On this episode of China Uncensored,
gosh, with all those sanctions on Iran and North Korea,
how do they keep developing their nuclear programs?!
Hi, welcome to China Uncensored,
I’m your host Chris Chappell.
You know international law is a funny thing.
Why, I can hardly stop laughing.
There is no world government, officially,
so how do you get countries of the world
to work together when there’s really
no way to enforce anything?
Take for instance American trade sanctions
on Iran and North Korea.
The European Union and a number of democratic countries
have also had similar sanctions.
The idea is,
if you restrict trading with these rogue regimes,
it’ll hopefully stop them from developing nuclear weapons,
and generally being horrible to their own citizens.
Think of it like some sort of
“no school lunch for bullies” policy.
But the Chinese regime doesn’t mind
swapping sandwiches with Iran and North Korea.
In fact, China is the biggest trading partner
for both of those countries.
This makes the rest of the world’s sanctions
way less effective.
Both the Obama and Trump administrations
have been repeatedly frustrated by
their inability to force China’s hand in
cracking down on these countries.
So what can the US do?
Well, the Chinese company ZTE found out.
Never heard of ZTE?
This is one of their recent TV ads.
As you could tell from that commercial,
ZTE sells skateboards.
No, they actually sell cheap smartphones,
like the Blade V7 Lite.
Apparently, ZTE is the number 4 smartphone vendor
in the US.
But smartphones are only a small part of their business.
ZTE is also one of the world's biggest makers
of telecommunications equipment.
But while these kids were doing sick tricks on skateboards,
ZTE was doing some extremely illegal tricks
behind the US government’s back.
And eventually, they got caught.
An unprecedented US fine for sanctions busting.
The Chinese telecoms equipment giant ZTE
agreeing to pay more than a billion dollars in penalties
and plead guilty to illegally shipping U.S.-made technology
to Iran and North Korea.
ZTE is a Chinese company,
so you might think it wouldn’t be bound by the US’s sanctions.
But 25 to 30% of ZTE’s components
come from US suppliers.
So when ZTE is shipping US-manufactured components
to Iran and North Korea,
that's illegal according to US law.
And since ZTE has a subsidiary company in the US,
that gives the US government a legal hook
to go after them.
With this action,
we are putting the world on notice:
Improper trade games are over with.
Those who flout our economic sanctions,
export control laws and any other trade regimes
will not go unpunished.
They will suffer the harshest of consequences.
Yeah, you lousy skateboarding teenagers!
The US began investigating ZTE five years ago,
after this 2012 report from Reuters.
ZTE sold Iran,
“a powerful surveillance system capable of monitoring landline,
mobile and internet communications”.
It was worth millions of dollars.
Their selling point?
It wasn’t Made in China,
but in the good old US of A.
Through the course of the investigation,
ZTE directly or indirectly shipped about
32 million dollars of US-made routers,
microprocessors and servers to Iran.
Plus it made 283 shipments to North Korea.
But that’s not the worst part.
The worst part is,
they lied about it.
This top secret document written by ZTE’s legal department
basically says, “Hey upper management,
you know all those illegal things we’re doing,
like exporting US products to rogue nations?
Well, here’s some suggestions on
how to not get caught.”
Obviously they weren’t very good suggestions.
This unprecedented penalty reflects ZTE's premeditated,
egregious scheme to evade U.S. law.
ZTE's most senior managers lied to,
obstructed and misled investigators for years,
only acknowledging the truth starting in March 2016
when we caught them red-handed.
Well yes, they are acknowledging it now!
That’s because, after getting caught red-handed,
ZTE installed a new chairman and chief executive.
And this one issued a formal corporate-style apology.
So we’re cool, right?
Right?
At the beginning of this month,
ZTE plead guilty to the charges of illegal shipping,
as well as a charge of obstructing justice
and lying to federal investigators.
The judge fined ZTE nearly 1.2 billion dollars—
although they can save 300 million
if they start complying with US restrictions.
And ZTE might not be the only Chinese company
with its US operations in trouble.
Remember that top secret ZTE document?
Well, on page 3,
it suggests looking at the example
of another Chinese telecom company
doing the same kind of illegal stuff.
They refer to it by the codename “F7”,
so there’s no way to know...
Just kidding.
It’s Huawei.
I mean, what other company
was trying to buy 3leaf in 2010?
Company “F7” was no mystery to US investigators either.
Last year, Huawei was subpoenaed for similar violations,
though no official charges have been levied against it yet.
So what do ZTE and Huawei have in common?
I mean, besides selling US-made components
to Iran and North Korea?
They both have strong ties
to the Chinese Communist Party.
ZTE is a publicly traded company,
but it’s also a partially state-owned enterprise
through a complex holding company structure.
Huawei is privately owned,
but gets generous support from the Chinese Communist Party,
including major funding from Chinese state-owned banks.
The Party connections could explain
why both ZTE and Huawei are trading with countries
that have relatively small markets,
even when it means putting their US business at risk.
As this article puts it,
“It is not surprising the companies
would tailor their export endeavors
to further Chinese foreign policy goals.”
Policy goals that include
supporting the Chinese regime’s allies:
Iran and North Korea.
Back in 2012,
the House of Representatives’ intelligence committee
issued this report,
saying ZTE and Huawei specifically
were a “threat to US national security interests.”
One concern was that both companies had
refused to provide details about their operations in Iran.
There were other concerns as well.
After that report was issued,
the US government restricted Huawei and ZTE
from selling their telecommunications equipment
in the US.
For example,
they couldn't sell infrastructure equipment
to US companies like Sprint and Verizon.
And they couldn’t sell anything to government agencies
without FBI approval.
But they both can still sell smartphones.
In fact, one in every 13 smartphones sold in the US today
are either ZTE or Huawei.
So what will be the impact of the recent guilty plea
by ZTE about selling US components
to Iran and North Korea?
Well, if ZTE pays its fine,
and stops selling things to Iran and North Korea,
it’ll get to continue operating here,
competing with other smartphone makers
like Apple and Samsung.
It's unclear though if the US government
will end restrictions on ZTE selling
telecommunications equipment in the US.
So should you go ahead and swap out
your exploding Samsung Galaxy
for a ZTE Blade V7 Lite?
Well, these skateboarders seem to think so.
But while you may be safe from explosions,
it doesn’t mean you’re safe from everything.
For the record,
a ZTE USA spokesperson said,
“no ZTE devices in the U.S.
have ever had the AdUps software”
which allowed the Chinese government
that secret backdoor to monitor your cell phone data.
And I totally believe them.
I mean, why wouldn’t I trust ZTE?
So what do you think?
Leave your comments below.
Thanks for watching this episode of China Uncensored.
Once again I’m your host Chris Chappell.
See you next time.