Chinese telecom links to intelligence disclosed

The Chinese telecommunications giant ZTE and three related firms were slapped with Commerce Department economic sanctions March 8 for illicit transfers of goods containing U.S.-made products to Iran. But under pressure from China, the department suspended the sanctions on ZTE, a major producer of smartphones and telecommunications hardware, until June 30 and entered talks with the Chinese to try to resolve the dispute.

As part of the scheme, ZTE used the cutout company Beijing 8-Star International to hide the sales.

In addition to ZTE, the sanctioned firms include ZTE Kangxun Telecommunications Ltd., Beijing 8-Star International Co. and ZTE Parsian, a Tehran-based firm.

The sanctions were the result of the Commerce Department’s Bureau of Industry and Security’s obtaining of an internal ZTE document labeled “Top Secret Highly Confidential,” which showed the company sought to mask its sales of U.S. export-controlled goods by circumventing the Commerce Control List of restricted exports to countries like Iran. The document says the way to carry out that deception is to “maximally detach the direct connection between our company” and the list of controlled items by using shell companies to hide the transactions.

A group of 23 House members on April 27 wrote to Commerce Secretary Penny Pritzker and Treasury Secretary Jack Lew urging the sanctions to be reimposed.

“We are concerned that if ZTE is not ultimately punished for its reported misconduct, American export control laws and international efforts to promote human rights in Iran will be weakened,” the lawmakers said, noting that the restrictions on exports to Iran were aimed at preventing Tehran’s ability to spy on dissidents.

The letter also states that a Chinese telecommunications rival of ZTE, referred to in the document as “F7,” has been identified as Huawei Technologies and also has evaded U.S. export controls on its foreign sales.

“As you move forward with your investigation of ZTE, we urge you to publicly identify F7 and impose appropriate penalties on the company should you find evidence of wrongdoing,” they said.

The Paris-based newsletter Intelligence Online reported three years ago that a subsidiary called ZTE Special Equipment Co., which produces intelligence and security equipment, was sold off from the main conglomerate but maintains ties to Chinese intelligence.

ZTESec, as the offshoot company is called, was also renamed SinoVatio around the time the House Permanent Select Committee on Intelligence was completing its investigation of Huawei’s ties to the Chinese government and military and its relations with ZTE.

“ZTE decided to get rid of the problematic subsidiary so that it could pursue the growth of its business in the U.S.,” the newsletter said.

“However ties between ZTE and SinoVatio remain. The latter company shares the same corporate address — ZTE Plaza, 888 Zhengfang Road, Nanjing — with ZTE Soft, ZTE’s 100 percent-owned research and development unit.”

Additionally, a consortium of private equity funds that purchased 68 percent of ZTESec maintains close ties to Chinese authorities.

SinoVatio’s core businesses are cyberintelligence, cybersecurity and computer network interception. The company also markets network monitoring technology that includes deep-packet inspection, code breaking and data mining. ZTESec sold some $100 million worth of electronic intercept equipment to Iran in December 2010, Intelligence Online reported.

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Washington Times/Inside the Ring
May 26, 2016