April 19, 2018 / 7:03 AM / 3 months ago

China's ZTE removed chief compliance officer before U.S. sanction -source

HONG KONG, April 19 (Reuters) - ZTE Corp’s chief compliance and chief legal officer was removed from his posts more than a month before the Chinese telecom equipment maker was slapped with U.S. sanctions this week, a company source with direct knowledge of the situation told Reuters.

The United States this week imposed a ban on American companies selling parts and software to ZTE for seven years, saying it had broken a settlement agreement with repeated false statements - a move that threatens to cut off the Chinese firm’s supply chain.

Citing an internal memo dated March 8, the source said ZTE’s chief compliance and chief legal officer, Cheng Gang, was “removed from his posts” although that the memo did not give a reason for the action.

“We had sensed something was wrong with Cheng’s unexplained removal, but did not expect something so serious,” said the source, referring to the news of the U.S. sanctions. The source added that employees now feared for their jobs.

It was not clear if Cheng was still with the company, according to the source, who declined to be identified as the information in the memo was confidential.

Cheng did not respond to an email and a LinkedIn message seeking comment. Reuters was unable to obtain a phone number for Cheng. ZTE did not respond to calls and emails seeking comment.

News of the memo was first reported by the South China Morning Post.

China’s No.2 telecoms equipment maker admitted in March 2017 to illegally shipping U.S. technologies to banned countries including Iran and paid a record $890 million fine to settle the case.

As part of the agreement, Shenzhen-based ZTE promised to dismiss four senior employees and discipline 35 others by either reducing their bonuses or reprimanding them but had failed to fully carry out those actions, U.S. government officials told Reuters this week.

The ban could be catastrophic for ZTE, the fourth-largest smartphone vendor in the United States, as it is estimated to rely on U.S. firms for nearly a third of crucial components such as chips in its products.

ZTE has delayed its earnings results, originally scheduled for Thursday, saying it needs time to assess the impact of the U.S. sanctions.

Its shares in Shenzhen and Hong Kong remain suspended.

Reporting by Sijia Jiang; Editing by Edwina Gibbs

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