The Department of Commerce’s Bureau of Industry and Security’s July 23, 2018 Federal Register notice confirmed ZTE’s removal from the Denied Person’s List.
ZTE made full and timely payment of the assessed $1,000,000,000 penalty (see previous blog post of July 6, 2018). Moreover, ZTE complied with the escrow requirements respecting the $400,000,000 suspended portion of the civil penalty. Therefore, BIS terminated the April 15, 2018 Order and removed ZTE from the Denied Persons List.
It will remain to be seen whether ZTE can stay the course of compliance or whether it might yet have another failure. The stakes are likely high enough now, with painful lessons learned, to hope for continued compliance. This is particularly so now with the appointed U.S. compliance team in place.
On July 2, 2018, the Department of Commerce’s Bureau of Industry and Security (BIS) published a General Authorization for certain activities with ZTE. BIS had previously issued a Denial Order against ZTE on April 15, 2018 for the company’s failure to discipline personnel involved in prior violations of sanctions and export control laws (please the blog post from June 25th with more details).
The General Authorization permits the following through August 1, 2018 [when ZTE is expected to be in full compliance in replacing offending Board and Management personnel). After August 1st, BIS is expected to lift the Denial Order permanently (assuming ZTE takes its compliance obligations seriously this time around).
All persons, except those located in Country Group E (Cuban, Iran, North Korea, Sudan and Syria), can now undertake:
- Continued operation of existing networks and equipment, including software updates and patches, under contracts in force prior to April 15, 2018;
- Continued service and support to handsets, including software updates and patches, for ZTE phone models in existence prior to April 15, 2018;
- Cybersecurity research and vulnerability disclosures can be made to ZTE where such is critical to maintaining the integrity and reliability of communications networks and equipment; and
- BIS authorizes persons to receive payment to or from ZTE for transactions lawful under this authorization.
The Department of the Treasury’s Office of Foreign Assets Control (OFAC) has revoked on June 27, 2018 Iran-related General Licenses H and I, which were issued in connection with the Joint Comprehensive Plan of Action (JCPOA) respecting Iran. Due to the Trump administration’s withdrawal from the JCPOA on May 8, 2018, OFAC amended the Iranian Transactions and Sanctions Regulations (ITSR) at 31 C.F.R. Part 560 to set forth a timeline for winding down activities under both these General Licenses.
The timeline is as follows:
General License I – authorized wind-down through August 6, 2018 [Former License covered Certain Transactions Related to the Negotiation of, and Entry into, Contingent Contracts for Activities Eligible for Authorization Under the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services]
General License H – authorized wind-down through November 4, 2018 [Former License covered Certain Transactions relating to Foreign Entities Owned or Controlled by a United States Person]
In addition, the ITSR amendments provide for the winding down through August 6, 2018 of transactions related to the importation into the United States of, and dealings in, certain foodstuffs [i.e., intended for human consumption that are classified under chapters 2–23 of the Harmonized Tariff Schedule of the United States]; and in carpets [i.e., carpets and other textile floor coverings and carpets used as wall hangings that are classified under chapter 57 or heading 9706.00.0060 of the Harmonized Tariff Schedule of the United States].
Finally, the ITSR amendments provide for the winding down through August 6, 2018 of ancillary transactions related to letters of credit and brokering services covering those same certain foodstuffs and carpets.