US Wants to Implant Compliance Officers at China's ZTE Corp.
U.S. Commerce Secretary Wilbur Ross told CNBC last week that the U.S. is considering a plan that would lift the export ban against China's second-largest telecom company. It would require ZTE to implant U.S.-chosen compliance officers, who would report back to the U.S. Department of Commerce.
May 30, 2018 at 06:11 PM
4 minute read
The original version of this story was published on Corporate Counsel
U.S. Commerce Secretary Wilbur Ross Jr. is scheduled to visit China June 2 to June 4 to resume trade talks, and perhaps reach an agreement on lifting a seven-year ban on exports of parts and technology to Chinese telecom giant ZTE Corp.
Ross told CNBC last week that the U.S. is considering a plan that would lift the export ban. It would require ZTE to implant U.S.-chosen compliance officers, who would report back to the U.S. Department of Commerce, Ross said.
ZTE has not had good luck with its own legal and compliance officers. The South China Morning Post reported in April that after the ban was imposed, the company removed senior vice president Cheng Gang from his roles as chief compliance officer and chief legal officer.
ZTE had also replaced its previous chief legal officer in 2017, after the U.S. Department of Justice prosecuted the company for illegally shipping equipment incorporating U.S. technology to Iran and North Korea.
The company pleaded guilty and reached a plea deal that included numerous compliance reforms and $900 million in sanctions. The prosecution came after its former U.S. general counsel, Ashley Yablon, agreed to be a whistleblower for the U.S. attorney. Yablon has since joined another company as in-house counsel.
It was a violation of the plea deal that led Ross to impose the previously suspended seven-year ban in mid-April, blocking the company from buying and exporting needed parts and technology from U.S. companies. Without U.S. parts, ZTE had to suspend operations.
Then on May 13, President Donald Trump said he wanted to ease the restrictions and allow ZTE to reopen for business. Since then, Ross has been working on hammering out a new deal for ZTE, China's second-largest telecom company, which is publicly traded but whose largest shareholder is a state-backed entity.
Some news reports said any new deal with ZTE to lift the ban would also include a $1.3 billion fine, on top of a record $1.1 billion penalty imposed last year. Other reports said a deal might also include an agreement to buy more U.S. farm products. ZTE has not responded to messages seeking comment.
But Republican Sen. Marco Rubio, among critics of the proposal in the U.S. government and business communities, on Sunday threatened Trump's proposal to lift the ban.
Speaking on ABC News, Rubio said he regarded the ZTE ban as a question not only of enforcing trade sanctions but as a matter of national security. “They steal our intellectual property, they force our companies to transfer this stuff over, and the only way that we are going to stop them is so they face significant consequences for continuing what they are doing,” Rubio claimed.
Rubio said putting ZTE out of business by leaving the export ban in place “is the kind of significant consequence that China would respond to, to understand that we're serious.”
He added, “While the administration is viewing it solely as recalibrating the punishment on ZTE, the sanctions, I'm viewing it as an opportunity to impose a real cost on China for everything else that they're doing.”
Rubio said Congress is considering legislation to block any sale of high-tech equipment to Chinese companies, including ZTE and the even larger Huawei Technologies Inc.
In another interview on CBS's “Face the Nation” on Sunday, Rubio said he believes Congress has a bipartisan, supermajority vote that could override any Trump veto on the matter.
“I think there's a growing commitment in Congress to do something about what China is trying to do to the United States,” he said.
Apparently trying to appease Congress, Trump on Tuesday reversed an earlier decision to hold back on tariffs against China. The White House announced the U.S. would impose 25 percent tariffs on $50 billion worth of goods imported from China containing “industrially significant technology.”
The statement said, “To protect our national security, the United States will implement specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology. The proposed investment restrictions and enhanced export controls will be announced by June 30, 2018.”
It remains to be seen how the tariffs announcement might affect the ZTE negotiations and the trade talks.
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