ZTE is in hot water. The Chinese phone maker, which is No. 4 in the US with about 10 percent of our market, was recently banned from using US components by the Commerce Department because it didn't eliminate the bonuses of 35 employees caught selling electronics to Iran.
Today, ZTE bit back with an extensive statement lamenting just how much work it has done to comply with the Commerce Department's regulations. We've included the full statement below. The most biting part, of course, comes where the company points out that "The Denial Order ... will also cause damages to all partners of ZTE including a large number of US companies."
ZTE uses chips from Qualcomm, glass from Corning, and optical components from various US suppliers.
The statement also implies a tale of a company divided against itself. On the one hand, you have "a Compliance Committee led directly by its CEO." On the other hand, you have someone—unnamed—who issued bonuses to these 35 people, and against whom the company "has taken measures."
It's not clear where ZTE goes from here. The company is reportedly in discussions with Google to see if it can still use Android and Google's Mobile Services such as Gmail, without which it would be very hard to sell phones outside China. Neither ZTE nor US wireless carriers have said if the carriers will continue to sell ZTE phones, or what will happen with the rumored Axon 9, which was supposed to come out this summer.
This is uncharted territory. We're still waiting for answers, but we'll keep you updated when we hear them.
"Since April 2016, ZTE Corporation (hereinafter referred to as "ZTE") has continuously reflected on lessons from its past experience in Export Control Compliance and has attached great importance to Export Control Compliance. Within ZTE, compliance is regarded as the foundation and bottom-line of the Company's operation.
ZTE has established a Compliance Committee led directly by its CEO; built a global team of experienced export control compliance experts; engaged several world-class counsels and consultants to provide professional guidance in order to establish and optimize ZTE's export control compliance structure, system and procedure; introduced and implemented the SAP Global Trade System (GTS); organized compliance training covering over 65,000 employees; cooperated comprehensively with the independent Monitor designated by US Government to ensure the Monitor's real-time and transparent monitoring over ZTE's implementation of the relevant Agreements with US Government and applicable export control compliance requirements, and provided over 132,000 pages of documents. In 2017 alone, ZTE invested over USD 50 million in its export control compliance program and is planning to invest more resources in 2018.
However, the Bureau of Industry and Security (hereinafter referred to as "BIS") activated the Suspended Denial Order on 16 April 2018, on the ground that ZTE did not timely reduce bonus of and issue letters of reprimand to certain employees involved in past violation of export control and made false statements in correspondence with the US Government.
ZTE has been working diligently on Export Control Compliance program and has invested tremendous resources in export compliance and has made significant progress since 2016. It is unacceptable that BIS insists on unfairly imposing the most severe penalty on ZTE even before the completion of investigation of facts, ignoring the continuous diligent work of ZTE and the progress we have made on export compliance and disregarding the fact that (1) ZTE self-identified the issues in the correspondence and self-reported by ZTE immediately; (2) the Company has taken measures against the employees who might have been responsible for this incident; (3) corrective measures has been taken immediately; and (4) a prestigious US law firm has been engaged to conduct independent investigation.
The Denial Order will not only severely impact the survival and development of ZTE, but will also cause damages to all partners of ZTE including a large number of US companies.
In any case, ZTE will not give up its efforts to resolve the issue through communication, and we are also determined, if necessary, to take judicial measures to protect the legal rights and interests of our Company, our employees and our shareholders, and to fulfill obligations and take responsibilities to our global customers, end-users, partners and suppliers.
As a global company originating in China, ZTE will unite all of its employees as one with full confidence to work together taking best efforts to facilitate a final resolution."