As reported in a Trump and Trade Update dated June 8, 2018, the Department of Commerce reached a superseding settlement agreement with Zhongxing Telecommunications Equipment Corporation of Shenzhen, China (ZTE Corporation) and ZTE Kangxun Telecommunications Ltd. of Hi-New Shenzhen, China (ZTE Kangxun) (collectively, ZTE) to remove the Department of Commerce’s Bureau of Industry and Security (BIS) denial order imposed as a result of ZTE’s violations of its March 2017 settlement agreement. BIS has now published the superseding settlement agreement.
Even with this superseding agreement, the denial order on ZTE currently remains in place until the company fulfills all the necessary obligations under the agreement (i.e., replace its entire board of directors and senior leadership team; allow BIS to select compliance officials for monitoring purposes; and pay a $1 billion fine and $400 million for an escrow account that the United States will use for any future violations). On July 2, 2018, however, BIS issued a general authorization for all persons to conduct limited business with ZTE from July 2, 2018 to August 1, 2018, including (1) activities with ZTE necessary to maintain and continue operation of existing networks and equipment, (2) activities to provide service and support to existing ZTE phones, (3) disclosure to ZTE of information regarding security vulnerabilities in items owned or controlled by ZTE and (4) authorization to make and receive payments to or from ZTE for these allowable authorizations. This limited general authorization does not relieve U.S. persons from obtaining any necessary export licenses from BIS but is intended to provide clarification and relief to continue these limited transactions with ZTE while the terms of the settlement agreement are fulfilled.
Regarding the establishment of an escrow account to hold the $400 million in suspended fines, BIS confirmed on July 11, 2018, that it has signed the escrow agreement with ZTE and that a notice will be issued lifting the denial order once the deposit has been made. In its announcement, Commerce reiterated that the denial order “remains in full force and effect” until further notice is provided.