ZTE and Huawei Sanctions

Two major Chinese tech companies, have been subject to OFAC sanctions in recent years. Because these companies rely extensively on American goods to produce their products, these sanctions have had a serious impact and major implications for US-China relations.

History of ZTE Sanctions

ZTE Corporation is a Chinese multinational corporation engaged in the manufacturing and sale of telecommunication equipment. ZTE was found to have been illegally exporting US-origin goods or US-made technology through Iran and North Korea. In response, OFAC, in cooperation with BIS and the Department of Justice, imposed roughly $1,000,000,000 in penalties. Even after pleading guilty, ZTE continued to lie to the US government. For this reason, the US Department of Commerce imposed an export ban on US technology and US-origin goods in April 2018.

The ban prohibited US companies from selling goods to ZTE. This had major implications for the company because its phones are heavily dependent on US technologies, such as Qualcomm processors. Because these sanctions had the potential to cause ZTE to go bankrupt, negotiations occurred between China and the United States. The United States government agreed to a $1,000,000,000 fine and a change in leadership of ZTE, including its Board of Directors. Additionally, the US required the company to institute a comprehensive compliance department under strict regulation.

This settlement allowed the export ban to be lifted on ZTE so that it could continue business internationally. The Department of Commerce stated that the settlement was supposed to provide a remedial course for ZTE so long as they abide by US sanctions. These actions provided greater security for US companies knowing that there has been direct US government oversight over ZTE’s reexporting procedures and compliance.

Huawei Sanctions

On April 25, 2018, the Wall Street Journal reported that the Department of Justice was probing Huawei, another Chinese telecom company, for violation of US sanctions on Iran. This is similar to the premise of the investigation and prosecution of ZTE Corporation, but Huawei is a much larger entity and has much greater implications on US-China trade and the Chinese economy.

On December 5, 2018, Huawei’s Chief Financial Officer Meng Wanzhou was arrested in a Canadian airport for extradition to the United States for the criminal charges of violating US sanctions. This is notable, as Meng Wanzhou is also the daughter of the founder of Huawei and the heir apparent to the company. The arrest on foreign soil of a prominent Chinese Corporation CFO has major implications on US-China relations.

It is possible that Meng Wanzhou had a role in exporting US-origin goods directly to Iran in violation of US sanctions. This is likely the start of the implications of the criminal investigations into Huawei and may result in fines, penalties, export bans, and restrictions on the company.

Impact on American Firms

If US entity was involved in potentially exporting US-origin goods to Huawei and had any knowledge of Huawei’s alleged sanctions violations, they should speak with an OFAC sanctions attorney. It is important to be wary of impending deals with Huawei if their products are not permitted to be exported to Iran or reexported to Iran. Having proper compliance programs in place may help ensure that a company will not be implicated in any kind of future investigation or for civil or criminal penalties.

Depending on the nature of a company’s goods, an OFAC sanctions attorney can submit either an OFAC license or a BIS export license. They may be able to draft a comprehensive license application to the respective government agency for authorization to engage in transactions necessary to export whatever goods are prohibited by US export controls, within set conditions and restrictions. After authorization, the company would be able to export their goods.