On June 7th, Secretary of Commerce Wilbur Ross announced that the U.S. government reached an agreement with ZTE Corporation (ZTE) to lift a denial order suspending the export privileges of ZTE for a period of seven years.  Under this new agreement, ZTE must pay $1 billion and place an additional $400 million in escrow in a U.S.-approved bank within 90 days of this superseding order.  The Bureau of Industry and Security (BIS) will lift the denial order after the payment has been received and notify the public that ZTE has been removed from the Denied Persons List.

In addition to the civil monetary penalty, ZTE must adhere to several other conditions under the new agreement, which collectively are the most severe penalty BIS has ever imposed on a company.  Most notably:

• Retain an independent special compliance coordinator (SCC) selected by BIS for a period of 10 years;
• Complete and submit nine audit reports of ZTE’s compliance with U.S. export control laws, with respect to all exports, reexports, or transfers (in-country) that are subject to the Export Administration Regulations (EAR);
• Ensure that all records required to be kept or retained under the EAR are stored in or fully accessible from the United States; and
• Replace the entire boards of directors of ZTE Corporation and ZTE Kangxun within 30 days of the date of the superseding order.

It is critical that companies considering to export, reexport, or transfer (in-country) items subject to the EAR to ZTE continue to withhold from doing so until ZTE has paid its penalty and the denial order is officially lifted.