On April 20, the Xinhua news reporter confirmed from insiders of ZTE that this afternoon, ZTE will hold a press conference at the headquarters of Shenzhen, and the company’s top executives will attend.

On the morning of the same day, ZTE issued a statement on the US’s refusal to activate, saying that the company had voluntarily notified itself of the problem and that the US was very unfair in blocking ZTE. The company could not accept it.

At the same time, Yin Yimin, Chairman of ZTE Corporation, issued an internal letter to employees, and detailed explanations were made before and after the United States to activate the refusal order. They called on employees to work together and move forward.

Yin Yimin mentioned in his internal letter that ZTE complied with U.S. export control laws and earnestly fulfilled the relevant agreement obligations signed in March 2017 with various U.S. government agencies and paid over US$800 million in fines on schedule. The company supports the independent ombudsman appointed by the United States to carry out various supervision tasks including interviews, document submission, and system testing, and has accumulated a total output of over 132,000 pages. In the course of advancing the compliance construction, we learn lessons from the past and correct them in a timely manner. We will no longer make mistakes that have been made by some administrative cadres in the past.

Yin Yimin’s internal letter also reviewed the entire process of the incident: From November 30, 2016, the company submitted a letter to the relevant US government agencies on: (1) For some executives involved in the transactions of the sanctioned country and Employees take disciplinary measures (disciplinary actions include job adjustments, bonus deductions, sending disciplinary letters, etc.). Some of these measures have been implemented and the other part has been implemented as planned. (2) Report on the progress of ZTE’s construction of an export control compliance system and plans for the future. By March 2017, the company reached agreements with the US Department of Commerce’s Bureau of Industry and Security (hereinafter referred to as “BIS”), the US Department of Justice (DOJ), and the U.S. Department of the Treasury’s Overseas Assets Management Office (hereinafter referred to as “relevant protocol”). From the end of February to the end of March 2018, the company’s chief export control compliance officer and a second law firm outside the company have collected information one after another, showing that the company’s bonus deduction plan for certain employees has not been implemented in a timely manner. And the company has adopted a series of response measures since then.

Yin Yimin stated in his internal letter that prior to the completion of the independent investigation, the US Department of Commerce alleged that the company had false statements in the letter dated November 30, 2016 and the letter dated July 20, 2017, and then made a penalty for activating the refusal order. BIS disregarded the company’s arduous efforts, huge investment, and long-term progress in compliance with export control compliance in the past two years. The issue of disregarding the above two letters was found by the company’s self-examination and timely notification; ignored the company’s first-time negligence. Responsible person, quickly correct the problem, and hire an authoritative US law firm to investigate. Before the relevant investigation has been concluded, BIS insists on the most stringent sanctions imposed on the company. It is extremely unfair to the company and we cannot accept it!

The following internal letter content:

(Yin Yimin, Chairman of ZTE Corporation.)

Yin Yimin, Chairman of ZTE Corporation.

Yin Yimin, chairman of the board:

All colleagues of the company:

From April 16, 2018, it was learned that the United States Department of Commerce’s refusal to activate the company has passed four days and nights. The incident has attracted the attention of all employees, families, and the community.

The company set up a crisis response working group the first time to fully assess the impact of the incident on the company and its employees, maintain active communication with all parties, and use the greatest efforts to promote the resolution of the incident. During this period, all employees of the company are united, stick to their jobs, do their jobs, and use the actual actions to tide over difficulties with the company. Thank you!

We are in a complex international situation with opportunities and challenges. In the past year or so, we have adopted compliance as one of the cornerstones of our company’s strategy and adhered to the principle of “export control compliance is the top priority”. The company complies with U.S. export control laws and earnestly fulfills its obligations under the relevant agreements signed in March 2017 with multiple U.S. government agencies and pays over US$800 million in fines on schedule. In 2017 alone, the company invested more than 50 million U.S. dollars for export control compliance and plans to invest more resources in 2018. The company supports the independent supervisor appointed by the United States (hereinafter referred to as the “ombudsman”) to carry out various supervision tasks including interviews, document submission, and system testing, and has accumulated more than 132,000 pages of output documents. From the management level to the employees, the company is fully involved and is committed to building a first-class, standardized and sustainable compliance management system in the industry. After continuous efforts and promotion, we have established a professional compliance team to build and optimize the company’s import and export control compliance management framework, systems, and processes. We have introduced and implemented SAP’s Trade Compliance Management Tools (GTS) to promote IT automation and control. Global compliance training for over 65,000 employees and compliance training for more than 45,000 employees through specific key positions have made tremendous progress in compliance culture and institutional development.

In the course of advancing the compliance construction, we learn lessons from the past and correct them in a timely manner. We will no longer make mistakes that have been made by some administrative cadres in the past.

The entire incident process is as follows:

On November 30, 2016, the company submitted a letter to the relevant U.S. government authorities on the following:

(1) Take disciplinary measures against some executives and employees involved in the transactions of the sanctioned country (disciplinary actions including job adjustment, bonus deductions, sending disciplinary letters, etc.). Some of these measures have been implemented and the other part has been implemented as planned.

(2) Report on the progress of ZTE’s construction of an export control compliance system and plans for the future.

In March 2017, the company and the U.S. Department of Commerce’s Bureau of Industry and Security (hereinafter referred to as “BIS”), the U.S. Department of Justice (hereinafter referred to as “DOJ”) and the U.S. Department of the Treasury’s Overseas Assets Management Office respectively reached an agreement (hereinafter collectively referred to as “the relevant agreements”. “). The company and the DOJ agreement require four senior executives/employees to be dismissed from the company. Except for these four individuals, no other employee’s disciplinary requirements are involved in the relevant agreements. On May 9, 2017, the company notified the U.S. government of the fact that four senior executives/employees had left the company and their supporting documents.

On July 20, 2017, the first law firm hired by the company sent a letter to the U.S. government to describe the completion of disciplinary measures by some employees.

In late February and early March of 2018, the company’s chief export control compliance officer and a second law firm outside the company collected information one after another, indicating that the company’s bonus deduction plan for certain employees was not implemented in a timely manner.

On the morning of March 5, 2018, the company’s chief export control compliance officer and a second law firm outside the company reported this matter to me and proposed a series of actions. I agree and arrange for prompt action. On the afternoon of the same day, President Zhao Xianming confirmed his support for these actions and emphasized that these actions must be transparent and realistic. The company quickly arranged for a second law firm to conduct a survey of the relevant circumstances (hereinafter referred to as the “Survey”), and the company conducted an internal verification of the employees’ disciplinary performance.

On the morning of March 7, 2018 (March 6, U.S. time), the company took the initiative to report the situation to the relevant US government agencies and ombudsmen.

On March 8th, 2018, the company issued a punishment letter to relevant employees, and made arrangements for deducting the 2016 bonus, which will be deducted from the 2017 bonus. On March 14, 2018, a letter of punishment was issued to the resigned employees, and the recourse for deductible bonuses will be conducted in accordance with Chinese laws.

On March 8, 2018, the company took the initiative to report the situation to the United States District Court in the North District of Texas. Afterwards, on the advice of the chief export control compliance officer and the second law firm, on March 12, 2018, the company hired another law firm to conduct parallel investigations.

On March 16th, 2018, the company made a detailed statement to BIS on the relevant circumstances and attached the supporting documents that the company has taken measures. The company reported to BIS that it had arranged for an internal investigation procedure to be initiated. It requested that an external law firm be established for 45 days (before April 30th, 2018) to complete the relevant investigation.

The investigation was still in progress until the BIS activation refusal order on April 15, 2018 (US time). Prior to the completion of the independent investigation, the U.S. Department of Commerce alleged that the company had false statements in its letter dated November 30, 2016 and letter dated July 20, 2017, and then made a penalty for activating the refusal order. BIS disregarded the company’s arduous efforts, huge investment, and long-term progress in compliance with export control compliance in the past two years. The issue of disregarding the above two letters was found by the company’s self-examination and timely notification; ignored the company’s first-time negligence. Responsible person, quickly correct the problem, and hire an authoritative US law firm to investigate. Before the relevant investigation has been concluded, BIS insists on the most stringent sanctions imposed on the company. It is extremely unfair to the company and we cannot accept it! The company will not give up its efforts to solve problems through communication and dialogue, and it is determined to safeguard its legitimate rights and interests through all legal means.

The company’s board of directors, management, and all employees will unite, perform their duties, and never give up. Although the company is in a very difficult situation, but after completing the interpretation of the refusal order, the Compliance Team issued a code of conduct to be followed by all employees of the company in the event of an activation refusal order, reflecting the company’s firm adherence to the country in which it operates. The laws and regulations will not waver in their determination to comply with regulations as the cornerstone of the company’s strategy. The company’s board of directors and management will do their utmost to protect the rights of 80,000 employees to work legally, and the legal interests of 80,000 employees’ families. They will also make the utmost efforts to fulfill our commitment to thousands of operators worldwide. The responsibilities of partners and suppliers and hundreds of millions of corporate end-user consumers will also do their utmost to protect the interests of more than 300,000 shareholders worldwide.

At the same time, I appeal to all employees of the company to be sensible and to watch the incident and avoid over-emotionalization. The company promises to truthfully disclose the final findings to all employees with the consent of the lawyers. The company upholds an open, transparent, and honest attitude, continues to communicate, solves problems in a legal and compliant manner, and does its utmost to reduce the adverse impact of the matter.

Let us consolidate our beliefs, unite as one, join forces in the storm and move forward.

2 thoughts on “ZTE Chairman’s Internal Letter Exposure: What Has Been Experienced in the Past Two Years (Figure)”

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