Exclusive: U.S. probes China's ZTE over tech sales to Iran

WASHINGTON Fri May 25, 2012 12:40pm EDT

Employees of ZTE chat on the roof of its headquarters in Shenzhen, Guangdong province, April 17, 2012. China's ZTE Corp, which recently sold Iran's largest telecommunications firm a powerful surveillance system, later agreed to ship to Iran millions of dollars worth of embargoed U.S. computer equipment, documents show. REUTERS/Tyrone Siu

Employees of ZTE chat on the roof of its headquarters in Shenzhen, Guangdong province, April 17, 2012. China's ZTE Corp, which recently sold Iran's largest telecommunications firm a powerful surveillance system, later agreed to ship to Iran millions of dollars worth of embargoed U.S. computer equipment, documents show.

Credit: Reuters/Tyrone Siu

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WASHINGTON (Reuters) - The Department of Commerce is investigating Chinese telecommunications equipment maker ZTE Corp for allegedly selling embargoed U.S. computer products to Iran.

The investigation was launched following reports by Reuters in March and April that ZTE had signed contracts to ship millions of dollars worth of hardware and software from some of America's best-known tech firms to Telecommunication Co of Iran (TCI) and a unit of the consortium that controls it along with the Iranian regime. TCI is Iran's largest telecom carrier.

"We've been pursuing it very aggressively," said a Commerce Department official. Investigators already have met with representatives of ZTE.

A spokesman for ZTE, based in Shenzhen, China, declined to comment.

The U.S. product makers - which included Microsoft Corp, IBM, Hewlett-Packard Co, Oracle Corp and Dell Inc, among others - have all said they were not aware of the Iranian contracts. The Commerce Department official said there is no evidence the American companies were complicit in the transactions.

The U.S. companies either declined to comment about the investigation or did not respond to requests for comment.

According to people familiar with the matter, some of the U.S. companies have received subpoenas requesting information about their dealings with ZTE and a Chinese trading company, Beijing 8-Star International Co, which also was a party to the Iranian contracts. According to contract documents, Beijing 8-Star was responsible for providing certain "relevant third-party equipments."

One U.S. company received a subpoena in March requesting documents relating to "Sales to ZTE Corporation (any and all locations and offices to include but not limited to: U.S. locations, Hong Kong, China and Iran) and/or Beijing 8-Star International Company in Hong Kong or China," according to a person familiar with the matter.

A representative of Beijing 8-Star could not be reached for comment.

The U.S. has long banned the sale of American-made tech products to Iran. ZTE could face a variety of potential penalties, including fines of double the value of the U.S. products, according to the Commerce Department official.

The department has penalized foreign companies in the past for U.S. sanctions violations. On Thursday, Reuters reported that the Panamanian subsidiary of Ericsson, the world's largest mobile-network equipment maker, had agreed to pay a $1.75 million penalty for violating U.S. export restrictions on Cuba between 2004 and 2007.

The ZTE investigation is expected to take many months, the official said.

Reuters reported on March 22 that ZTE had sold numerous American hardware and software products as part of a 98.6 million euro ($123.4 million) contract with TCI in December 2010. The products were listed in a ZTE parts list dated July 2011. They included HP computer parts and printers, Microsoft Windows software, Cisco switches, Dell flat-screen monitors, Oracle database products and Symantec Corp anti-virus software.

The day after the article was published, a ZTE spokesman said the company would "curtail" its business in Iran. The company later issued a statement saying: "ZTE no longer seeks new customers in Iran and limits business activities with existing customers."

Reuters also reported on April 10 that in June 2011, ZTE had agreed to ship millions of dollars worth of additional U.S. products, including IBM servers, to Aryacell, a unit of the consortium that controls TCI. The U.S. products comprised the bulk of an 8 million euro ($10 million) equipment-supply contract.

In response, a ZTE spokesman said the company had decided "to abandon" the agreement after "we realized that the contract involved some U.S. embargoed products."

Some of the U.S. companies have had partnerships with ZTE. But several said their agreements with foreign companies stipulate that their products cannot be distributed to embargoed countries.

(Additional reporting by Sui-Lee Wee in Beijing. Editing by Michael Williams)

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Comments (9)
akcoins wrote:
That dang Obama administration. They are always trying to appease our enemies. China, Iran, Osama Bin Laden, etc. etc.. Next thing you know he will be apologizing for our country again. Oh wait a minute, he has never apologized for our country. Well you can bet he will be doing something UN-American in the future!

May 25, 2012 1:12pm EDT  --  Report as abuse
neahkahnie wrote:
When there’s money to be made, the capitalists don’t care to whom they sell their goods. U.S. trade with Nazi Germany from 1933-1945 is one example. Yes, and Standard Oil, JPMorgan, Bank of New York (Citibank) were all involved. Microsoft and those companies who sold the goods should have known. If they say they didn’t, they are dumber than I think and they ARE NOT dumb!

May 25, 2012 2:59pm EDT  --  Report as abuse
neahkahnie wrote:
When a country is putting in billions (China) to support you (U.S.) you must do as they say. China owns our keister. They have for years, thanks to America’s off-shoring of jobs AND our insatiable desire for cheap goods. Wal-Mart has helped drive the debt. We can thank ourselves for living the life style we live without providing jobs for Americans.

May 25, 2012 3:02pm EDT  --  Report as abuse
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