Tech

China’s Telecom Giant ZTE in dispute with a monitor appointed by a U.S. court

Washington — China

ZTE Ltd

ZTCOY 1.54%

Agreed to monitor independent monitors in 2017 Convicted of justice ministry accusation He illegally exported US classified technology to Iran and repeatedly lied to investigators.

Now, the lawyer of the Dallas ministry official is wary of his watcher, Dallas, who is trying to extend his term beyond the March expiration and if a Chinese telecommunications company refuses to join. , Threatening, according to people familiar with the matter.

People said these threats from court-appointed monitor James Stanton included statements that they would take advantage of friendships with the judges who oversaw the case. After previously proving that Shenzhen-based ZTE complies with the settlement agreement each year, Stanton said in June that there was evidence that the company violated the terms of probation and did not provide details. He added that he asked for an extension.

Mr. Stanton told people involved in surveillance that he was a “close personal friend” with Judge Ed Kinkeed of the US District Court, who appointed him, and ZTE settled the Justice Department. Company lawyers and Justice Department officials considered the term inappropriate and potentially unethical, people familiar with the matter said.

Stanton said there was “widespread inaccuracy” in the Wall Street Journal coverage, said the issue was sealed, and refused to comment further. Judge Kinkyd refused to comment further, saying “no one but me speaks for me.” A spokeswoman for the Justice Department declined to comment. A ZTE spokeswoman did not respond to a request for comment.

James Stanton at the Texas Law Firm Library in September 2013.


Photo:

The Wall Street Journal Brandon Tibodo

ZTE claims that there is no legal basis for extending Stanton’s surveillance period beyond the current probationary period, and prosecutors have chosen not to challenge the company’s position, familiar with the matter. People said. Such decisions are usually left to the public prosecutor and the company is entitled to respond.

People said Stanton’s company earned tens of millions of dollars a year from surveillance, and his invoices rose in recent months as spats escalated during the period.

The controversy puts the Biden administration in a delicate position that it could stand on the side of a Chinese company charged with illegally exporting U.S. confidential technology to Iran in 2017. Strict US government policy for Chinese carriers Beyond the risk of potential espionage.

U.S. authorities say U.S. national security through the potential backdoor access that Chinese telecommunications providers, including ZTE and its larger rival Huawei Technologies Co., can provide close ties with the Chinese government and telecommunications networks. Has long argued that it poses a risk to the United States.

Both ZTE and Huawei say they don’t use gear for espionage, but Chinese companies take a contrasting approach to US regulatory intervention. ZTE has reached a settlement and has been under scrutiny to maintain its ability to export U.S. technology-dependent devices, but Huawei has been politically motivated to actively fight sanctions and accusations by the Justice Department. , A component that claimed to be subject to a widespread ban on keys.

Unlike ZTE, rival Huawei actively fights sanctions and accusations by the Justice Department, claiming political incentives.


Photo:

Qilai Shen / Bloomberg News

ZTE is still competitively lagging behind Huawei, despite a more reconciled approach. ZTE has long followed China’s leading rival Huawei in the global market for smartphones and telecommunications equipment. Once the top five smartphone vendors in the United States, ZTE is now a global smartphone minor seller.

Stanton’s surveillance, starting with the $ 900 million settlement in 2017, will organize a six-year conspiracy to acquire U.S. technology, send it to Iran, and hide its involvement through a network of front companies. I admitted that.

Most of the Justice Department’s settlements with businesses do not include monitors, but prosecutors may impose additional scrutiny to ensure compliance with the terms of the settlement. Such monitoring can be costly, and once agreed, the entity has little control over the activities of the individuals selected to monitor.

In most cases, the Justice Ministry’s policy requires consulting with the companies involved to select a monitor. The company selects three candidates, and the prosecutor selects the most qualified candidate.

In the case of ZTE, in 2017 Judge Kinkeed took the unusual step of rewriting the judicial transaction to allow Mr. Stanton, who had no experience in sanctions, to be appointed and overseen. Mr. Stanton, who described the judge as his mentor in the dedication of the book he wrote, was previously appointed by Judge Kinkeed as an expert advisor on medical device product liability cases.

Former Justice Ministry official David Laufman, who oversaw ZTE’s judicial transaction, sharply criticized the unorthodox arrangement.

“It’s been a while since the train was wrecked,” he said on Friday after the first publication of this article. “It was perfectly appropriate for ZTE to submit to strict oversight, but the process of appointing observers goes beyond blame, and oversight can also be done in a proper, accountable and responsible manner. It is essential. ”The Justice Department did not immediately respond to the request for comment.

In 2018, the Trump administration accused ZTE of violating the terms of the 2017 contract and as a punishment Banned US companies From sale to ZTE.Then the Ministry of Commerce Signed a new contract with ZTE As a result, the company had to pay an additional $ 1 billion in fines. Replace board We will fund senior management and another team of lawyers to monitor the company individually for 10 years with the support of the Department of Commerce.

Shortly thereafter, Judge Kinkyd Stanton’s term extended by two years, A crime monitor that was set to expire in 2020.

After ZTE refused to voluntarily increase surveillance earlier this year, Stanton said the company could not “unscramble eggs” and submitted more than 150 sets of documents to ZTE, dozens of documents. People familiar with the matter said 30 days to an employee. People said the request for documents and deposits caused crazy scrambling at three different law firms representing ZTE to meet Mr. Stanton’s request.

According to people familiar with the matter, federal prosecutors are continuing two different investigations, including ZTE. Inquiries about foreign bribes Investigation of visa fraud with which the company is cooperating.

Stanton said these issues were not directly related to export issues and insisted on investigating them themselves, even though the Justice Department had already investigated them, people familiar with the matter said. rice field.

The Biden administration has continued to increase pressure on Beijing’s 5G ambitions abroad in recent months. Providing financial incentives and other temptations For countries that are willing to keep their devices away from Huawei and ZTE when building next-generation cellular networks.

Huawei has also continued criminal proceedings against Huawei for violating US sanctions against Iran, stealing corporate secrets and committing other crimes. Postponed prosecution agreement With Huawei Chief Financial Officer last month.

The controversy over ZTE’s surveillance could make it more difficult for the Justice Department to impose surveillance on Huawei’s case, or a case involving other Chinese companies, a former prosecutor said.

“If a Chinese company does business in the United States, it needs to be brought in from a compliance perspective,” said Ryan Fayhee, a former national security prosecutor at law firm Hughes Hubbard & Reed. “ZTE’s experience will make it much more difficult to resolve actual monitor-worthy cases.”

Write in Aruna Viswanatha at Aruna.Viswanatha@wsj.com And with a dilantoker dylan.tokar@wsj.com

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China’s Telecom Giant ZTE in dispute with a monitor appointed by a U.S. court

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