* ZTE to plead guilty to evading U.S. sanctions on Iran,
* Fine of almost $900 mln bigger than expected
* Deal draws line under scandal that had threatened supply
* ZTE agrees to 7-year suspended denial of export privileges
* Preliminary earnings for 2016 and Q1 better than expected
(Adds China minister comment, company guidance on earnings,
By Karen Freifeld and Sijia Jiang
NEW YORK/HONG KONG, March 8 Chinese telecom
equipment maker ZTE Corp has agreed to
plead guilty and pay nearly $900 million in a U.S. sanctions
case, drawing a line under a damaging scandal that had
threatened its cut off its supply chain.
While the fine was larger than expected, ZTE, also a major
smartphone maker, reported robust underlying earnings for 2016
and was upbeat in estimates for the first quarter. That and the
resolution of the case helped its Hong Kong-listed shares surge
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 relies on U.S. suppliers for 25 percent to 30 percent of
its components, many of which are key to its goods. It purchases
about $2.6 billion worth of components a year from U.S. firms,
according to a company spokesman. Qualcomm, Microsoft
and Intel are among its suppliers.
"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 agreed to a seven-year suspended denial of
export privileges, which could be activated if there are further
violations, as well as three years of probation, a compliance
and ethics program, and a corporate monitor.
It also agreed to an additional penalty of $300 million that
will be suspended during the seven-year term on the condition
the company complies with requirements in the agreement.
When asked about the ZTE case, Chinese Foreign Minister Wang
Yi said relevant departments of the government would continue to
pay attention as to whether Chinese firms were receiving fair
"The Chinese government consistently opposes foreign
governments putting unilateral sanctions on Chinese companies.
At the same time, we have always asked our companies to operate
legally abroad," he told a news conference without elaborating.
Tim O'Toole, a Washington D.C.-based lawyer with Miller &
Chevalier specialising in sanction cases, said U.S. court
documents suggest ZTE's attempts to obstruct the investigation
were the main reason for a penalty significantly higher than in
"What seems really important to U.S. regulators is whether a
company or individual after the investigation starts is seen to
continue to evade the sanctions and also obstruct the
investigation," he said.
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.
Last year, the Commerce Department 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 has replaced executives allegedly involved, including
naming a new president.
The company said on Wednesday it slid to a preliminary net
loss of 2.36 billion yuan ($342 million) in 2016, its first loss
in four years, due to the settlement.
But without the fine, it would have logged 3.8 billion yuan
in profit, 18 percent higher than a year earlier. That was
better than expected, as was a preliminary estimate for the
first-quarter net profit rising between 21 and 31 percent, said
Cindy Lam, an analyst with UOB Kay Hian in Hong Kong.
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
The Commerce Department will recommend ZTE be removed from a
list of entities that U.S. firms cannot supply without a
license if it lives up to its deal and a court approves its
agreement with the Justice Department.
First placed on the list in March 2016, it has continued to
do business with U.S. suppliers under a temporary general
license that has been extended several times, with the latest
reprieve expiring March 29.
The company's guilty pleas, which must be approved by a
judge, will take place in U.S. District Court in Texas.
(Reporting By Karen Freifeld in New York, Sijia Jiang and Donny
Kwok in Hong Kong; Additional reporting by Ben Blanchard in
Beijing; Editing by Nick Zieminski and Edwina Gibbs)