FBI probes China’s ZTE over Iran tech deals
Employees of ZTE chat on the roof of its headquarters in Shenzhen, Guangdong province, in this April 17, 2012 file photo. — Reuters picLONDON, July 13 — The FBI has opened a criminal investigation into Chinese telecoms gear maker ZTE Corp's sale of banned US computer equipment to Iran and its alleged attempts to cover it up and obstruct a Department of Commerce probe, the Smoking Gun website reported.
The federal investigations stem from a Reuters report in March that Shenzhen-based ZTE sold Iran's largest telecoms firm a powerful surveillance system capable of monitoring landline, mobile and Internet communications.
The Reuters article also reported that ZTE's 907-page “Packing List” for the $120 million (RM360 million) contract, dated July 24, 2011, included hardware and software products from several top US tech companies, including Microsoft Corp, Hewlett-Packard Co, Oracle Corp, Cisco Systems Inc and Dell Inc. Sales of the equipment are prohibited by US sanctions on Iran.
After the Reuters report in March, ZTE said it would curtail business with Iran.
The Smoking Gun published on its website excerpts from a confidential FBI affidavit based on a May interview with Ashley Kyle Yablon, the general counsel of ZTE's US subsidiary in Texas.
According to the affidavit, Yablon told two FBI agents that ZTE officials had discussed shredding documents, altering the packing list and denying it was genuine in an effort to subvert a Department of Commerce investigation into ZTE's sales of US equipment to Iran.
The Commerce Department issued a subpoena to ZTE the day after the Reuters report, seeking the Iranian contract and the packing list, according to the affidavit.
Skirting sanctions
The affidavit stated that Yablon told the FBI that a ZTE attorney had told him the company “was concerned about how the Reuters reporter obtained a copy of the packing list ... because it could no longer 'hide anything.'“ Yablon said he told the attorney “he would not be involved in a cover-up”.
Yablon stated he later saw a copy of the Iranian contract that “essentially described how ZTE would evade the US embargo and obtain the US-manufactured components specified in the contract for delivery to” the Iranian firm, Telecommunication Co. of Iran, according to the affidavit.
Yablon also said he was told that ZTE owns “sub companies” that it uses to purchase US-made telecommunications equipment for sale to countries subject to embargoes, the affidavit states.
Today, ZTE spokesman David Shu said the company had no immediate comment. Yablon could not be reached for comment. A spokeswoman for the FBI office in Dallas and a Justice Department spokesman in Washington both declined to comment.
Late last year, Nokia Siemens Networks, a venture between Nokia and Siemens, said it would gradually reduce its business in Iran, pressured by tightening international sanctions. The venture was a key supplier to Iranian telecoms operators along with Ericsson and China's Huawei.
Shares gain
The FBI probe presents new troubles for ZTE in the United States, where it has been trying to expand its operations. In addition to the Commerce Department probe into its sales to Iran, ZTE also is under investigation by the US House of Representatives' Intelligence Committee over whether its equipment represents a threat to national security.
ZTE – China's second-largest telecoms equipment maker and the world's fourth-largest mobile device maker with 4.2 per cent global market share in the first quarter, according to Gartner – is publicly traded, but its largest shareholder is a Chinese state-owned enterprise.
In Hong Kong, ZTE shares closed 1.5 per cent higher at HK$12.50. The stock has almost halved so far this year and had fallen in all of the previous six sessions on worries of soft first-half results and concerns over a dispute between China and the European Union over industry subsidies. Its Shenzhen-listed shares fell 2.3 per cent.
“Sentiment will be weakened, but I don't see any material impact on ZTE in terms of earnings,” said Hong Kong-based Nomura analyst Huang Leping. “ZTE may find it harder to break into the US in its technical equipment division, as (the US) becomes more strict and puts more restrictions on technical equipment due to security concerns.” — Reuters
