On Friday, the Department of Commerce’s Bureau of Industry and Security (BIS) published a notice extending the relief it granted earlier this year to ZTE Corporation and ZTE Kangxun, which had been placed on BIS’s Entity List in early March of this year.
As noted in prior posts, on March 8, 2016, BIS imposed broad export restrictions on ZTE Corporation, ZTE Kangxun Telecommunications Ltd. (China), Beijing 8-Star International Co. (China), and ZTE Parsian (Iran). BIS’s action was a response to ZTE’s alleged execution of a scheme to violate U.S. export controls through its creation and use of “detached” shell or front companies. The scheme facilitated the reexport of items subject to the Export Administration Regulations (EAR) to countries sanctioned by the United States. The restrictions were significant: they prohibited the provision of even common, off-the-shelf EAR99 and other low-technology electronic components, commercial software, and technology to ZTE without a license. The imposition of such restrictions caused an uproar amongst industry members across the United States and China, which was not surprising given ZTE’s position as a leading provider of telecommunications and other technology equipment to markets worldwide.
Likely in response to the industry’s reaction and ZTE’s agreement to cooperate with the U.S. government in resolving this matter, just two weeks later, BIS created a temporary general license suspending the export restrictions on ZTE Corporation and ZTE Kangxun and generally permitting parties to engage in business as usual with the two ZTE entities. The privileges under the temporary general license, while originally available only through June 30, were then extended until August 30, 2016.
Friday’s action marks the second such extension of the temporary general license applicable to ZTE Corporation and ZTE Kangxun. Parties may now take advantage of the relief granted via the temporary general license through November 28, 2016. Whether further extensions will follow the expiration of this period remains to be seen – BIS will have to grapple with what, ultimately, to do with ZTE at some point or another. In the meantime, we recommend that companies continue to conduct heightened due diligence, remain sensitive to any potential “red flags,” and maintain vigilance in transactions involving exports to ZTE to ensure that such exports are not diverted to ZTE’s restricted affiliates or any other sanctioned entities/countries.