Rube Goldberg could not have concocted a more ridiculously complex scheme.
A year after it was placed on the Entity List (discussed here and here ), the Chinese telecommunications equipment company ZTE has settled export controls and sanctions violations claims brought against it by the Commerce and Treasury Departments. The settlement agreement details an evasion conspiracy so vast and complicated that it was bound to fail. The result is a $1.19 billion penalty, the largest ever assessed for export control violations.
ZTE wanted to sell sophisticated U.S.-origin network gear to Iran, including “items controlled under Export Control Classification Numbers (‘ECCNs’) 3A001, 3A991, 3A992, 3A999, 4A994, 5A001, 5A002, 5A991, 5A992, 5B991, 5D002, 5D991, 5D992, or 7A994” as well as EAR99. All of them required Commerce or Treasury Department licenses for export or reexport to Iran. There was no way, of course, that such licenses would ever be issued. ZTE got around this inconvenience by covering up its shipments.
A brief summary really can’t do justice to this hare-brained plan. It involved misleading U.S. suppliers about the ultimate destination of goods they sold to ZTE, changing the labels and packages to hide the origin, mixing products of U.S. and foreign origin to minimize the chance that government authorities would discover the former, preparing false documents for submission to the United States government and destroying real ones, working through shell companies to obscure ZTE’s involvement and using code words for Iran. The planning took place at the highest corporate levels, including the chairman.
Whoops, They Did It Again
Incredibly, ZTE continued selling to Iran even after press reports of its Iranian activities, issuance of a Commerce Department administrative subpoena to its United States subsidiary and its receipt of legal advice pointing out the unlawful nature of the sales and attempted cover-up. According to the Commerce charging letter and Treasury settlement agreement, perhaps hundreds of individuals inside and outside ZTE were involved. In fact, employees had to sign non-disclosure agreements to maintain secrecy.
Given the number of people involved and press reports of the trade, it’s not surprising that the whole thing unraveled. What does surprise me is that it took so long for the United States government to bust a move on ZTE.
I’d say there are at least three lessons here. The first is to not reship U.S.-origin products to places they shouldn’t go. The second is, if you ignore lesson one, don’t let half the world know what you’re up to. And the third is, always listen to your attorneys when they advise you that your brilliant evasion idea is illegal.
