Chinese telecommunications equipment manufacturer ZTE is reportedly considering paying the U.S. government over 1 billion dollars, possibly even as much as 2 billion dollars or more, to settle long-standing overseas bribery allegations. Following the news on December 11th, ZTE’s stock price plummeted.
For years, ZTE has been under investigation by authorities worldwide and is now embroiled in a new controversy for allegedly bribing to secure telecom contracts.
According to Reuters citing two sources, ZTE may need to pay over 1 billion dollars to the U.S. government to put an end to the allegations of overseas bribery against the company. One source mentioned that the fine could potentially reach 2 billion dollars or more, partly due to the company’s alleged profits from corrupt contracts.
Sources stated that the U.S. Department of Justice has been investigating ZTE this year for suspected violations of the Foreign Corrupt Practices Act (FCPA) in South America and other regions. The act prohibits paying foreign officials any amount or offering any valuable item to gain business advantages.
Following reports of ZTE facing hefty fines due to the investigation, its stock price took a significant hit this afternoon. By the afternoon close, ZTE’s A-shares in mainland China hit the limit-down while plummeting over 13% on the Hong Kong stock market.
At noon on December 11th, ZTE suddenly announced on the Hong Kong Stock Exchange that it is in communication with the U.S. Department of Justice regarding the matter.
Chinese Embassy spokesperson Liu Pengyu stated that he is not familiar with the specifics of the ZTE case. He maintained that China consistently requires Chinese companies to operate legally overseas and abide by local laws and regulations.
ZTE has a long history of legal disputes with the U.S. government. In 2017, ZTE admitted to illegally exporting U.S. products to Iran and paid a 1.19 billion dollar penalty. In 2018, due to misrepresenting employee disciplinary actions to the U.S., the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) imposed a denial order, halting crucial chip and software exports to ZTE for nearly three months. With the support of the Trump administration, ZTE reached an agreement with the U.S. Department of Commerce to pay 1 billion dollars, leading to the lifting of the ban in the summer of 2018.
Reuters reported that it remains unclear when ZTE can reach a settlement. Sources mention that any final agreement involving ZTE between the U.S. and China would require approval from the Chinese authorities, making the possibility of a quick resolution uncertain.
With a net profit of 8.425 billion yuan (approximately 1.16 billion dollars) last year, ZTE’s financials would undoubtedly face significant pressure if they end up paying over 1 billion dollars or more in fines.
If the current negotiations break down, ZTE could once again face a U.S. export ban, jeopardizing its ability to import chips and key components from American companies such as Qualcomm, Intel, and AMD. Qualcomm’s Snapdragon chips remain a core component of ZTE’s high-end smartphones.