HONG KONG (Reuters Breakingviews) - China has been giving fair warning. Telecoms equipment maker ZTE has agreed to plead guilty for violating U.S. export controls. The charges could have been more severe and the $892 million fine is manageable for the $9 billion company. More powerful is the message: the new U.S. administration is prepared to take action against corporate giants to rein in troublesome nations.
The plea caps a five-year probe into the Shenzhen-based group over its business dealings with Iran and North Korea. Following a 2012 Reuters report, U.S. agencies have been investigating ZTE for selling telecommunications equipment with American technology to countries under U.S. economic sanctions. One year ago, the Commerce Department briefly banned all stateside firms from selling to the Chinese company, which relies on U.S. suppliers like Qualcomm and Intel for up to 30 percent of its components.
ZTE will now plead guilty to unlawful export - shipping goods to countries without proper licenses - as well as lying about it. And it will be placed on an embarrassingly tight leash. It will agree to a three-year probation period and a seven-year suspended “denial of export privileges”. That means if ZTE does not meet certain conditions over this period, or further violates U.S. export laws, regulators could remove the suspension and deal a potentially lethal blow to ZTE’s supply chain.
The financial hit is not so bad. On Wednesday, ZTE estimated a full-year net loss of 2.4 billion yuan ($342 million) for 2016 after taking into account the fines. But it is already forecasting nearly a 32 percent year-on-year jump in net profit for the three months to March. The company’s Hong Kong shares rose as much as 8 percent on the news of the fine and its earnings.
Relief is justified because the outcome could have been worse: French bank BNP Paribas was slapped with a mega $8.9 billion fine in 2014 for breaching similar U.S. sanctions. Still, after North Korea’s recent provocations, including firing four ballistic missiles toward Japan this week, now is opportune time for the United States to remind distant neighbours just how far its reach can go.
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