Who Needs Jurisdiction to extract a Settlement?

ZTE exported US-origin goods (251 apparent violations, if ZTE had US presence) worth less than $40 MM. For that, they agreed to a settlement totaling just under $1.2 Billion – of which $300 MM is suspended during a 7-year probation. The fines are split between a number of agencies, all of whom issued some sort of notice. 

Here is why the penalty – for egregious violations that were not self-reported – was so severe:

 

From on or about January 2010 to March 2016, ZTE’s highest-level management developed, approved, and implemented a company-wide plan that utilized third-party companies to conceal and facilitate ZTE’s illegal business with Iran. ZTE’s highest-level management was specifically aware of and considered the legal risks of engaging in such activities prior to signing contracts with Iranian customers and supplying U.S.-origin goods to Iran. Essential to the performance of such contracts was ZTE’s procurement of and delivery to Iran of U.S.-origin goods, including goods controlled for anti-terrorism, national security, regional stability, and encryption item purposes. Pursuant to its contracts with Iranian customers, ZTE was required to and did in fact enhance the law enforcement surveillance capabilities and features of Iran’s telecommunications facilities and infrastructure.

ZTE’s unlawful business activities with Iran were publicly disclosed in a media report in 2012. Shortly thereafter, ZTE learned of the U.S. government’s investigation into the company’s business activities with Iran. ZTE subsequently communicated to the U.S. government that it had wound down and ceased its Iran-related activities. However, ZTE’s highest-level leadership decided to surreptitiously resume its Iran-related business in 2013, which it continued until 2016, when the Department of Commerce suspended the company’s export privileges by adding it to the Entity List. Under the direction of its leadership, ZTE deleted evidence and provided the U.S. government with altered information to hide the fact that it had resumed its unlawful business with Iran. 

The “why” in the Enforcement Info is pretty damning, too:

The General Factors that OFAC considered to be aggravating included the following:

  •   ZTE willfully and recklessly demonstrated disregard for U.S. sanctions requirements in engaging in the egregious behavior that led to the apparent violations of U.S. economic sanctions laws. Various executives and senior executives knew or had reason to know of the conduct that led to the apparent violations and engaged in a long-term pattern of conduct designed to hide and purposefully obfuscate its conduct in order to mislead U.S. government investigators for several years. ZTE’s conduct was the result of a widespread pattern or practice involving the coordination of many divisions and departments within the company.
     

  •   ZTE had actual knowledge that the conduct giving rise to the apparent violations took place. The conduct was undertaken pursuant to directives and business processes that were illegitimate in nature and specifically designed and implemented to facilitate the violative behavior. ZTE had actual notice from multiple sources that both its initial business with Iran and its later resumption of business with Iran constituted or likely constituted a violation of U.S. economic sanctions laws, including, with respect to the later resumption of business with Iran, being the subject of a federal investigation at the time it decided to resume such activities, transactions, and its practices. ZTE’s management played a key role in authorizing and carrying out the transactions at issue, and ZTE’s senior leadership and management appear to have been involved with and possessed actual knowledge of the company’s violative patterns and practices.
     

     
  •   ZTE caused significant harm to the integrity of the ITSR and its associated policy objectives by engaging in the supply of a high volume and high value of U.S.-origin goods to Iran and the Government of Iran for several years, including items subject to the Commerce Control List for anti-terrorism, national security, regional stability, and encryption item reasons. ZTE systematically undermined the integrity of the sanctions program objectives, and conferred significant economic benefits to Iran and/or the Government of Iran.
  •   
  • ZTE is a sophisticated and experienced telecommunications company that has global operations and routinely deals in goods, services, and technology subject to U.S. laws.

  From at least January 2010 to March 2016, ZTE’s compliance program was either non– existent or unenforced.

The General Factors that OFAC considered to be mitigating included the following:

  •   ZTE has not received a penalty notice or Finding of Violation from OFAC in the five years preceding the earliest transaction giving rise to the apparent violations.

  •   ZTE cooperated with OFAC’s investigation by executing three tolling agreements with OFAC for a total of 803 days. Beginning after March 2016, ZTE cooperated with OFAC’s investigation by responding to requests for information, making witnesses available for interviews, providing data analytics regarding apparent violations, and submitting documentation associated with apparent violations of U.S. economic sanctions and export control laws committed by the company. ZTE took certain remedial steps in the final stages of the investigation in 2016 and 2017, including implementing an economic sanctions and export controls compliance program 

Links:

OFAC Enforcement Info

OFAC Settlement Agreement

Treasury Press Release

DOJ Press Release

Commerce Department Press Release

Commerce Department Settlement Agreement

Commerce Department Charging Letter

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