Another week, another problem for a Chinese telco equipment vendor. Today, it’s ZTE that is having troubles.
The U.S. Department of Commerce today forbade American companies from selling components to ZTE for seven years because ZTE failed to comply with terms of a U.S. sanctions case.
In March 2017 ZTE agreed to pay a penalty of $1.19 billion for breaking U.S. sanctions by shipping equipment made with U.S. components to Iran and for sending telecom equipment and software made in the U.S. to North Korea. The company also agreed to a seven-year suspended denial of export privileges, which could be activated if any aspect of the agreement was not met.
The Department of Commerce Secretary Wilbur Ross today said ZTE has not complied with the agreement, and he’s activating the seven-year suspension. Ross said ZTE “made false statements … related to senior employee disciplinary actions the company said it was taking or had already taken.”
As part of its penalties ZTE had agreed to dismiss four senior employees and to reduce bonuses or reprimand 35 other employees who participated in the conspiracy to evade U.S. sanctions, according to Reuters. The company did fire the four senior employees, but it did not discipline the other employees.
“ZTE paid full bonuses to employees that had engaged in illegal conduct and failed to issue letters of reprimand,” according to Ross’ statement. “ZTE misled the Department of Commerce. Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored.”
According to a research note from William Blair analyst Dmitry Netis, optical component companies with the most exposure to ZTE are: Acacia, Finisar, Lumentum, and Oclaro. “Chinese equipment vendors (such as ZTE, Huawei, and Fiberhome) have been reducing their inventory over the last five quarters, so the revenue exposure and impact to U.S. component suppliers has been significantly reduced,” writes Netis.
Trouble in the U.K., Too
The Chinese vendor also got slammed today in the United Kingdom. Ian Levy, the technical director of the U.K.’s National Cyber Security Centre (NCSC), issued a statement saying, “NCSC assess that the national security risks arising from the use of ZTE equipment or services within the context of the existing U.K. telecommunications infrastructure cannot be mitigated.”
Levy also sent a letter, seen by the Financial Times, to U.K. telco operators, saying “the use of ZTE equipment or services within existing telecommunications infrastructure would present risk to U.K. national security that could not be mitigated effectively or practicably.” The letter also stated that ZTE is a Chinese state-owned business, and that new Chinese laws allow the state to exert influence over companies and individuals with “wide-ranging powers of compulsion.”
China has been in the news for its plans to restrict virtual private networks (VPNs) as part of its censorship program. The software-defined wide area networking (SD-WAN) company Aryaka recently said it was working with China Mobile to deliver SD-WAN to global companies with offices in China and Chinese companies with offices outside the country. Aryaka noted that this partnership is key because the Chinese government only approves certain telecom carriers to handle VPN traffic.
Today’s advice from NCSC in the U.K. follows similar moves in the United States to discourage the use of telecom equipment from both ZTE and Huawei.
Most recently, the Federal Communications Commission proposed a ban on the use of money from the FCC’s $8.5 billion Universal Service Fund to purchase equipment or services “from companies that pose a national security threat to United States communications networks.”