FBI probes China's ZTE over Iran tech deals: report

TN News

Email Print

The FBI has opened a criminal investigation into ZTE Corp over the Chinese company's sale of banned US computer equipment to Iran and its alleged subsequent attempts to cover it up and obstruct a Department of Commerce probe, the Smoking Gun website reported.

The federal investigations stem from a Reuters report in March that Shenzhen, China-based ZTE, a telecommunications equipment maker, sold Iran's largest telecom firm a powerful surveillance system capable of monitoring landline, mobile and Internet communications.

The Reuters article also reported that ZTE's 907-page "Packing List" for the $120 million contract, dated July 24, 2011, included hardware and software products from several US tech companies, including Microsoft Corp, Hewlett-Packard Co, Oracle Corp, Cisco Systems Inc and Dell Inc. Sales of the equipment are prohibited by US sanctions on Iran.

The Smoking Gun published on its website excerpts from a confidential FBI affidavit based on a May interview with Ashley Kyle Yablon, the general counsel of ZTE's US subsidiary in Texas. According to the affidavit, Yablon told two FBI agents that ZTE officials had discussed shredding documents, altering the packing list, and denying it was genuine in an effort to subvert a Department of Commerce investigation into ZTE's sales of US equipment to Iran.

The Commerce Department issued a subpoena to ZTE the day after the Reuters report, seeking the Iranian contract and the packing list, according to the affidavit.

Skirting sanctions

The affidavit stated that Yablon told the FBI that a ZTE attorney had told him the company "was concerned about how the Reuters reporter obtained a copy of the packing list ... because it could no longer "˜hide anything.'" Yablon said he told the attorney "he would not be involved in a cover-up."

Yablon stated he later saw a copy of the Iranian contract that "essentially described how ZTE would evade the US embargo and obtain the US-manufactured components specified in the contract for delivery to" the Iranian telecom, Telecommunication Co. of Iran, according to the affidavit.

Yablon also said he was told that ZTE owns "sub companies" that it uses to purchase US-made telecommunications equipment for sale to countries subject to embargoes, the affidavit states.

On Friday, ZTE spokesman David Shu said the company had no immediate comment. Yablon couldn't be reached for comment. A spokeswoman for the FBI office in Dallas declined to comment. A Justice Department spokesman in Washington also declined to comment.

Shares gain

The FBI probe presents new troubles for ZTE in the US, where it has been trying to expand operations. In addition to the Commerce Department probe into its sales to Iran, ZTE also is under investigation by the US House of Representatives' Intelligence Committee over whether its equipment represents a threat to national security.

ZTE, China's second-largest telecom equipment maker, is publicly traded, but its largest shareholder is a Chinese state-owned enterprise.

In Hong Kong, ZTE shares last traded up 1.6 percent at HK$12.52. The stock has almost halved so far this year and has fallen in all of the last six sessions on worries of soft first-half results and concerns over a dispute between the China and the European Union over industry subsidies.

"Sentiment will be weakened, but I don't see any material impact on ZTE in terms of earnings," said Hong Kong-based Nomura analyst Huang Leping. "ZTE may find it harder to break into the US in its technical equipment division, as (the US) becomes more strict and puts more restrictions on technical equipment due to security concerns."

More World News