The United States Commerce Department accused China’s top wire and cable manufacturer, Far East Cable Co., of violating its export controls by assisting a China-based telecommunication company in delivering restricted technology to Iran.
The Commerce Department stated in its charging letter that Far East Cable previously signed a contract with ZTE Corp. in the early 2010s to conceal business transactions with Iran that relied on US-origin routers and microprocessors—subsequently accumulated at least 18 violations between September 2014 and January 2016.
“Bureau of Industry and Security (BIS) Office of Export Enforcement (OEE) Director John Sonderman issued an administrative Charging Letter against Far East Cable on July 29, 2022, alleging violations of the Export Administration Regulations (EAR) for causing, aiding, and/or abetting violations of the EAR. From September 2014 to January 2016, Far East Cable served as a cutout between the Zhongxing Telecommunications Equipment Corporation (“ZTE”), which was under investigation by the U.S. Government for EAR violations at the time; and Iranian telecommunications companies.”
Reuter reported that far East Cable began working with ZTE while the latter was under the microscope of the US authorities, serving as a substitute middle man to evade the export control rules and resume shipments.
After sending the charging letter last Tuesday, the bureau has yet to receive a response from Far East Cable and has only 30 days to do so.
ZTE got in muddy water in 2017 after the US Commerce Department discovered that it had been shipping goods along with American-made technology to Iran, violating US laws. Additionally, ZTE admitted to obstructing justice after executing an elaborate scheme to sweep its illicit business with Iran under a rag.
When this was announced in 2018, ZTE was barred from acquiring equipment from American companies like Qualcomm, which supplied 25-30 percent of the components used in making its devices. However, the Trump administration lifted the ban after ZTE agreed to pay a combined penalty of $1.19 billion in criminal and administrative fines and undergo a management overhaul.
“This action reflects the Commerce Department’s commitment to enforce our laws vigorously against those involved in a scheme to disguise the true parties to a transaction,” said Assistant Secretary of Commerce for Export Enforcement Matthew S. Axelrod. “We have no tolerance for companies that subvert our rules – either on their own behalf or on behalf of others.”
Sonderman elaborated on this, saying, “As alleged, Far East Cable acted as a cutout for ZTE, facilitating ZTE shipments to Iran at the very time ZTE knew it was under investigation for the exact same conduct.”
“Far East Cable engaged in serious conduct as part of the attempt to conceal the activity from US investigators. These charges should send a strong message to any company contemplating facilitating violations on behalf of another,” the OEE Director added.
According to BIS, a charging letter initiates administrative enforcement proceedings under the EAR. The respondent has the right to contest the violations and allegations contained therein.
ZTE Violates IEEPA
Despite pleading guilty in 2017 for its court-order probation, the Commerce Department continued closely monitoring ZTE’s activities.
“ZTE pleaded guilty to one count of conspiring to unlawfully export in violation of the International Emergency Economic Powers Act (IEEPA), one count of obstruction of justice, and one count of making a material false statement. ZTE agreed to pay a fine in the amount of $286,992,532 and criminal forfeiture in the amount of $143,496,266 and submit to a three-year period of corporate probation, during which time an independent corporate compliance monitor will review and report on ZTE’s export compliance program.”
Furthermore, according to the plea documents filed in the case, ZTE was found to have shipped approximately $32 million of American-made items to Iran without obtaining the necessary export licenses from the US government between January 2010 and January 2016. It also began bidding on two Iranian projects in early 2010, which involved installing cellular and landline network infrastructure that required US components for the final products.
Consequently, parties signed in the finalized contracts include the Iranian customer, ZTE, Beijing 8 star, and ZTE Parsian (ZTE’s subsidiary in Iran).
Under the Iranian contracts, ZTE agreed to supply the “self-developed equipment,” collect project payments and manage the whole network. In addition, its Iranian subsidiary was tasked to provide locally purchased materials, while 8 Star was responsible for “relevant third-party equipment” pertaining to components subjected to US export laws. Through 8 Star, ZTE intended to avoid any US export violations, separating itself, but it failed to work.
When it resumed business with Iran, ZTE created a “contract data induction team” (CDIT) which aimed to “sanitize” its databases from all sales-related data between 2013 to 2016 “to ensure there were no communications related to the hiding of the data,” the Department of Justice reported.