The U.S. government has banned sales by American companies to China’s ZTE Corp for seven years to punish the Chinese telecommunications equipment maker after it allegedly made false statements during an investigation into sales of its equipment to Iran. The ban had already been imposed last year but suspended since March 2017 after ZTE agreed to punish those responsible for covering up its sales to Iran and pay about two-thirds of a USD1.2 billion penalty. The sales of hundreds of millions of U.S. dollars worth of routers, microprocessors and servers to Iranian entities violated the U.S. Export Administration Act of 1979, according to an order by the U.S. Department of Commerce.

“ZTE made false statements to the U.S. Government when they were originally caught and put on the Entity List, made false statements during the reprieve it was given, and made false statements again during its probation,” Secretary of Commerce Wilbur Ross said. Follow-up requests this year for documentation that ZTE punished nearly 40 employees running a unit conducting business with Iran and covering up the deals revealed that disciplinary action had not been taken, contrary to ZTE’s earlier pledges, according to the U.S. Department of Commerce. Those actions are “indicative of a company incapable of being, or unwilling to be, a reliable and trustworthy recipient of U.S.-origin goods,” the Department added. The company removed Cheng Gang, Senior Vice President, from his duties as Chief Compliance Officer and Chief Legal Officer on March 8. It is unclear whether Cheng remains an employee at ZTE. ZTE had promised to dismiss four senior employees and discipline 35 others involved in the trade violation by either reducing their bonuses or reprimanding them. ZTE Chairman Yin Yimin said in an internal memo to employees that the company has set up a crisis management team and appealed for calm among its 80,000-strong staff.

The U.S. move prohibits large American companies like Qualcomm and Micron Technology from selling their chips and components to ZTE, making it more difficult for the company to become world leader in 5G technology. The Commerce Department’s reactivation of the order against ZTE also obligates the company to pay the remainder of the original penalty, or about USD300 million. Experts estimate that 25% to 30% of components used in ZTE’s products are imported from the U.S. In recent years, China has spent more than USD200 billion on imported chips annually, more than the amount spent on crude oil imports.

Founded in 1985, ZTE is one of China’s major telecoms equipment suppliers and together with Huawei Technologies is spearheading the development and commercialization of 5G-related technologies. A relatively small smartphone brand in China, ZTE is nevertheless the fourth largest smartphone vendor in the U.S., following Apple, Samsung Electronics and LG Electronics. China’s Ministry of Commerce said it was prepared to take action to protect the interests of ZTE and other Chinese firms. ZTE has 14 offices and six research centers in the United States and supported nearly 130,000 high-tech jobs in the country.

Rival Huawei Technologies has laid off five employees at its Washington office, including Vice President of External Affairs Bill Plummer, and slashed lobbying expenditures to USD60,000 in 2017 from USD348,500 in 2016. U.S. national security experts object to equipment made by Chinese firms to be installed in the U.S. telecommunications network. The U.S. Federal Communications Commission (FCC) also voted unanimously to ban federally subsidized telecom carriers from using suppliers deemed to pose a risk to national security. The ban still needs a second FCC vote to take effect, but highlights once again that Chinese tech players are finding it increasingly hard to access the U.S. market.

In a piece of good news, Huawei’s 5G-ready products won official approval for commercial use in the European Economic Area as it obtained the first CE type examination certificate for 5G products. China has already established the world’s largest 5G test field in Beijing’s Huairou district, where domestic firms and foreign tech companies are participating in China’s third phase of 5G research and development tests.