Zhongxing Telecommunications Equipment Corporation (ZTE Corporation) and ZTE Kangxun Telecommunications Ltd. (ZTE Kangxun) (collectively "ZTE" or "the companies") will be removed from the Department of Commerce's Bureau of Industry and Security (BIS) Entity List as of March 29, 2017. The removal follows the entry of a guilty plea by ZTE Corporation and ZTE Kangxun and the settlement of BIS and Department of Treasury Office of Foreign Assets Controls (OFAC) administrative charges against the companies. In conjunction with the removal of the companies, BIS is adding ZTE Corporation's former chief executive officer, Shi Lirong, to the Entity List. The BIS rule announcing these changes will be published in the Federal Register on March 29.

ZTE Corporation and ZTE Kangxun

On March 8, 2016, ZTE Corporation and ZTE Kangxun, as well as ZTE Parsian and Beijing 8-Star, were added to the Entity List. As a result, a license from BIS was required for the export, reexport, and in-country transfer of any item (commodity, technology, and software) subject to the Export Administration Regulations (EAR) to any of those entities. The listing stemmed from the U.S. Government's investigation involving ZTE and the related entities' reexport of U.S.-origin parts to Iran and North Korea. Then, on March 24, 2016, as reported in prior WSGR Alerts, BIS issued a temporary general license that suspended the Entity List license requirements against ZTE Corporation and ZTE Kangxun, thereby returning the license requirement status to the same level that existed prior to ZTE Corporation's and ZTE Kangxun's inclusion on the Entity List. The general license expires on March 29, which is the same day that the two entities will be removed from the Entity List. As noted above, the removal of ZTE Corporation and ZTE Kangxun follows their guilty plea to conspiracy to unlawfully export in violation of the International Emergency Economic Powers Act (IEEPA), obstruction of justice, and making false statements to federal investigators, and their agreement to settle the violations of the EAR and OFAC's Iranian Transactions and Sanctions Regulations (ITSR). BIS noted that ZTE's cooperation and fulfillment of its undertakings to the U.S. Government were important factors in removing the entities from the Entity List.

ZTE Parsian and Beijing 8-Star remain on the Entity List and the general license issued by BIS does not apply to them.

Former CEO Shi Lirong Added to Entity List

Shi Lirong, ZTE's former chief executive officer, is being added to the Entity List effective March 29, 2017. Accordingly, a license must be obtained from BIS for the export, reexport, or in-country transfer of any items subject to the EAR to Shi Lirong. No license exceptions are available. The Federal Register Notice states that Shi Lirong, as the CEO of ZTE Corporation, signed and approved the document "Report Regarding Comprehensive Reorganization and Standardization of the Company Export Related Matters," which planned and organized a scheme to establish, control, and use a series of "detached" (i.e., shell) companies to illicitly reexport controlled items to Iran in violation of U.S. export control laws.

Conclusion

Effective March 29, 2017, ZTE Corporation and ZTE Kangxun will no longer be on BIS's Entity List, but Shi Lirong, ZTE Parsian, and Beijing 8-Star will be on the Entity List. Thus, a BIS license must be obtained prior to any direct or indirect export, reexport, or in-country transfer of any items subject to the EAR to Shi Lirong, ZTE Parsian, or Beijing 8-Star. License exceptions may not be used.

If you would like to discuss this matter, please contact Josephine Aiello LeBeau, 202-973-8813, jalebeau@wsgr.com; Anne Seymour, 202-973-8874, aseymour@wsgr.com; or any member of the export control and economic sanctions regulatory practice at Wilson Sonsini.