ZTE pleads guilty over Iran sanctions, fined $900m

China-based smartphone and telecom equipment manufacturer ZTE Corporation entered a plea deal in the US this week, agreeing to plead guilty and pay almost $900m in a case involving the alleged breach of sanctions against Iran.

An investigation lasting five years had reportedly revealed ZTE was conspiring to evade US trade embargoes against Iran by purchasing US-made components, building them into ZTE equipment, and then shipping them to Iran.

It was also charged over an apparent 283 shipments of telecommunications equipment to North Korea.

“ZTE Corporation not only violated export controls that keep sensitive American technology out of the hands of hostile regimes like Iran's, they lied ... about their illegal acts,” said US Attorney General Jeff Sessions.

Somewhere between 25% and 30% of ZTE’s components come from the US, with Intel, Microsoft and Qualcomm among its major suppliers.

“ZTE acknowledges the mistakes it made, takes responsibility for them, and remains committed to positive change in the company,” said chief executive Zhao Xianming.

As part of the plea deal, ZTE would be subject to a seven year suspended denial of its export privileges - which could be activated if any further incursions are found, choking the company’s US supply chain.

It also agreed to three years of probation, and the installation of a corporate monitor as well as a compliance and ethics programme.

An additional $300m penalty was suspended during the seven years, meaning the already expensive $892m penalty could top $1bn if the company does not comply with the requirements.

The penalty was indeed higher than expected, with ZTE confirming on Wednesday that it was looking at a preliminary net loss of CNY 2.36bn in the 2016 year as a result of the settlement - its first loss in four years.

Investors could take solace in the fact that without the penalty, ZTE would have reported a CNY 3.8bn profit - an 18% improvement year-on-year, and better than expected by the markets.