According to four people who have knowledge of the matter, two consulting firms that were hired for the purpose of ensuring ZTE Corp.’s compliance with the trade sanctions in the United States have resigned. Earlier this year, the second-largest telecommunications company of China had agreed to pay a penalty of nearly $900 million, which is the largest that has been imposed in a US export case. The company had illegally shipped goods to North Korea and Iran and as part of their guilty plea, ZTE had agreed to open their books to a monitor by the US. In June, James Stanton, a lawyer from Texas, who is the US monitor heading the oversight regime hired two consulting firms for assistance.
Larkin Trade International and Guidepost Solutions were to provide assistance in ensuring the company’s compliance with the sanction laws and export controls in the US in order to reduce the chance of any misconduct in the future. However, there had been a clash between the monitor and the two firms regarding how the job was to be approached, which had led them to part ways. While the exact reasons for the departure of the firms remain unknown, initially, Stanton had restricted the access of the consultants to ZTE officials and documents. People familiar with the matter said that this had hindered the ability of the consultants to monitor the firm.
ZTE’s head of compliance in the United States is Matthew Bell and he said that they wanted to have a successful and cooperative monitorship. Up until now, there have been no official reports about any problems in monitoring ZTE. However, a review of the plea deal made between the US government and ZTE Corp. and also people who are aware of the matter has revealed that the problems are mostly due to the way the policing program was set up by a US judge in March. The ZTE’s sanctions case was overseen by US District Judge Ed Kinkeade because the plea agreement between ZTE and the US government were filed by the Justice Department in the Texas court as that’s where the company has its headquarters.
Before the plea deal had been signed off, Kinkeade had taken a rather unusual step by getting the agreement revised to put Stanton in charge of monitoring the Chinese firm’s compliance with US sanctions and control laws. Stanton is a personal injury and civil lawyer and his appointment was made despite the fact that he doesn’t have any experience in US trade controls. Furthermore, the order that named him as the monitor was sealed so no further light could be shed on the judge’s decision.
In typical cases, an independent monitor is selected by the Justice Department in a corporate criminal case and the company proposes the candidates to choose from. This was originally supposed to happen, but the Department of Justice and ZTE felt compelled to accept Kinkeade’s decision and the change in monitoring because a plea had already been negotiated and filed in his court and ZTE’s license that allowed it to get US made goods was about to expire.