off the blacklist.
It also forced ZTE to fund another team of lawyers to separately oversee the firm for 10 years. The compliance team, led by Washington attorney Roscoe Howard, has six years left of his term.
In the separate case of visa fraud, the Ministry of Justice last year accused a ZTE researcher of being involved in a conspiracy to bring Chinese citizens to the United States to work for ZTE while in possession of visas that did not allow them to do so. The case is ongoing in the northern district of Georgia.
At last week’s hearing, a lawyer for ZTE said the research was conducted jointly between ZTE and a laboratory at the Georgia Institute of Technology, and blamed Georgia Tech for any inaccuracies in the visa papers. The ZTE employee, as lawyers for the company said, no longer worked there, “gave some Chinese graduate students, all affiliated with Georgia Tech, the opportunity to conduct research in an advanced laboratory, run by a top telecommunications company, and work with skilled scientists and engineers in the field. That’s all that happened, “said attorney Robert Buehler.
In his ruling Tuesday, Judge Kinkeade said ZTE’s allegations against Georgia Tech were tantamount to “finger pointing” in a “crowded forest of squirrels.” Also in the ruling, the judge said he believed ZTE played a role in the alleged visa fraud scheme, but added that it remained an open question whether he could punish the company further. ZTE had claimed in a lawsuit earlier this month that the judge had already imposed the maximum number of probation and fines allowed under U.S. law.
The judge defended the work of the monitor he appointed, Mr. Stanton, while targeting ZTE for disputes that have arisen during his tenure.
Mr. Stanton last year identified a number of lingering concerns related to ZTE’s compliance systems, Judge Kinkeade said. These included the company’s failure to implement the program in all of its subsidiaries and what the monitor said were “untested or faulty” compliance computer systems.
These issues will now be the responsibility of Mr Howard, the trade-appointed monitor, Judge Kinkeade said.
—Dan Molinski contributed to this article.
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