FBI probes China's ZTE over Iran tech deals: report

Fri Jul 13, 2012 6:46am EDT
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By Steve Stecklow and Melanie Lee

LONDON/SHANGHAI (Reuters) - The FBI has opened a criminal investigation into ZTE Corp's sale of banned U.S. computer equipment to Iran, a website reported, as the Chinese telecoms gear maker warned its first half net profit could fall as much as 80 percent.

The federal investigations stem from a Reuters report in March that Shenzhen-based ZTE sold Iran's largest telecoms firm a powerful surveillance system capable of monitoring landline, mobile and Internet communications, the Smoking Gun website reported.

The company's earnings woes appeared unrelated to the investigations in the United States, and Friday's profit warning statement made no mention of the FBI probe.

The March Reuters article also reported that ZTE's 907-page "Packing List" for the $120 million contract, dated July 24, 2011, included hardware and software products from several top U.S. tech companies, including Microsoft Corp, Hewlett-Packard Co, Oracle Corp, Cisco Systems Inc and Dell Inc. Sales of the equipment are prohibited by U.S. sanctions on Iran.

The Smoking Gun reported that the FBI was also investigating ZTE's alleged attempts to cover up the sale and obstruct a Department of Commerce probe.

After the Reuters report in March, ZTE said it would curtail business with Iran.

Meanwhile, ZTE said in a filing to the Shenzhen stock exchange after Asian markets closed that its first half net profit would tumble between 60-80 percent on lower investment gains, foreign currency exchange losses and domestic operator networks postponing their tenders.

The Smoking Gun published on its website excerpts from a confidential FBI affidavit based on a May interview with Ashley Kyle Yablon, the general counsel of ZTE's U.S. subsidiary in Texas.   Continued...

A ZTE company logo is seen at the company's exhibition pavilion during the CommunicAsia information and communications technology trade show in Singapore June 19, 2012. REUTERS/Tim Chong