The US has slapped Chinese networking equipment maker ZTE with a seven-year sales ban claiming that it broke the terms of an agreement over sanctions-breaking sales to Iran and North Korea.
The ban will bar US companies from supplying ZTE with the components it needs in order to make its smartphones and networking equipment. Trading in ZTE shares were suspended today in response.
"ZTE misled the Department of Commerce. Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored," claimed US Secretary of Commerce Wilbur Ross in unveiling the tough sanctions against ZTE yesterday.
The ban follows on from a settlement agreed last year between ZTE and the US Department of Commerce's Bureau of Industry and Security - which included the threat of the ban were it found to be non-compliant.
"In March 2017, ZTE agreed to a combined civil and criminal penalty and forfeiture of $1.19 billion after illegally shipping telecommunications equipment to Iran and North Korea, making false statements, and obstructing justice including through preventing disclosure to and affirmatively misleading the US government," claimed the Department of Commerce in a statement.
It continued: "In addition to these monetary penalties, ZTE also agreed a seven-year suspended denial of export privileges, which could be activated if any aspect of the agreement was not met and/or if the company committed additional violations of the Export Administration Regulations (EAR)."
In response, China's government pledged today to protect its "legitimate rights". Although its unclear what, exactly, this might entail.
"We hope the US will properly handle the matter in accordance with regulations and create a fair, equitable and stable legal and policy environment for the company," a China's Commerce Ministry responded in a statement.
It continued: "The Ministry of Commerce will pay close attention to the progress of the situation and stands ready to take necessary measures to safeguard the legitimate rights and interests of Chinese companies."
The ban came on the same day that the National Cyber Security Centre (NCSC) issued an official security warning over the use of ZTE equipment by network operators.
In a letter seen by the Financial Times, NCSC technical director Ian Levy claims that "the use of ZTE equipment or services within existing telecommunications infrastructure would present risk to UK national security that could not be mitigated effectively or practicably."
The letter was sent to UK telcos, the regulator Ofcom and ZTE themselves.
Levy continued: "Mitigating the risk of external interference with equipment supplied by a particular vendor depends in significant part on telecommunications equipment being present from other vendors who are not subject to the same risk of external interference.
"The UK telecommunications network already contains a significant amount of equipment supplied by Huawei, also a Chinese equipment manufacturer. Adding in new equipment and services from another Chinese supplier would render our existing mitigations ineffective."
The FT's report notes that Levy's letter also cites a recent settlement between ZTE and US officials, in which the Chinese firm agreed to pay a $1.2bn fines for violating US sanctions on North Korea and Iran.
Levy noted it would be "impossible" to manage the risks posed if ZTE equipment was deployed at scale, adding: "The result would be an unacceptable national security risk to the UK telecoms infrastructure environment," he said.
This warning follows similar action from the US government, which has long-prohibited American telecoms firms from buying network equip from Chinese firm Huawei, and last month went so far as to warn US citizens not to use smartphones from the Chinese companies Huawei and ZTE.
What's more, earlier this year, a senior official in President Trump's administration confirmed earlier this year US government is considering developing its own 5G network, containing parts manufactured in China, to counter, er, security threats from China.
However, in the UK, Huawei equipment forms a key part of BT Openreach's 21st Century Network (21CN), as well as Openreach's G.fast fibre network upgrade.
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