(C) The Standard

Chinese telecommunications giant ZTE Corp. is reportedly in negotiations with the U.S. Department of Justice (DOJ) to pay a substantial settlement that could exceed $1 billion, and potentially top $2 billion (approximately 2.9 trillion KRW), to resolve allegations that the company bribed foreign officials to secure business contracts.

According to a Reuters report citing multiple sources, the DOJ has been investigating ZTE for alleged violations of the Foreign Corrupt Practices Act (FCPA), a federal law prohibiting the payment of bribes to foreign government officials to assist in obtaining or retaining business. ZTE is now seeking a resolution, which is expected to cost the company over $1 billion.

Allegations and Potential Financial Impact

The investigation is focused on allegations that ZTE provided bribes to secure business deals in South America, with one source specifically pointing to Venezuela. The acts of bribery under scrutiny are believed to have occurred before 2018.

The potential settlement amount is calculated based on the profits ZTE allegedly gained from the contracts secured through illicit payments. One source indicated the final figure could even surpass $2 billion, which would be a devastating blow to the company’s finances. ZTE's reported revenue for the previous year was approximately $1.16 billion.

The news immediately sent shockwaves through the financial markets. ZTE's shares plummeted by over 12% on the Hong Kong stock exchange and hit the 10% limit-down on the Shenzhen exchange following the reports.

A Complex Web of US Sanctions

This current FCPA probe is intertwined with ZTE's troubled history with U.S. sanctions. In 2017 and 2018, during the first administration of then-President Donald Trump, ZTE faced crippling penalties for violating U.S. sanctions by illegally exporting hardware and software products purchased from American companies to Iran and North Korea.

ZTE ultimately admitted to the violations and agreed to pay approximately $2 billion in combined fines and penalties to the U.S. government across two agreements, including a $1 billion fine and a seven-year suspended ban on doing business with U.S. suppliers, conditional on compliance and the placement of a U.S. monitor.

A major complication now is that the U.S. Commerce Department, which oversaw the 2018 agreement, is also reviewing the same facts being investigated by the DOJ to determine if ZTE has violated the terms of its ten-year compliance agreement.

The Consequences of Failure to Settle

Sources indicate that the timing of a final settlement remains uncertain, as the quasi-state-owned Chinese company reportedly requires approval from the Chinese government to proceed.

Should a settlement not be reached, the consequences for ZTE could be dire. The U.S. government could choose to reinstate the ban on U.S. suppliers dealing with ZTE. Such a move, which temporarily brought the company to the brink of collapse in 2018, would once again cut off ZTE from essential components—chips from American giants like Qualcomm, Intel, and AMD—needed for its mobile phones, servers, and networking equipment.

ZTE acknowledged the ongoing situation, stating in a filing with the Hong Kong Stock Exchange that it is in "continuous communication" with the U.S. Department of Justice regarding the investigation.

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