HONG KONG — As one of China’s few truly international technology companies, ZTE is often held up by Beijing as part of a new generation of firms that is able to compete beyond Chinese borders.
On Tuesday, the United States government made an example of ZTE in a different way.
As part of a settlement for breaking sanctions and selling electronics to Iran and North Korea, ZTE agreed to plead guilty and pay $1.19 billion in fines, the United States Department of Commerce said in an announcement. The penalty is the largest criminal fine in a United States sanctions case.
The action is the latest in a series of skirmishes between the United States and China over technology policy. It also offered a chance for President Trump’s young administration to make a statement about the seriousness of United States sanctions. In addition to ZTE, the Commerce Department is also investigating the company’s larger Chinese rival, Huawei, for violating United States sanctions.
“We are putting the world on notice: The games are over,” said Commerce Secretary Wilbur L. Ross. “Those who flout our economic sanctions and export control laws will not go unpunished — they will suffer the harshest of consequences.”
ZTE was found to have breached United States sanctions against Iran by selling American-made goods to the country last March. At the time, the Commerce Department said it would force American companies to obtain a special license to sell to ZTE, which makes smartphones and telecommunications infrastructure equipment. The restrictions would have had the potential to cripple ZTE’s supply chain.
The ban, however, was never put in place, and instead the Chinese company was given a series of reprieves.
Still, ZTE, which is China’s second-largest maker of telecom equipment, has not fared well over the past year. Its revenue from the expansion of China’s 4G cellular networks has slowed and its smartphone business has faced major competition from new Chinese handset makers, as well as Huawei.
On Tuesday, the Commerce Department said that along with selling prohibited American electronics to build Iran’s telecom networks, ZTE also made 283 shipments of microprocessors, servers and routers to North Korea, violating American embargoes in that country as well.
“ZTE engaged in an elaborate scheme to acquire U.S.-origin items, send the items to Iran and mask its involvement in those exports,” said the acting assistant attorney general, Mary B. McCord. “The plea agreement alleges that the highest levels of management within the company approved the scheme.”
She added that ZTE repeatedly lied to and misled federal investigators, its own lawyers and internal investigators.
In a statement, ZTE said that it had strengthened its compliance policies and undergone a shake-up of top leaders; the company named a new chief executive last April.
Although China and the United States have occasionally traded barbs over technology policy and cyberattacks, the actions against ZTE by the United States government have not had a major impact on the relationship of the two countries, though Beijing could respond harshly to the new fine.
It is unclear whether the Commerce Department has completed its investigations into Chinese telecom equipment makers.
In a rare step accompanying the announcement last March, the Commerce Department provided two internal ZTE documents.
One, from 2011 and signed by several senior ZTE executives, detailed how the company had “ongoing projects in all five major embargoed countries — Iran, Sudan, North Korea, Syria and Cuba.” Another document laid out in a complex flow chart a method for circumventing United States export controls.
Citing an unnamed company as a model for circumventing United States sanctions, that second document seemed to implicate ZTE’s more politically important rival, Huawei.
The New York Times reported last year that the United States government was also investigating whether Huawei broke export controls. The Commerce Department subpoenaed Huawei, demanding it turn over all information regarding the export or re-export of American technology to Cuba, Iran, North Korea, Sudan and Syria.
Huawei has said it is committed to complying with laws and regulations where it operates.
Huawei and ZTE are private companies, but they have deep ties to the Chinese government, in part because they supply much of the equipment that makes the country’s telecom backbone function.