Chinese smartphone and telecommunications firm ZTE Corp. will soon be able to purchase parts from American manufacturers again.
The U.S. Department of Commerce on Wednesday said it has signed a previously announced escrow agreement with ZTE and that once the company deposits the full $400 million, the Bureau of Industry and Security (BIS) will lift the denial order currently prohibiting U.S. firms from exporting to the telecom giant.
The escrow agreement was part of a larger deal struck between Commerce and ZTE to get the firm back in business after BIS reactivated the denial order in April. ZTE sources roughly 60 percent of the materials and components for its smartphones from U.S. suppliers.
Under that deal, ZTE also agreed to pay a $1 billion fine, as well as install a new board of directors and a team of coordinators handpicked by BIS to monitor the company’s compliance with U.S. export control laws. According to a report from the South China Morning Post last week, ZTE already has installed new personnel in several senior management positions pursuant to the agreement.
Commerce lifted the suspension of a denial of export privileges after U.S. officials found ZTE employees made false statements to BIS in 2016 and 2017. The initial suspension stemmed from a March 2017 settlement in which ZTE agreed to a combined civil and criminal penalty and forfeiture of $1.19 billion for illegally shipping telecommunications equipment to Iran and North Korea, making false statements and obstructing justice.
Commerce said in a statement the settlement “represents the toughest penalty and strictest compliance regime the department has ever imposed in such a case,” but federal lawmakers have been critical of the deal, repeatedly expressing concerns over national security and unfair competition stemming from ZTE and its relationships with U.S. companies.
Sen. Mark Warner, D-Va., said Wednesday, “Our military and intelligence community have all warned us that ZTE is a national security threat. This sweetheart deal not only ignores this threat, it lets ZTE off the hook for evading sanctions against Iran and North Korea with a slap on the wrist.”
The Senate in June overwhelmingly approved a measure in the annual National Defense Authorization Act (NDAA) that would prevent the Trump administration from lifting the export denial order, but the House version of the bill does not include the same provision and the White House previously indicated it would prevent the ZTE language from being included in the final legislation.
BIS last week issued a temporary authorization, to expire Aug. 1, for all U.S. persons to engage in certain types of transactions with ZTE, including any transaction necessary to maintain and support any networks and equipment, related to contracts signed prior to the April 15 imposition of the export denial order; and transactions necessary to provide service and support, including software updates or patches, to ZTE phones.