ZTE reaches billion dollar deal with US government

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The US government has agreed a deal with Chinese smartphone and telecommunications network equipment manufacturer ZTE that will allow it to continue to trade with American firms.

ZTE has been banned from obtaining products and services from American suppliers after it breached an agreement reached for illegally shipping products to North Korea and Iran.

Although the company dismissed four senior officials for their part in the scandal and installed a compliance team and new procedures at a cost of more than $50 million, it did not discipline a further 35 staff involved – a failure which prompted the US government’s action.

ZTE ban overturned

ZTE, which sources up to 30 per cent of its components from the US, paused its operations as a result and claimed its survival was at risk. However in a surprise turn of events, President Donald Trump suggested he would give ZTE a reprieve in exchange for assurances about its future conduct.

US Commerce Secretary Wilbur Ross, who is currently in Beijing for trade talks with China and told CNBC that a deal worth $1.4 billion had been struck. ZTE will pay a $1 billion fine, change its board and management, and put $400 in escrow.

A US-appointed compliance team will monitor the arrangement, which if broken will see ZTE surrender the $400 million and be banned from the US component market for ten years.

"We are literally embedding a compliance department of our choosing into the company to monitor it going forward. They will pay for those people, but the people will report to the new chairman," Ross told CNBC.

"This is a pretty strict settlement …The strictest and largest settlement fine that has ever been brought by the Commerce Department against any violator of export controls."

It had been speculated that any deal could be scuppered by resistance from both Democrats and Republicans in US Congress, who believe Trump is bowing to pressure and that ZTE could be a possible threat to national security.

Separately, the UK’s National Cyber Security Centre (NCSC) has warned UK telcos against using network equipment because it would impact a specialist GCHQ unit’s ability to monitor Huawei equipment against potential interference from the Chinese government.