China's ZTE pleads guilty, settles with U.S. over Iran, NKorea sales

Karen Freifeld

(Adds details of deal, background on investigation, comments

from AG Jeff Sessions and Commerce officials)

NEW YORK, March 7 (Reuters) - Chinese telecom equipment

maker ZTE Corp has agreed to pay $892 million and

plead guilty to criminal charges for violating U.S. laws that

restrict the sale of American-made technology to Iran and North

Korea.

While a guilty plea deals a blow to ZTE's reputation, the

resolution could lift some uncertainty for a company that relies

on U.S. suppliers for 25 percent to 30 percent of its

components.

A five-year investigation found ZTE conspired to evade U.S.

embargoes by buying U.S. components, incorporating them into ZTE

equipment and illegally shipping them to Iran.

In addition, it was charged in connection with 283

shipments of telecommunications equipment to North Korea.

"ZTE Corporation not only violated export controls that keep

sensitive American technology out of the hands of hostile

regimes like Iran's, they lied ... about their illegal acts,"

U.S. Attorney General Jeff Sessions said in a statement.

ZTE agreed to plead guilty to conspiring to violate the

International Emergency Economic Powers Act, obstruction of

justice for an elaborate cover-up, and making a material false

statement for claims it was complying with regulations

The investigation, spearheaded by the U.S. Department of

Commerce, followed reports by Reuters in 2012 that ZTE had

signed contracts to ship millions of dollars worth of hardware

and software from some of the best-known U.S. technology

companies to Iran's largest telecoms carrier.

The Justice Department noted one Reuters article in its

statement announcing the plea deal on Tuesday. The original

report can be read here: http://www.reuters.com/article/us-iran-telecoms-idUSBRE82L0B820120322.

"ZTE acknowledges the mistakes it made, takes

responsibility for them, and remains committed to positive

change in the company," ZTE Chief Executive Zhao Xianming said

in a statement.

The company's guilty pleas, which must be approved by a

judge, will take place in U.S. District Court in Texas. The

Shenzhen-based company has a U.S. subsidiary in Richardson,

Texas.

In March 2016, ZTE was placed on a list of entities that

U.S. firm could not supply without a license. ZTE acted contrary

to U.S. national security or foreign policy interests, the

Commerce Department said at the time.

Commerce will recommend that ZTE be removed from that list

if the company lives up to its deal and a court approves its

agreement with the Justice Department.

ZTE warned last month the penalties could impact its

results. The company has a market capitalization of about 60

billion yuan ($8.7 billion), according to Thomson Reuters

data.

It has continued to do business with U.S. suppliers under a

temporary general license that was extended several times, with

the latest reprieve expiring March 29.

ZTE purchases about $2.6 billion worth of components a year

from U.S. technology companies, according to a company

spokesman. Qualcomm, Microsoft and Intel

are among its suppliers.

Items shipped in violation of U.S. export laws included

routers, microprocessors and servers controlled under export

regulations.

Authorities said executives at ZTE approved the scheme to

prevent disclosure of the sales. The scheme included a data team

that destroyed or sanitized materials involving ZTE's Iran

business after March 2012.

"Despite ZTE's repeated attempts to thwart the

investigation, the dogged determination of investigators

uncovered damning evidence," said Douglas Hassebrock, director

of the Commerce Department office that led the investigation.

Last year, Commerce released internal documents showing

senior ZTE executives instructing the company to carry out a

project for dodging export controls in Iran, North Korea, Syria,

Sudan and Cuba.

ZTE replaced executives allegedly involved, including naming

a new president. Last month, it announced that Shi Lirong, who

stepped down as president in April, resigned as a non-executive

director.

The company on Tuesday agreed to a seven-year suspended

denial of export privileges, which could be activated if there

are further violations. A denial order would bar the receipt of

U.S. origin goods and technology.

The denial order is key to keeping ZTE in line, said Eric

Hirschhorn, former Under Secretary at the Commerce Department,

who was involved in the investigation.

“If the suspension is removed, they’ll probably be put out

of business,” he said.

ZTE also agreed to three years of probation, a compliance

and ethics program, and a corporate monitor.

The settlement includes a $661 million penalty to Commerce;

$430 million in combined criminal fines and forfeiture; and $101

million paid to the Treasury’s Office of Foreign Assets Control

(OFAC). The action marks OFAC's largest-ever settlement with a

non-financial entity.

ZTE also agreed to an additional penalty of $300 million to

the U.S. Commerce Department that will be suspended during a

seven-year term on the condition the company complies with

requirements in the agreement.

In addition to being one of the world’s biggest

telecommunications gear makers, ZTE is the No. 4 smartphone

vendor in the United States, selling handset devices to U.S.

mobile carriers AT&T Inc, T-Mobile US Inc and

Sprint Corp.

(Reporting By Karen Freifeld; Editing by Meredith Mazzilli and

Nick Zieminski)