Regulatory intelligence for US exporters

BIS Charges Chinese Company With Export Violations, Aiding ZTE

The Bureau of Industry and Security this week charged a Chinese company with violating U.S. export controls when it helped Zhongxing Telecommunications Equipment Corporation sell controlled items to Iran. The company, Far East Cable, served as a “cutout” between ZTE and several Iranian telecommunications companies, BIS said, helping ZTE “conceal and obfuscate” its business dealings in Iran from U.S. investigators. In total, BIS said Far East Cable committed 18 violations of the Export Administration Regulations.

BIS said the violations occurred between 2014 and 2016, when Far East Cable, China’s largest wire and cable manufacturer, exported U.S.-origin routers, microprocessors, servers, databases and other items on the Commerce Control List to Iran without the required licenses. The items were either controlled for national security reasons, encryption reasons, regional stability reasons or anti-terrorism reasons, BIS said, and were also subject to restrictions under the Treasury Department’s Iranian Transactions and Sanctions Regulations.

The violations stemmed from a $164 million agreement between Far East Cable and ZTE in 2013 in which Far East Cable agreed to buy telecommunications equipment from ZTE. After signing the agreement with ZTE, Far East Cable signed a contract with the Telecommunication Company of Iran (TCI) -- an entity majority owned by the sanctioned Iran Revolutionary Guard Corps -- and Iran-based Khadamate Ertebati Rightel to supply them both with telecom equipment, BIS said.

Although the contracts between Far East Cable and the Iranian entities didn’t reference ZTE, the two entities were “longtime customers” of ZTE, BIS said, and used Far East Cable as an intermediary to continue to do business after BIS served ZTE with an administrative subpoena in 2012. Far East Cable began shipping the controlled items to Iran in 2014 and continued until at least January 2016, BIS said, adding that the shipments included items classified under nine separate Export Control Classification Numbers in EAR categories 3, 4 and 5.

BIS may pursue a range of enforcement penalties against Far East Cable, including a fine, a denial of export privileges or “any other liability, sanction or penalty available under the law.” The Chinese company could face a maximum civil penalty of either $330,947 per violation or twice the value of the transaction that led to the violations. The charging letter includes a table describing each of the 18 violations, which total more than $9.7 million.

John Sonderman, director of BIS’s Office of Export Enforcement, said the charging letter “should send a strong message to any company contemplating facilitating violations on behalf of another.” Far East Cable, which couldn’t be reached for comment, has 30 days to respond after being served with the charging letter.

BIS recently updated its administrative enforcement policies to allow it to publish charging letters before a case is resolved (see 2206030012), along with other enforcement policy changes (see 2206300069). The agency has so far published two other charging letters: one accusing Russian oligarch Roman Abramovich of illegally exporting U.S.-origin aircraft to Russia (see 2206060038), and another charging a Montana business owner with violating export controls after trying to ship controlled items with knowledge they would be used in Iran (see 2206100053).