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ZTE Runs Afoul of Commerce Dept., Facing Export Ban

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Mar 6, 2016, 9:41 AM   by Eric M. Zeman

ZTE has allegedly violated export rules to Iran and the U.S. Department of Commerce is prepared to restrict what American-made components ZTE is allowed to acquire. The Commerce Department says ZTE "planned and organized a scheme to establish, control, and use a series of 'detached' companies to illicitly re-export controlled items to Iran in violation of U.S. export control laws." Internal documents seen by Reuters suggest ZTE did in fact consider such tactics to get around the ban. Setting up shell companies, explained ZTE in one document, would make it "harder for the U.S. government to trace it or investigate the real flow of the controlled commodities." The company recognized that its behavior put it at risk. Some of the products in question came from Microsoft, Oracle, Dell, and IBM, all of which claim they had no knowledge of ZTE's plans to ship their gear to Iran. The U.S. has long banned the export of certain products — including telecommunications gear — to Iran, Sudan, North Korea, Syria, and Cuba. The Commerce Department's restrictions will require all ZTE's suppliers to apply for an export license to ship U.S. products to ZTE. Beginning Tuesday, those applications will be generally be denied. ZTE's export practices have been under investigation since 2012. What's not clear is if or how the Commerce Department's actions, which chiefly target ZTE's telecommunications gear, will impact the company's handset business. ZTE sells handsets directly online to consumers, as well as through partnerships with U.S. carriers.


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