ZTE Faces Potential $1 Billion-Plus US Bribery Penalty Amid New Probe

New Bribery Allegations Emerge Against Chinese Telecom Giant ZTE

Chinese telecommunications equipment manufacturer ZTE Corp. is currently under investigation by the U.S. Department of Justice (DOJ) for alleged foreign bribery, which could result in penalties exceeding $1 billion. This new probe focuses on potential violations of the Foreign Corrupt Practices Act (FCPA), specifically concerning bribes allegedly paid to secure telecommunications contracts in South America and other regions.

Sources familiar with the matter indicate that the DOJ has expedited its investigation, with some suggesting the final penalty could reach $2 billion or more, depending on the profits ZTE may have gained from the alleged corrupt deals. The most recent bribery-related acts under scrutiny are believed to have occurred in 2018. ZTE has confirmed 'ongoing communication' with the Justice Department regarding the investigation, stating its intention to 'resolutely defend its rights and interests through legal means' and reiterating a 'zero-tolerance policy' towards corruption.

A History of U.S. Penalties and Compliance Challenges

This latest investigation adds to a significant history of penalties ZTE has faced from the U.S. government. The company previously paid approximately $2 billion in fines and settlements for separate violations.

• In 2017, ZTE pleaded guilty to illegally exporting U.S.-origin goods to Iran and obstructing justice, resulting in a penalty of $892 million. This included a criminal fine and forfeiture, along with payments to the U.S. Department of Commerce's Bureau of Industry and Security (BIS) and the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC).
• Following this, in 2018, the U.S. Commerce Department imposed an export ban on ZTE, accusing the company of making false statements regarding the disciplining of employees involved in the earlier violations. This ban, which cut off ZTE's access to crucial U.S. components, forced the company to halt major operations. The ban was lifted after ZTE paid an additional penalty of approximately $1.4 billion and agreed to a ten-year compliance agreement.

Potential Ramifications and Geopolitical Implications

The current bribery probe carries substantial risks for ZTE. Beyond the potential financial penalty, the U.S. Commerce Department is also reviewing the same facts as the Justice Department to determine if ZTE has violated the 2018 compliance agreement. A finding of non-compliance could lead to the reinstatement of the export ban, which would once again cut off ZTE from key U.S. suppliers and severely impact its global operations.

Financially, a penalty exceeding $1 billion would place significant pressure on ZTE, which reported a profit of $1.16 billion last year. Furthermore, any settlement reached with the U.S. government would require approval from the Chinese government, adding a geopolitical dimension to the ongoing legal dispute.