DetailsOn March 7, 2017, US Department of Commerce announced a total $1.19 billion penalty for China¡¯s Zhongxing Telecommunications Equipment Corporation and ZTE Kangxun Telecommunications Ltd. (¡°ZTE¡±) for violation of the Export Administration Regulations (¡°EAR¡±) by illegally shipping US technology to Iran and North Korea. ZTE agreed to pay the combined civil and criminal penalty and is removed from US trade blacklist on March 29, 2017.
A developed country always attached great importance to the construction of import and export system. United States, for example, has established a complete export control system. Its most important active export control policies include but not limited to EAR created and executed by Bureau of Industry and Security and economic sanction acts enforced by Office of Foreign Assets Control, etc. According to ¡ì 742.19, ¡ì 746.4 and ¡ì 746.7 of EAR, strict export control policies are implemented towards North Korea and Iran. Entities that violate the EAR may be listed in US trade blacklist and will receive severe punishments, including civil liabilities and criminal penalties. This is exactly what ZTE experienced.
The development of hi-tech industry is not only reflected as the sales of the products, but also the research & development and manufacture of the products. The three progressive phases comprise the key stages of a hi-tech product¡¯s coming into being. Therefore, when a hi-tech entity is entering into a contract with another party in order to carry out one of the above stages, the entity shall consider potential consequences and prevent latent risks at other stages. For example, company A is licensed to make use of country B¡¯s patent technology in A¡¯s products; company A shall make sure whether the sales of the products to country C will infringe any third parties¡¯ legitimate intellectual property rights or whether the transaction is permitted under country B¡¯s existing laws.
If a company is drafting its development strategy on emphasizing international cooperation in one of the abovementioned stages, the company shall conduct a due diligence to check the cooperator¡¯s credit information and relevant legislations in this certain country or region. Although many technicians and marketing personnel are familiar with some regulations in a few areas, how to build a complete internal and external risk-controlling system in compliance with the company¡¯s specific requirements is what a professional foreign related legal team could do. This is particularly true when the cooperator is an entity incorporated in a country who has established a comprehensive import and export system. The construction and perfection of internal institutions and external risk-controlling concern an enterprise¡¯s long-term development prospects, and therefore, is of high importance.