China’s ZTE expected to take last step to lift ban: U.S. official

(Reuters) – ZTE Corp (000063.SZ) is expected to deposit $400 million in an escrow account in a U.S. bank in the “next couple of days,” the last step the Chinese company must take before a ban on U.S. suppliers can be lifted, a U.S. Department of Commerce official told Reuters on Friday.

ZTE, which makes smart phones and networking gear, agreed to pay a $1 billion penalty and put $400 million in an escrow account as part of a settlement agreement reached on June 7 to regain access to the U.S. market, which it needs for components.

ZTE, China’s No. 2 telecommunications equipment maker, ceased major operations after the Commerce Department imposed the ban in April. The company had broken a prior agreement, the Commerce Department said, by making false statements about disciplining some executives involved in illegally shipping goods to Iran and North Korea, which are subject to U.S. sanctions themselves, and an elaborate cover-up that led to a March 2017 settlement agreements with U.S. authorities.

The escrow account in the new settlement is designed to allow the U.S. government access to the $400 million in case ZTE violates the latest deal.

An escrow agreement, which defines the conditions under which the money could be released, was in the process of being finalized, sources told Reuters on Friday.

One source said ZTE was hopeful the $400 million could be deposited on or before Monday.

ZTE paid the $1 billion penalty last week, people familiar with the matter have told Reuters.

Spokespeople for ZTE did not immediately respond to requests for comment.

ZTE pleaded guilty last year in connection with the illegal activity and paid nearly $900 million in civil and criminal penalties.

Under the new Commerce Department settlement, ZTE agreed to numerous conditions beyond monetary penalties, including changing its board and leadership within 30 days.

The Republican-controlled U.S. Senate passed legislation this week that would overturn the agreement, in a rare rebuke to Trump. But the measure, an amendment to a massive defense policy bill, is still several steps from becoming law, and the White House has said it will push its allies in Congress not to let the provision move forward.

ZTE paid Qualcomm (QCOM.O) and over 200 other U.S. companies more than $2.3 billion in 2017, including over $100 million each to Intel (INTC.O), Broadcom (AVGO.O) and Texas Instruments (TXN.O), a senior ZTE official told Reuters last month.