The US Department of Commerce has banned American companies from selling components for seven years to Chinese telecom equipment maker ZTE Corp, which is blamed for breaking an agreement after it was caught illegally shipping goods to Iran.
The ban followed ZTE's failure to comply with a 2017 agreement with the U.S. government to discipline employees who had overseen plans to ship equipment to Iran.
The US Commerce Department said that ZTE lied to American officials about punishing employees who violated US sanctions against North Korea and Iran. (NYSE:S), and "has relied on USA companies including Qualcomm Inc, Microsoft Corp and Intel Corp for components", according to Reuters.
In addition to the monetary penalties, ZTE agreed to perform audits and to make truthful disclosures to federal investigators for the seven year probationary period.
Huawei and ZTE also supply a considerable portion of broadband modems deployed by USA and European ISPs.
Later admissions indicate that the reported actions never took place and that all of the employees, except for one, earned their bonuses.
CICC predicted the Commerce ban will have a significant effect on ZTE's business - and perhaps on the building of wireless networks.
According to the press release, this denial order against ZTE is a regulatory action and has nothing to do with the ongoing trade war between the U.S.A and China.
Seemingly in tandem with the US BIS announcement, the UK's National Cyber Security Centre issued an advice statement to the United Kingdom telecommunications sector highlighting the potential national security risk from using ZTE equipment or services can not be mitigated.
China's Ministry of Commerce (MOC) on Tuesday urged the United States to create a fair, just, and stable legal and policy environment for Chinese companies.
The Department of Commerce has now determined that ZTE has breached the settlement agreement by giving false statements and failing to enact disciplinary actions to parties originally identified as responsible for engaging in the illegal conduct.
Nevertheless, the American government's concerns with ZTE has been known for some time, and has ostensibly picked up in recent months.
ZTE has sold handset devices to USA mobile carriers AT&T Inc, T-Mobile US Inc and Sprint Corp. While the Chinese government may authorize or even require ZTE to sell communications equipment to its trading partners Iran and North Korea, it may find itself locked out of large portions of the global market for doing so.
"If they can't operate normally because of the USA export ban, that will clearly impact global and Chinese network construction and could affect future 5G rollouts", CICC analysts including Wang Xinglin wrote in a research note Tuesday.