ZTE to replace board, fire senior management
June 19, 2018 Category China News Round-up, Weekly
ZTE Corp has agreed to pay an additional USD1 billion in civil penalties to the U.S. Department of Commerce and put USD400 million in escrow to settle its violation of export controls that threatened to put it out of business. But the agreement may still be derailed by opposition in the U.S. House of Representatives and the Senate.
The Shenzhen-based telecommunications company, which had to shut down major operations after the U.S. banned it from buying American parts, will also employ a special compliance coordinator (SCC) and a team of assistants at its expense for a period of 10 years, according to a detailed settlement agreement with the U.S. Commerce Department. The Board of Directors of ZTE Corp and ZTE Kangxun will be replaced within 30 days of the agreement dated June 7, and the employment contracts of all members of senior leadership at or above the Senior Vice President level and employees responsible for the export violations will be terminated. ZTE has five Executive Vice Presidents and more than 12 Senior Vice Presidents.
As part of the agreement, ZTE will also hold two public symposiums in China within four years regarding compliance with the regulations, focused on best compliance practices for Chinese companies. “We must realize that this issue mirrored problems in our compliance culture and management. Our management and employees must reflect on this issue and learn the lesson. We should hold the relevant people accountable and avoid similar issues in future,” ZTE Chairman Yin Yimin said in a June 8 internal letter to employees.
The ZTE settlement still faces some hurdles in the U.S. The deal has sparked bipartisan resistance, with many lawmakers citing national security as their main concern. The Defense Authorization Bill for fiscal 2019, which is being debated before the U.S. Senate, includes a bipartisan amendment to restore penalties on the Chinese telecom equipment maker. Senator Chris Van Hollen, Democrat of Maryland, and Senator Tom Cotton, Republican of Arkansas, are trying to push through Congress an amendment that would undo U.S. President Donald Trump’s deal giving a reprieve to ZTE.
President Trump has said he reviewed the ZTE penalties as a personal favor to Chinese President Xi Jinping ahead of broader trade talks, but as both countries have now imposed tariffs on USD50 billion of each other’s products, the trade talks are unlikely to go ahead.
The Hong Kong-listed shares of ZTE fell more than 41% to the lowest level in a year, as it resumed trading after a two-month suspension. Its stock in Shenzhen also slid by the daily maximum of 10%.
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