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U.S. lets ZTE resume business by lifting supplier ban

(Reuters) — The U.S. Department of Commerce on Friday lifted a ban on U.S. companies selling goods to ZTE, allowing China’s second-largest telecommunications equipment maker to resume business.

The Commerce Department removed the ban shortly after ZTE deposited $400 million in a U.S. bank escrow, as part of a settlement reached last month. The settlement also included a $1 billion penalty ZTE paid to the U.S. Treasury in June.

“The department will remain vigilant as we closely monitor ZTE’s actions to ensure compliance with all U.S. laws and regulations,” Commerce Secretary Wilbur Ross said in an emailed statement that described the penalties and other conditions as the strictest ever imposed in such a case.

The terms “will allow the department to protect U.S. national security,” Ross said.

ZTE did not immediately respond to requests for comment.

ZTE, which relies on U.S. components for its smart phones and networking gear, ceased major operations after the ban was ordered in April.

The punishment came after the company made false statements about disciplining 35 employees involved with violating U.S. sanctions and illegally shipping U.S.-origin goods to Iran and North Korea, Commerce officials said.

ZTE pleaded guilty and settled with Commerce last year over the sanctions violations.

ZTE paid $892 million in penalties to the United States last year in connection with the 2017 settlement and guilty plea. The latest $1.4 billion deal comes on top of that.

The $400 million will remain in escrow for as long as 10 years to provide the U.S. government access to the money if ZTE violates the June settlement.

On Thursday, ZTE’s Hong Kong shares surged 25 percent after Reuters broke news the United States had signed an escrow agreement that paved the way for ZTE to deposit the $400 million.

ZTE also replaced its board of directors and senior management, as required by the June settlement.

It will now operate with a 10-year suspended ban hanging over its head, which the United States can activate if it finds new violations. The current ban could have lasted seven years.

A group of Republican and Democratic U.S. senators on Thursday sent a letter seeking to reinstate penalties on ZTE. Many U.S. lawmakers see the company as a national security threat.

The U.S. Senate paved the way for a showdown with Trump over the issue last month, when it passed an annual defense policy bill with an amendment attempting to reverse the deal. Its fate is unclear. The measure could be killed when Senate and House of Representatives meet in the coming weeks to forge a compromise version of the bill.

Reuters reported on the U.S. demands for a deal on June 1, and on June 5, revealed that ZTE had signed a preliminary agreement with the Commerce Department, along with the fine and other terms. It also broke news of the ban in April.

The Commerce Secretary announced the settlement on June 7.

A U.S. investigation into ZTE was launched after Reuters reported in 2012 that the company had signed contracts to ship hardware and software worth millions of dollars to Iran from some of the best-known U.S. technology companies.

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