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ZTE will be able to buy US parts again with new deal ending export ban

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The company will be fined $1 billion, issued a US-selected compliance team, and required to change its board

Photo by James Bareham / The Verge

ZTE will soon be able to buy parts from the United States again after reaching a deal with the Trump administration, the Commerce Department announced this morning. The deal ends the export ban that was instituted by the Department of Commerce in April after ZTE failed to uphold a plea agreement for violating sanctions against shipping US equipment to Iran and North Korea.

As part of the deal, ZTE will be fined $1 billion by the Department of Commerce, and a new, United Stated-selected compliance team will be embedded at ZTE for 10 years to ensure similar violations won’t occur in the future. ZTE will also have to change both its board of directors and executive leadership sometime within the next 30 days. The Commerce Department says it is “the first time” it has achieved “such stringent compliance measures in any case.”

ZTE will also be required to put $400 million in escrow, which the US can claim should further penalties arrive. The deal also threatens ZTE with a potential 10 year ban, should terms not be met.

ZTE had previously pleaded guilty for violating US sanctions, in a deal that saw the company agree to reprimand and deny bonuses to the employees who had acted illegally — with the caveat that if it didn’t, the company would be subject to a seven-year ban on exporting US products (like Qualcomm chips, which are crucial to its business). But ZTE failed to meet the conditions of the deal. The company not only failed to reprimand employees who had acted illegally, but it even gave them full bonuses, according to the Commerce Department. Additionally, the company only fired four senior staffers, leaving the other 35 employees who had also violated the law on staff.

As a result, the US Department of Commence instituted the seven-year ban, per the terms of ZTE’s plea deal, back in April. Shortly after, ZTE responded by noting that the export ban would “severely impact” the company’s survival and that the company had tried to meet the terms of its plea deal, before announcing that due to the ban, it would have to end “major operating activities” in May.

It’s at this point that President Trump stepped in, working with Chinese President Xi Jinping to find a deal that would help ZTE “get back into business, fast.” President Trump commented that he had instructed the Department of Commerce to “get it done.” And based on the announcement from the Commerce Department today, it would seem that a deal has finally been reached.

That said, it may not quite be over for ZTE’s struggles yet: Sen. Marco Rubio (R-FL) has already stated that he would push for ”veto-proof congressional action” should a deal emerge that only imposed fines and board changes on the Chinese firm (which is exactly what seems to have happened), so it’s possible Congress will try to block the new deal from going through.

The United States government hasn’t exactly had the best relationship with ZTE in the past few months, either, largely over concerns about privacy. In January, the House of Representatives introduced a bill that would ban the US government from using Huawei and ZTE phones, and in March, FCC chairman Ajit Pai proposed to block carriers from using FCC money to buy networking equipment from the two firms. In May, the Pentagon banned Huawei and ZTE phones from being sold in retail stores on military bases, citing a security risk.