China’s ZTE will pay $1B fine in deal with US

The U.S. has reached a deal with Chinese telecom giant ZTE, but the company will have to pay up and make some major business changes, according to Commerce Secretary Wilbur Ross.

ZTE will pay a $1 billion fine and have to put $400 million in escrow for violating sanctions, Ross said Thursday during an interview on CNBC.

A source familiar with the matter confirmed the fine and escrow requirement to FOX Business.

The penalties are in addition to the $892 million in penalties ZTE already paid.

Ross called ZTE’s actions a “world-class embarrassment,” and said that the U.S. deal with ZTE imposes the “most strict” compliance ever on any company.

ZTE ceased major operations in April, and a seven-year ban was imposed on the company for breaking a 2017 agreement by illegally shipping goods to Iran and North Korea.

The ban meant that ZTE could not purchase parts from U.S. companies, including Qualcomm, Corning and Google.

Ross also said that the company will have to replace its entire management and board of directors as part of the deal. The changes will have to be made within 30 days.

The source also told FOX Business that ZTE will be on probation for 10 years and for 10 years the company will have to hire special compliance coordinators selected by and answerable to the U.S. Bureau of Industry and Security within the Commerce Department.

He said the ZTE deal should “serve as a very strong deterrent for other potential bad actors.”

Suppliers of parts and optical technology for smartphones rallied in the premarket after the deal was announced but later gave back most or all of their gains. Two standouts were Qualcomm and NXP Semiconductors. Their shares were higher after the Qualcomm chief executive said he hoped the deal between the U.S. and ZTE would lead to China approving Qualcomm's purchase of NXP.

Ticker Security Last Change Change %
ACIA n.a. n.a. n.a. n.a.
NXPI NXP SEMICONDUCTORS NV 181.18 +9.84 +5.74%
QCOM QUALCOMM INC. 110.35 +6.33 +6.09%
LITE LUMENTUM HOLDINGS INC. 53.63 +5.64 +11.75%
FNSR n.a. n.a. n.a. n.a.

FOX Business’ Edward Lawrence and Charles Brady contributed to this article