The U.S. government has reached an agreement with ZTE Corp. to lift an order imposed in April that would have banned any U.S. business from selling products to the Chinese-owned company for seven years, Commerce Secretary Wilbur Ross announced on Thursday.
Ross said the company agreed to a fine of $1.4 billion, but $400 million of that amount will be placed into escrow as collateral against potential future violations. ZTE will also replace its entire management team and board of directors, as well as create a new compliance department within the company that will report to both the chairman as well as the Commerce Department.
The Commerce Department’s national security bureau imposed the ban in April after it found that ZTE failed to comply with a settlement agreement reached with the company after it violated Iran sanctions. Soon after, President Trump said the U.S. and China were negotiating terms to avoid that outcome.
“This is a pretty strict settlement. The strictest and largest fine that has ever been brought by the Commerce Department against any violator of export control. So it’s been a long road getting here, but I’m quite pleased with the end result,” Ross said during a CNBC interview.
ZTE is one of the world’s largest telecommunications company and has a market cap upwards of $30 billion. Representatives for the company did not immediately respond to request for comment.
Ross said that shareholders will be in charge of electing new company executives and board members, but the U.S. will hire the individuals to staff the new compliance office created as part of the deal.
“It will be individuals who are fluent in Chinese, because this is going to affect the total company not just the American part of the company,” he said. “This is the first time that I’m aware that a major foreign company has been brought into strict compliance with US export control rules.”
The deal faced immediate criticism from both Republican and Democratic lawmakers. Sen. Marco Rubio, R-Fla., called it “dangerous” and said it would do nothing to protect the U.S. from Chinese espionage. And Sen. Mark Warner of Virginia, the top Democrat on the Senate intelligence panel, labeled the plan to embed a compliance team into the company a “nice talking point.”
“Unless the Trump Administration plans to open an FBI counter-intel field office inside the company, Beijing is about to get one heck of a deal on a backdoor into US telecom networks,” he tweeted.
