(Yicai Global) April 20 -- Yin Yimin, chairman of ZTE Corp., disclosed for the first time today in an internal email in response to questions from the public what ZTE has undergone in the past few months. In the process of advancing its compliance construction “We will learn lessons from the past and correct them in a timely manner and must not make the mistakes that some managers made previously,” he said.
The course of the entire incident unfolded as related below.
The company submitted a letter to the relevant US government authorities on Nov. 30, 2016 on the following matters:
(1) Disciplinary measures taken against executives and employees implicated in the transactions with the sanctioned countries (position reassignment, bonus reductions/cancellations, letters of reprimand, etc.). Some of these measures were implemented, while others were planned for execution.
(2) Report on the progress of the ZTE's construction of an export control compliance system and future plans.
The company reached agreements with the US Department of Commerce’s Bureau of Industry and Security (BIS), the US Department of Justice (DOJ), and the US Department of the Treasury’s Office of Foreign Assets Control (OFAC), in March last year. The agreement between the company and DOJ required four senior executives/employees to be dismissed. Apart from these four staff, the relevant agreements did not mandate disciplinary action against other employees.
The company notified the US government authorities that four senior executives/employees had left the company and provided supporting documents on May 9, 2017.
The first law firm that the company hired sent a letter to the US government describing the consummation of the disciplinary measures against some employees on July 20, 2017.
The company's chief export control compliance officer and the second law firm that the company hired received information indicating that the company’s bonus reduction/cancellation plan for some employees was not implemented in a timely manner in late February and early March this year.
On the morning of March 5, the company’s chief export compliance officer and the second law firm that the company hired reported this matter to Yin and they proposed to act. Yin agreed to take prompt action. On the afternoon of the same day, President Zhao Xianming confirmed his support for these actions and stressed that they must be transparent and realistic. The company quickly arranged for the second law firm to conduct relevant investigations and, at the same time, the company carried out an internal verification of the implementation of disciplinary actions against employees.
On the morning of March 6, the company voluntarily reported the relevant facts to the responsible US government agencies and ombudsmen.
On March 8, the company issued disciplinary letters to the employees involved, and arranged to reduce or cancel their 2016 bonuses from their 2017 bonuses. On March 14, the company sent disciplinary letters to the employees who already left the company on their recourse with respect to the reduced/cancelled bonuses in accordance with Chinese law.
The company reported the situation to the United States District Court for the Northern District of Texas on March 8. Afterwards, on the advice of the chief export compliance officer and the second law firm, the company hired another law firm on March 12 to conduct parallel a investigation.
The company submitted a detailed statement to BIS on the relevant circumstances and attached the supporting documents detailing the company's measures on March 16.The company reported to BIS that it had arranged for an internal investigative procedure and requested grant of 45 days (before April 30, 2018) to an external law firm to complete the relevant investigation.
The investigation was still in progress when the BIS activated its denial order on April 15.
Before the independent investigation was complete, the US Department of Commerce alleged that the company had made false statements in its letter dated November 30, 2016 and letter dated July 20, 2017, and then penalized it by activating the denial order, Yin noted. BIS disregarded the company's arduous efforts, huge investment, and great progress in export compliance over the past two years, overlooked the problems in the two letters found by the company's own investigation of itself and of which it voluntarily made timely notification; and ignored the company’s prompt disciplinary measures against those responsible for this negligence, quickly made rectification, and hired an authoritative US law firm to investigate.
Before the relevant investigation had concluded, BIS insisted on imposing the most stringent sanctions on the company, Yin added. This was extremely unfair to the company and ZTE cannot accept it. The company will not abandon its efforts to resolve the matter through communication and dialog, and it is determined to safeguard its legitimate rights and interests via all legal means.
The company is in a very difficult situation; after completing the interpretation of the denial order, the company’s compliance team issued a code of conduct to be followed by all employees of the company in the event of an activation of the denial order, reflecting the company's firm adherence to the laws and regulations of the host countries, and its determination that compliance is the cornerstone of its company's strategy will never be shaken, Yin said.
Opportunities and challenges abound in a complicated international situation, he noted. In the past year or so, ZTE has made compliance one of the company's strategic cornerstones and adhered to the principle that "export compliance is of the greatest importance." The company has conformed with US export control laws, earnestly fulfilled its obligations under the relevant agreements signed in March 2017 with US government agencies and paid over USD800 million in fines on schedule. Last year alone, the company invested more than USD50 million in export compliance and planned to invest even more resources this year.
The company assisted the independent ombudsmen appointed by the US to conduct various supervisory tasks that included interviews, document submissions and system testing, with a total output of over 132,000 pages. After continuous efforts and promotion, the company has established a professional compliance team to build and optimize the company's import and export compliance management framework, systems and processes. It introduced and implemented SAP Global Trade Services (GTS) [SAP SE is a German firm that provides company operation software] promoted information technology automated control, conducted general compliance training for over 65,000 employees worldwide, and guided more than 45,000 employees to pass compliance training in specific key positions. It has also made great progress in compliance culture and system construction, Yin added.
Editor: Ben Armour