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ZTE Escapes US Ban, Will Pay New $1 Billion Fine (Updated)

Updated, 6/19/2018, 7:15am PT:

A large majority of 85 U.S. senators voted to reinstate the original seven-year ban on ZTE exports, which is expected to have a significant impact on the state-owned Chinese company. The amendment will be included in the military budget bill called the National Defense Authorization Act (NDAA).

The House has voted on a similar bill that only bans Huawei and ZTE devices from being used by U.S. federal agencies, so it remains to be seen when the two bills will be merged if the complete ban on ZTE exports remains. If the ban survives, and the NDAA receives over two-thirds of votes in the final vote, President Trump will not be able to veto the bill.

In a joint statement, Senators Marco Rubio (R-FL), Tom Cotton (R-AR), Chuck Schumer (D-NY), and Chris Van Hollen (D-MD), said:

“We’re heartened that both parties made it clear that protecting American jobs and national security must come first when making deals with countries like China, which has a history of having little regard for either. It is vital that our colleagues in the House keep this bipartisan provision in the bill as it heads towards a conference.”

Updated, 6/12/2018, 10:45am PT:

A bipartisan group of Senators is now trying to reverse the Trump administration's rescue of ZTE by reinstating the export ban as an amendment in the National Defense Authorization Act. 

Senator Tom Cotton (R-Ark.) told reporters that ZTE's many past abuses can't be so easily forgiven:

"I and obviously every other senator believes the death penalty is the appropriate punishment for their behavior. They’re a repeat bad actor that should be put out of business. For eight years, ZTE was able to run wild and be able to become the fourth-largest telecom company in the world."

Beyond reinstating the seven-year ban on ZTE's exports, the amendment would also ban federal agencies from purchasing any hardware from ZTE, Huawei or any of their affiliates.

Original, 6/7/2017, 9:40am PT:

U.S. Secretary of Commerce Wilbur Ross announced that ZTE will pay a $1 billion fine for its recent violations. Although not specifically stated, the announcement implies that ZTE will no longer be banned from selling technology to other countries and that American companies will no longer be banned from selling components to ZTE, either. That ban's removal is said to have saved the Chinese government-owned ZTE from collapse.

Why U.S. Government Banned ZTE

After having been found to have sold equipment to sanctioned countries such as Iran and North Korea, ZTE was previously fined $1.19 billion. In March 2017, ZTE agreed to pay that fine and also to a seven-year suspended denial of export privileges, which would go into effect if ZTE broke the agreement during that time.

According to Ross, ZTE was later found to have broken its original agreement, which included disciplinary action against the senior management that committed the original violations. Instead, ZTE seems to have given bonuses to those same executives.Because of this, the Department of Commerce ordered the denial of export privileges against ZTE, which also meant that American companies would no longer be able to sell equipment to ZTE. The U.S. government feared that ZTE would then be exporting that technology to sanctioned countries again.

Ban Removed, New Fine Against ZTE

After President Trump reached a deal with China’s president Xi Jinping, the Department of Commerce now seems willing to remove that ban against ZTE. The company will still pay a $1 billion fine on top of the $895 million it paid in 2017 from the original $1.19 billion fine.

The company will also need to put $400 million into escrow, money that will be reserved in case ZTE violates the new agreement. Ross added that if the company violates the new agreement, it could also be put under denial of export privileges again, too.

Despite this new change, the Pentagon has still ordered all ZTE and Huawei phones to be removed from its military bases. Additionally, there’s a new bill in Congress that will ban ZTE and Huawei devices from being sold to government agencies.

The Congress members who introduced the bill, as well as the intelligence agencies that flagged ZTE and Huawei hardware as risky, believe that Chinese devices could contain spyware and backdoors that could be a threat to national security.

Lucian Armasu
Lucian Armasu is a Contributing Writer for Tom's Hardware US. He covers software news and the issues surrounding privacy and security.