U.S. District Judge Ed Kinkeade ruled that Chinese telecommunications equipment maker ZTE Corp. should be allowed to end its five-year probation from a 2017 guilty plea.
The ruling was issued on March 22, the final day of ZTE’s probation for illegally shipping U.S. technology to Iran and North Korea.
ZTE pleaded guilty in 2017 and paid a penalty of $892 million to the U.S. The company was then represented by Michael Gibson of Texan firm Burleson, Pate & Gibson and Wendy Wysong while she was at Clifford Chance. In 2020, Wysong moved to Steptoe & Johnson as Hong Kong managing partner.
According to court documents, ZTE was also advised by other firms, including Akin Gump Strauss Hauer & Feld, Hogan Lovells and Gibson, Dunn & Crutcher.
The case was the first of a series of U.S. government actions against major Chinese tech companies, including a still-pending case against Huawei Technologies, which was put on a U.S. trade blacklist in 2019 for engaging in activities that run counter to U.S. national security. Those cases increased tensions between the U.S. and China.
ZTE has not steered clear of trouble since its 2017 guilty plea.
In 2018, the U.S. Commerce Department found that ZTE had made false statements about disciplining executives who were involved in orchestrating illegal shipments to Iran. As a result, the U.S. government imposed a further ban which prohibited American companies from selling components to ZTE. That decision was expected to destroy the company, which then employed over 75,000 staff and had been worth about $20 billion.
To have the ban lifted, ZTE agreed to change its leadership and cooperate with a second 10-year monitor, allowing U.S. enforcement officers inside to monitor its actions, and to a $400 million escrow that would be used to pay for future penalties.
Kinkeade also took action by extending ZTE’s probation from three to five years.
Also in 2018, ZTE was separately accused of violating its probation over an alleged conspiracy to bring Chinese nationals into the U.S. to conduct research at ZTE.
According to an indictment unsealed last March, a former ZTE research director, Jianjun Yu, and a Georgia Institute of Technology professor, Gee-Kung Chang, had allegedly conspired to bring Chinese nationals into the U.S. on visas sponsored by the university. Yu and Chang were arraigned on federal charges of conspiracy to commit visa fraud, conspiracy to commit wire fraud, and wire fraud, and indicted on March 18, 2021.
Chang had pleaded not guilty. Yu left ZTE in 2019 and his status is unclear.
ZTE has not been charged on the pending visa fraud matter but was represented by Robert Buehler of Hogan Lovells and Scott Barnard of Akin Gump in a hearing to determine if the company had violated its probation.
While Kinkeade found ZTE legally responsible for the actions of its former director involved in the visa conspiracy, the judge decided not to take any further action against ZTE, as the company had already served the maximum term of its probation and the fraud had occurred more than three years ago. ZTE’s new leadership has also instituted an improved compliance program, Kinkeade said in his ruling.
Despite the favorable ruling, Kinkeade encouraged the U.S. government to pursue any reasonable charges and criminal or civil penalties against ZTE.
In another matter, Martin Krezalek of Blank Rome has entered an appearance on behalf of ZTE in a pending personal injury lawsuit.
The action, brought on behalf of American service members and civilians who were killed or wounded while serving in Iraq between 2011 and 2016 and their families, accuses ZTE of aiding terrorists in Iraq by evading international sanctions. It was filed in June by Washington, D.C.-based high-stakes commercial litigation firm Sparacino.