ZTE, as the world’s leading provider of integrated communications solutions, because of its global characteristics, is inevitably involved in complying with the import and export related laws and regulations in its production and operation activities. Compliance is a matter of survival for the company and we must manage to control the compliance risks. Over the past two years, ZTE has continuously explored to develop an export control compliance system suitable for its business.
The export control compliance means that all export activities involving countries, regions, enterprises, products, raw materials, and end uses must comply with all applicable export control requirements.
ZTE determines the compliance of all business activities in accordance with the four elements of the U.S. Export Administration Regulations (hereinafter referred to as the “EAR”), and establishes a suitable export control compliance system for itself based on the Export Compliance Program (hereinafter referred to as “ECP”) guidelines.
Four Elements of the EAR
There are four elements that organizations or individuals need to consider and comply with when the EAR applies.
●The controlled countries element requires determining whether the countries involved in an activity are restricted countries or regions under the EAR. The policy of ZTE is that it will not participate in or promote any transaction that is associated with the sanctioned countries, the embargoed countries, or the restricted regions.
●The controlled parties, including institutions, companies, research institutes, schools, individuals, etc., are the sanctioned or restricted parties under the EAR. The policy of ZTE is that it will not participate in or promote any transaction with any sanctioned or restricted parties.
●The controlled items include hardware, software, and technology that need to be controlled in two ways. One is to track the country of origin and content of those hardware, software, and technology, and classify them appropriately; the other way is to screen correctly all projects transferred by ZTE to determine whether export or re-export licenses are needed or not.
●The controlled use is the end use of an activity. According to relevant provisions of the EAR, ZTE needs to focus on whether the end use of its business activities involves military or surveillance or not. If so, such activities must be strictly reviewed.
Eight Elements of the ECP Guidelines
A series of procedures have been developed in the ECP to help enterprises comply with the EAR for export activities. By implementing the ECP, each enterprise effectively ensures that controlled US products and technologies are not exported to embargoed countries, sanctioned parties, and are not used for illegal purposes. The enterprise can also develop and implement its own export compliance program based on the eight elements of ECP to ensure that all export activities are legal and the company can continue to develop steadily.
●Management commitment. The company management must clearly communicate on the importance of compliance with export control requirements from the top down, and that all transactions must not violate export control laws and regulations. Currently ZTE publishes an export control compliance statement that is signed and issued by the CEO every year and this effort is gradually covering ZTE subsidiaries.
●Risk assessment. This element requires the company to identify internal preventable risks and conduct a regular assessment. The risk assessment of ZTE and its subsidiaries is carried out from three aspects: 1) the degree and nature of the technology, hardware, and software regulated by US export controls; 2) the risk of ZTE products being sold or transferred to restricted areas or restricted parties; and 3) the assessment for business partners and end users.
●Export authorization. This element means the process used to confirm the scope, classification, licensing requirements, and export of products (including re-export). ZTE has established a team of ECCN classification experts to work with external consulting agencies to assess and determine the classification of products and issues related to whether “export/re-export” is permitted.
●Record keeping. This element requires the company’s record keeping process to meet regulatory and mandatory requirements. ZTE has made clear requirements for record keeping in various activities of the company.
●Training. This element requires the company to conduct compliance trainings to improve employees’ general compliance awareness and conduct compliance trainings for specific functional departments, and such trainings should be carried out on a regular basis. ZTE has always attached great importance to employee compliance awareness training. Since 2016, the company has organized two export control compliance trainings for all employees and embedded export control compliance training content in the company’s new employee training and management and leader training. Since August 2018, the company has comprehensively pushed the company-wide trainings for export control expertise such as ECP, ECCN, blacklist, and GTS.
●Audits. This element requires the company’s audit work to meet the requirements, cover all departments, and update the audit methodology to reflect changes in regulatory requirements. At present, ZTE’s Export Control Compliance Department works with other internal audit departments to conduct the company’s export control compliance audit, in order to ensure that its business units and entities implement applicable standards on a global scale, and if necessary, invites external experts or third parties appointed by the government to conduct the audit work.
●Handling export violations and taking corrective actions. ZTE has set up a compliance reporting email box and a hotline for employees to report in anonymity actual or potential violations of export control compliance. It is also prohibited to take retaliatory measures against such employees.
●Building and maintaining your export compliance manual. This element requires the company’s Export Compliance Manual to include all the key points of the ECP and to specify the processes that all employees should follow. ZTE released the ZTE Export Control Compliance Manual in 2016, and revised it in 2018 which has also been released to all employees.