China’s ZTE hit by US DOJ bribery investigation

Chinese telecoms equipment maker ZTE Corp may pay more than $1 billion to the US government to resolve years-old allegations of foreign bribery, according to two people familiar with the matter.

ZTE, which already paid some $2 billion in penalties to US authorities over export violations during President Donald Trump's first term, has for years faced probes by authorities around the world into alleged bribes to secure telecom contracts.

This year, the Justice Department has moved ahead with a US investigation into ZTE for allegedly violating the Foreign Corrupt Practices Act (FCPA) in South America and other regions, the sources said. The act prohibits payments or anything of value to foreign officials to obtain business.

US officials, Reuters is reporting for the first time, are working on a resolution that could see ZTE pay more than $1 billion, the sources said, or possibly $2 billion or more, one said, based in part on alleged gains from corrupt contracts.

On Thursday, ZTE's Hong Kong-listed shares tumbled more than 12%, while its Shenzhen shares fell by their daily limit of 10%.

In a statement to the Hong Kong stock exchange on Thursday, ZTE said it is engaged in "ongoing communication" with the Justice Department on the investigation.

"The Company consistently commits to comprehensively strengthening its compliance system and building an industry-leading compliance framework," ZTE added.

"The Company opposes all forms of corruption and maintains a zero-tolerance policy toward any individuals who may be involved in such activities."

ZTE did not respond to requests for comment before publication. A Justice Department spokeswoman declined to comment.

It remains unclear when a deal might be reached. A settlement with the US would require approval from the Chinese government, the sources said.

Liu Pengyu, a spokesman for the Chinese embassy in Washington, said he was not aware of the specifics of the ZTE matter, but added, "China has always required Chinese companies to operate legally abroad and abide by local laws and regulations."

FCPA Cases can take years

FCPA cases often surface years after the misconduct and the Justice Department investigation has found that with ZTE, the most recent bribery-related act occurred in 2018, one of the sources said. The other source described potential charges as a criminal conspiracy to commit bribery.

Both sources said ZTE struck business deals in South America that the DOJ suspects involved bribery, with one of the sources pointing to Venezuela.

A Commerce Department agreement from around the same time complicates any potential settlement.

In 2017, the company pleaded guilty to illegally exporting American goods to Iran and paid an $892 million penalty, a deal Reuters reported first. In 2018, the Commerce Department accused it of making false statements about disciplining employees tied to the violations -- and banned all US exports to the company.

That cut off a vital supply of chips, software, and components, forcing ZTE to halt major operations.

But Trump, who was negotiating a trade deal with China at the time, expressed support for the company and, after ZTE paid another $1 billion as part of a new Commerce Department agreement, the ban was lifted that summer.

Commerce is reviewing the same facts as the Justice Department and whether ZTE violated the 2018 agreement, which runs for 10 years, one of the sources said.

"The Department does not comment on active enforcement matters, or confirm or deny the existence of any pending investigations," a Commerce spokesperson said.

A hefty settlement could weaken ZTE's finances—the company earned $1.16 billion in profit last year. But without a deal, the US could reinstate the Commerce ban on American suppliers such as Qualcomm, whose Snapdragon chips power ZTE's high-end phones. ZTE still sources from Intel, AMD and other American firms for its phones, servers, and networking gear.

The US has a long history of investigating foreign bribery in telecoms, announcing agreements and payouts in recent years for cases involving companies based in Sweden, Russia and Venezuela.

In 2015, Norway's Government Pension Fund Global said ZTE was linked to corruption allegations in 18 countries, with investigations in 10—including Algeria, the Philippines, and Zambia—spanning 1998 to 2014.

"All relate to the payment of bribes to public officials to secure the award of contracts," the Council on Ethics wrote, recommending ZTE's exclusion from the fund. Suspected bribes ranged from several million to tens of millions of dollars.

Unlock more exclusive Cybernews content on YouTube.