Judge releases China’s ZTE from some US surveillance

HONG KONG—A U.S. judge has ruled that ZTE Body

ZTCOY 3.94%

probation for violating U.S. sanctions on Iran could end, freeing the Chinese tech company from some scrutiny after years of government oversight.

The Texas federal judge’s ruling effectively ends ZTE’s five-year term of supervision under a Dallas attorney to oversee the company’s compliance with the terms of its 2017 settlement agreement resolving the charges. penalties.

ZTE is the world’s fourth-largest telecommunications equipment maker and one of China’s leading 5G network builders. The company is effectively barred from selling its equipment in the United States, where officials consider it a security threat, despite having been a major player in the US smartphone market before its guilty plea.

The decision removes a constraint as the company seeks to regain ground after a number of deadly US sanctions, including huge fines and an export blacklist by President Donald Trump’s administration. It remains subject to a Washington-based compliance monitor for another six years.

Shares of ZTE in Shenzhen rose 10%, hitting their trading limit, while shares in Hong Kong jumped 27%.

In his ruling, U.S. District Judge Ed Kinkeade said Tuesday that ZTE’s probation could end, despite what he said was the company’s connection to a separate visa fraud case. This case was brought by the Justice Department against a former ZTE researcher last year and does not name ZTE as a defendant. In making his decision, Judge Kinkeade noted mitigating factors, including the fact that ZTE had made progress in improving its compliance practices.

The Wall Street Journal reported in October that court-appointed monitor James Stanton sought to extend his own term beyond the expiration of ZTE’s probation on Tuesday and threatened ZTE if the company refused to join. , citing people familiar with the matter.

Mr. Stanton did not immediately respond to a request for comment. He had previously called the Journal’s report inaccurate without further comment.

After the Texas ruling, Shenzhen-based ZTE said it was committed to implementing a comprehensive compliance system. “The company has full confidence in the effective operation and continuous improvement of the compliance management system,” the company said.

The decision closes a chapter in a legal saga stemming from ZTE’s 2017 settlement agreement, resolving allegations that it violated US sanctions on Iran. In the settlement, ZTE agreed to pay $900 million and admitted to orchestrating a six-year conspiracy to acquire American technology, send it to Iran and hide its involvement through a network of front companies.

In 2018, the Trump administration accused ZTE of violating the terms of this agreement and, as punishment, placed the company on an export blacklist, with devastating effect. The Commerce Department ordered ZTE to pay an additional $1 billion and replace its senior management to get off the blacklist.

It also forced ZTE to fund another team of lawyers to separately oversee the company for 10 years. That compliance team, led by Washington attorney Roscoe Howard, has six years left on its tenure.

In the separate visa fraud case, the Justice Department last year accused a ZTE researcher of being involved in a conspiracy to bring Chinese nationals to the United States to work at ZTE when they had visas that did not allow them to do so. The case is ongoing in the Northern District of Georgia.

In his ruling on Tuesday, Judge Kinkeade said ZTE played a role in the visa fraud scheme but declined to penalize it further, citing its progress in improving its compliance systems, the work of the Dallas Oversight Team and a question of whether he was in a position to impose additional sentences given the breadth of sentences applied to date.

Write to Dan Strumpf at daniel.strumpf@wsj.com

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