Alexandre Lamy published an article, “Supply Chain Risks Related to US Sanctions and Export Control Issues,” in the February 2019 issue of Baker McKenzie’s “Aerospace & Defense Compliance Bulletin.” The text of that article is provided below.
Supply Chain Risks Related to US Sanctions and Export Control Issues
When companies and compliance departments think about US sanctions and export control risks, they often focus on sales to customers and exports/reexports from one country to another. In that context, the compliance focus is typically on confirming that a customer and other parties involved in a sale and shipment are not restricted parties and that the transfer of a product is authorized under applicable export-control regulations. This is only half the story. Companies can have similar risks in their supply chain, which can be disruptive to a company’s operations beyond one transaction or customer relationship if not property managed.
On July 13, 2018, the US Department of Commerce’s Bureau of Industry and Security (“BIS”) issued an order (“Termination Order”) immediately terminating the denial order issued on April 15, 2018 against Zhongxing Telecommunications Equipment Corporation (“ZTE Corporation”) and ZTE Kangxun Telecommunications Ltd. (“ZTE Kangxun” and, collectively, “ZTE”) that had prohibited dealings with ZTE involving items subject to US jurisdiction. ZTE has been removed from the Denied Persons List, and exporters and reexporters are no longer generally prohibited from supplying to ZTE items subject to US jurisdiction, including parts and components, or servicing such items for ZTE.
On June 7, 2018, the US Department of Commerce announced that Zhongxing Telecommunications Equipment Corporation (“ZTE Corporation”) and ZTE Kangxun Telecommunications Ltd. (“ZTE Kangxun” and, collectively with ZTE Corporation, “ZTE”) had agreed to additional penalties and compliance measures to secure their removal from the Bureau of Industry and Security (“BIS”) Denied Persons List and regain access to US products and components. The new agreement imposes significant additional fines on ZTE, requires the company to carry out management changes, and institutes strict compliance requirements. Importantly, ZTE has not yet been removed from the Denied Persons List and remains subject to the existing restrictions until certain steps are taken. Nevertheless, the agreement sets out a path forward for ZTE to soon resume operations that had otherwise stalled due to the lack of access to US items.