ZTE Misconduct

ZTE’s Record of Worldwide
Misconduct
SECTION I: Corruption and Bribery
I. Corruption and Bribery……………………………….…………………………………. 1

Algeria……………………………………………………………………………..….1
Ethiopia………………………………………………………………………………..1
Ghana………………………………………………………………………………….1
Kenya………………………………………………………………………………….2
Liberia…………………………………………………………………………………2
Mongolia………………………………………………………………………………2
Nigeria………………………………………………………………………………...3
Norway……………………………………………………………………………..…3
Philippines…………………………………………………………………………….3
Zambia……………………………………………………………………………...…4
II. International Espionage and Spying Activity…………………………………………...5
United States………………………………………………………………………..…5
III. Illegal Trade……………………………………………………………………………...6
United States…………………………………………………………………………..6
IV. EU Sanctions……………………………………………………………………………..7
V. Tax Fraud………………………………………………………………………………….8
Pakistan………………………………………………………………………………..8
VI. Substandard Equipment………………………………………………………………...9
United States…………………………………………………………………………..9
Ethiopia………………………………………………………………………………..9
Nepal…………………………………………………………………………………..9
Nigeria……………………………………………………………………………...…9
Exhibit A: Sourced Articles & Webpages.…………..............……………….……………...10
Algeria
Source No. 6, 7
• According to IT News (Australia) and Information Age, ZTE employees delivered $10
million in bribes to a former executive of Algeria Telecom between 2003 and 2006.
• Money was found to have been funneled through off-shore companies in Luxembourg and
through the British Virgin Islands.
• ZTE was banned for two years from tendering for public telecom contracts in Algeria and
was fined 3 million Algerian dinar.
• According to reports, this was the first time Algeria banned a company from public tenders.
Ethiopia
Source No. 22, 23
• In 2006, according to the Wall Street Journal and Ethiopian news website ZeHabesha.com,
the Ethiopian government entered into an agreement with ZTE in which the company would
develop the country's mobile telecom capabilities.
• The agreement included $1.5 billion in low-interest financing funded by Chinese state-run
banks.
• A total price for the project was not agreed upon in the terms of the contract. ZTE’s prices for
the build-out of the network were as much as double its regular rate.
• A World Bank investigation found that Ethiopia ignored its procurement rules on competitive
bidding in awarding the contract to ZTE.
• The quality of service and network functionality is limited. Networks in Addis Ababa (capital
city) are overburdened and sometimes inaccessible during the day. End users report having to
walk miles to get a signal, that calls are often dropped and that the signal is not strong enough
to penetrate brick or stone walls so end users have to go outside to place phone calls.
Ghana
Source No. 17
• According to a report from GhanaWeb, an initial loan agreement between Ghana and ZTE
Corporation for a $129.9 million security information system was rejected by parliament on
the basis that it had minor errors and that the company's character was in question.
1
• The errors were corrected, and shortly after, the same agreement was approved. In between
the two votes, ZTE gifted each of the 275 MPs a ZTE branded mobile phone.
Kenya
Source No. 1, 23
• According to the Wall Street Journal, a bid for a national police communication system was
canceled after ZTE offered its equipment at double the market rate.
• Anti-corruption activists argue that Kenya violated its constitution by allowing only Chinese
firms to bid.
• "It does not require rocket science in vice of the evidence before the Board to establish that
[ZTE's] financial proposal was highly exaggerated" –Review Board.
• There is an ongoing investigation into the August 2011 award of a contract for the
development of Kenya's digital television signal distribution network to the Pan African
Network Group of China. The investigation is based on allegations of corruption and anti-
competitive practices in the tender process.
Liberia
Source No. 1
• According to TRACE International, an anti-bribery organization, in February 2006, Liberian

authorities indicted ZTE's Liberian agent for allegedly bribing three state telecom officials at
the Liberia Telecommunications Corporation in order to secure a contract with the
government. The current status of the prosecution is unclear.
Mongolia
Source No. 18, 19
• According to ZDNet and The Standard (Hong Kong), government anti-bribery officials
raided ZTE offices and local managers' homes.
• Senior managers were detained for alleged bribery involving a digital education project.
2
Nigeria
Source No. 1, 16
• According to The Herald (Nigeria), in 2009, the Nigerian government signed a $430 million
contract with ZTE to provide CCTV in Abuja and Lagos, respectively the country's capital
city and economic center.
• Nigeria made a down payment of $70.5 million (15%) and the $399.5 million balance was
loaned to the government by China's Eximbank, with 3% interest.
• Allegations were made, according to TRACE International, that ZTE did not comply with
Nigeria’s due process guidelines for government contracts and that ZTE maintained a close
relationship with certain government officials.
• A ZTE factory, purportedly built to manufacture consumer telecommunications products,
was, according to TRACE, alleged to have opened for sham purposes, with workers being
paid for two days of work and then dismissed with just a single worker remaining at the
facility afterwards.
Norway
Source No. 24, 25
• According to ABS-CBN News (Philippines), Norway's national telecom operator, Telenor

ASA, banned ZTE from participating in tenders and new business opportunities due to
breaching its code of conduct in procurement proceedings. The ban commenced on October
13, 2008 and was in effect until March 3, 2009.
• The ban was worldwide, covering all jurisdictions with Telenor operations. This included
Norway, Denmark, Finland, Sweden, Hungary, Montenegro, Serbia, Russia, Ukraine,
Bangladesh, Malaysia, Pakistan and Thailand.
Philippines
Source No. 2, 3, 4
• According to the Washington Post, ZTE has been accused of bribing former-President
Arroyo, her husband, and two other former senior officials by providing her with gifts and
favors at various lunches and golf matches as well as promising kick-back payments worth
tens of millions of dollars
3
• The alleged bribery coincided with government agencies' review of a ZTE proposal.
• Arroyo signed a $329 million construction contract to use ZTE's services to improve the
country's government communications capabilities, of which an estimated $200 million -
$230 million was due to the overpricing of equipment and services.
• The contract was signed on April 20, 2007 in China. On October 2, 2007, Arroyo cancelled
the project due to "irregularities"
Zambia
Source No. 11
• According to Zambia Reports, the Ministry of Home Affairs signed a $210 million contract
with ZTE to provide CCTV services.
• The parties were engaged in a direct contract, which was executed without going through
government mandated public tender procedures.
• ZTE was accused of offering kick-backs to government officials.
• The initial contract for CCTV, signed in January 2013, was for $13 million. Two weeks later,
ZTE priced the second phase at $210 million.
• The project remains incomplete. Two years after the agreed finish date, a fraction of the
cameras have been installed and few of these cameras are functional.
• The government is currently investigating the contract and the conditions under which is was
agreed.
4
SECTION II: International Espionage and Spying Activity
United States
Source No. 4, 12, 13, 15, 26
• A report released by the U.S. House Intelligence Committee on October 8, 2012 concluded
that ZTE poses security risks to the U.S. because its equipment could be used for spying on
Americans. The report was released after an 11-month investigation.
• According to the investigation, the Chinese government provides subsidized loans to ZTE,
giving the Chinese state considerable influence over the company. This, the committee
argued, poses a security threat to the United States, especially considering China's history
with cyber espionage.
• The committee recommended that the U.S. block mergers or acquisitions involving the ZTE,
avoid using ZTE equipment, and that American companies strongly reconsider doing
business with ZTE.
• ZTE was accused of not cooperating with Congress in its investigation.
• According to Reuters, ZTE's Score model handset, which is sold in the U.S, contained a
"backdoor", which is a vulnerability enabling third parties to control a device remotely.
SECTION III: Illegal Trade
United States and Iran

Source No. 8, 9, 10, 13, 14
• According to Reuters and The Washington Post, The U.S. Commerce Department began
investigating ZTE in March 2012, when it served an administrative subpoena on Dallas-
based ZTE U.S.A.
• The Commerce Department investigated allegations that ZTE sold American computer
equipment to Iran's largest telecom firm for $130.6 million. U.S. federal law bans the sale,
export or re-export of goods, technology or services to Iran.
• The equipment includes a powerful surveillance system capable of monitoring landline,
mobile and internet communications.
• The equipment originally belonged to U.S companies including, Microsoft, Oracle, HP, Dell,
Cisco, Symantec, and Juniper.
• According to an FBI affidavit, ZTE discussed the option of covering up the sale and
obstructing the investigation, by shredding documents and altering packing lists.
• ZTE eventually refused to comply with the subpoena and was backed by the Chinese
government, which claimed that compliance would violate Chinese law.
SECTION IV: EU Sanctions
European Union
Source No. 6, 20, 21
• According to The Telegraph, ZTE received illegal government subsidies, which has led to the
EU threatening to take action against the company for unfair trade practices.
• ZTE has been able to undercut competitive bids from long-time European telecom companies
like Nokia and Alcatel Lucent due to lower costs caused by government subsidies.
• These subsidies include massive credit lines from state owned banks.
• European industries ranging from healthcare to water utilities are becoming reliant on
cheaper Chinese wireless technology.
SECTION V: Tax Fraud
Pakistan
Source No. 30
• According to Flare (Pakistan), in 2012, ZTE entered into a contract with Pakistan
Telecommunications Company Limited to import and install components for telephone
exchanges.
• Instead, however, according to the article, ZTE imported and installed the entire exchanges,
not just the components, despite reporting the importation of only the components to
Pakistan’s Federal Board of Revenue.
• The Pakistani Customs Office placed an import ban on ZTE pending the resolution of
litigation on the alleged tax evasion.
United States
Source No. 29
• U.S. telecommunications equipment provider PTA-FLA accused ZTE of supplying

substandard equipment in breach of contract and industry standards.
• ZTE refused to meet with PTA-FLA to resolve the dispute, in violation of the contract
between the parties.
• In a lawsuit, PTA-FLA alleged that ZTE’s equipment did not comply with U.S. government
mandates, including the CALEA (assistance to law enforcement) and E911 systems, and that
general market standards, including MMS, internet access, signal strength, and network
reliability, were compromised.
Ethiopia
See Page 1
Nepal
Source No. 31
• According to the Himalayan Times (Nepal), ZTE entered into a contract to provide CDMA
equipment to Nepal Telecom.
• Due to faulty equipment provided by ZTE, Nepal Telecom customers suffered issues with
quality of service and connectivity.
Nigeria
Source No. 1
• TRACE International alleges that ZTE used substandard materials to fulfill its contract with
Nigeria’s National Communication Security System.
EXHIBIT A: Sourced Articles & Webpages
1. TRACE compendium - ZTE Corporation
2. Wikipedia - Philippine National Broadband Network controversy
3. philSTAR - Enough proof of fraud to jail ZTE contractors
4. The Washington Post - Chinese company ensnared in kickback scandal in Philippines
5. Oneindia - ZTE denies CBI charges on procuring visa through forged letter
6. itnews - ZTE banned from Algeria
7. InformationAge - ZTE execs convicted of bribery in Algeria
8. Reuters - FBI probes China's ZTE over Iran tech deals: report
9. Steptoe - More Trouble for ZTE
10. The Washington Post - Chinese telecom firm ZTE probed for alleged sale of U.S. surveillance
equipment to Iran
11. Zambia Reports - Corruption Concerns over ZTE's No-Bid Contract in Lusaka
12. WSJ - China Tech Giant Under Fire
13. Reuters - U.S lawmakers seek to block China ZTE U.S inroads
14. CRN - Chambers Shreds, Cisco Cuts Ties With ZTE
15. Reuters - ZTE confirms security hole in U.S phone
16. The Herald - Lagos, Abuja CCTV Scam and the ZTE Connection
17. Ghana Web - Are Ghanaian MPs worth mobile phones?
18. ZDNet - ZTE in Mongolia corruption probe
19. The Standard - Top ZTE staff held in bribery probe
20. China's ZTE denies getting illegal subsidy
21. Telegraph - EC ready to hit Chinese companies with sanctions over illegal subsidies
22. Zehabesha - Ethiopian inquiry points to illegal imports, possible corruption in deal
23. WSJ - Telecom Deal by China's ZTE in Ethiopia Faces Criticism
24. ABS CBN News - Norway's telco giant bans ZTE for 6 months
25. Lightreading - Telenor Bans ZTE From New Deals
26. BMI - Which way? To ban or not to ban - the reasons why
EXHIBIT A: Sourced Articles & Webpages
27. House Intelligence Committee Investigative Report on the U.S. National Security Issues Posed by
Chinese Telecommunications Company ZTE
28. iRunway Analysis for Vringo: Complaints Against ZTE
29. Chinese Company, Subject of Congressional Scrutiny, Accused of Introducing Fatally Flawed
Equipment Into U.S. Market In Lawsuit
30. Customs Authorities to take action against ZTE on duty evasion
31. ZTE to compensate Nepal Telecom

ZTE$CORPORATION$(Zhongxing$Telecommunica9ons$Equipment)
ENFORCEMENT$AGENCY
Liberia:(A*orney(General(
Mongolia:(An23Corrup2on(Agency(of(Mongolia(
Algeria:(Ministry(of(Jus2ce
Philippines:(An2gra>(Tribunal
ENTITIES/INDIVIDUALS$INVOLVED
Zhongxing(Telecommunica2ons(Equipment(("ZTE")
ZTE(Corpora2on(("ZTE,"(the(fi>h(largest(telecom(equipment(maker(worldwide)
ZTE(Algérie
Huawei(Technologies(Co.,(Ltd.((a(private(company(wholly(owned(by(its(employees,(and(the(second3largest(maker(of
telecom(equipment(worldwide)
Huawei(Enterprises
Algérie(Télécom((the(state3owned(telecommunica2ons(company(of(Algeria)
Mohamed(Boukhari((former(CEO(of(Algérie(Télécom)
El(Hachemi(Belhamdi((CEO(of(Algérie(Télécom(from(August(2011(to(March(2012)
Mejdoub(Chani((also(Chami(Majdjoub,(an(Algerian3Luxembourg(businessman)
ZTE(USA
Chen(Zhibao((former(ZTE(employee(in(Algeria,(convicted(in(absen2a)
Dong(Tao((former(ZTE(employee(in(Algeria,(convicted(in(absen2a)
DESCRIPTION$OF$BUSINESS
Telecommunica2ons(hardware
CORPORATE$HEADQUARTERS
Shenzhen,(Guangdong,(China
NATIONALITY$OF$FOREIGN$OFFICIALS
Kenya
Uganda
Liberia
Zambia
Algeria
Nigeria
SUMMARY$OF$ALLEGATIONS
ZTE(is(under(increasing(pressure(following(years(of(allega2ons(of(large3scale(bribery(in(several(African(countries,(where
the(governments(are(figh2ng(back.(
Algeria
EXHIBIT B: Sourced Articles and Webpages Accessed Page 1
Source No. 1 January 30, 2014 at 2:33 PM EST
ZTE(established(an(office(in(Algeria(in(2002,(three(years(a>er(another(Chinese(company,(Huawei.(As(a(result(of(an
inves2ga2on(in(Luxembourg(into(corrup2on(in(connec2on(with(the(construc2on(of(a(highway(in(Algeria,(it(was
discovered(that(Mr.(Chani,(an(Algerian(businessman,(had(opened(offshore(bank(accounts(which(were(used(by(Huawei
and(ZTE(to(make(corrupt(payments(to(a(high3ranking(execu2ve(in(Algérie(Télécom,(Mr.(Boukhari,(in(compensa2on(for
services(rendered.(The(two(Chinese(companies(used(a(shell(company(in(the(Bri2sh(Virgin(Islands(to(transfer(up(to(USD
10(million(to(Mr.(Boukhari's(account.
Kenya
There(is(an(ongoing(inves2ga2on(into(the(August(2011(award(of(a(contract(for(development(of(Kenya's(digital
television(signal(distribu2on(network(to(the(Pan(African(Network(Group(of(China,(based(on(allega2ons(of(corrup2on
and(an23compe22ve(prac2ces(in(the(tender(process.(
Liberia
According(to(press(reports(in(February(2006,(Liberian(authori2es(indicted(ZTE's(Liberian(agent(for(allegedly(bribing
three(state(telecom(officials(at(the(Liberia(Telecommunica2ons(Corpora2on(in(order(to(secure(a(contract(with(the
government.(The(current(status(of(the(prosecu2on(is(unclear.
Nigeria
In(December(2011,(the(Nigerian(parliament(appointed(a(joint(commi*ee(of(police,(public(procurement,(debt
management(and(IT(officials(to(inves2gate(ZTE's(conduct(of(a(USD(470(million(contract(for(the(Na2onal
Communica2on(Security(System.(The(purpose(of(the(inves2ga2on(is(to(determine(whether(the(award(of(the(project(to
ZTE(conformed(to(due(process(guidelines(for(government(contracts,(and(whether(substandard(materials(were(used(by
ZTE(in(its(performance(of(the(contract.(The(Nigerian(government,(feeling(pressure(from(the(rise(of(terrorist(groups(on
Nigerian(soil,(had(entered(into(the(agreement(with(ZTE(to(install(a(Na2onal(Public(Service(Communica2on(System
(NPSCS),(including(closed(circuit(television(cameras,(in(the(Federal(Capital(Territories,(to(help(the(Nigerian(security
services(deal(with(the(threat,(par2cularly(from(Boko(Haram.(The(Nigerian(government(guaranteed(the(agreement(for
USD(399(million(to(enable(ZTE(to(obtain(loans(from(the(Chinese(government(for(the(project.
Long(before(these(allega2ons,(ques2ons(had(arisen(in(Nigeria(as(to(ZTE's(rela2onship(with(certain(government
officials,(and(the(Company's(obscure(prac2ces(in(Nigeria.(For(example,(a("factory"(to(build(consumer
telecommunica2ons(products(was(opened(only(briefly(in(2004,(apparently(for(sham(purposes,(with(ministerial(photo3
ops(and(workers(in(new(company(coveralls(who(were(paid(for(two(days'(work(and(sent(home,(with(one(sole(worker
remaining(at(the(empty(Maitana(facility.
Uganda
In(September(2011,(the(Ugandan(government(froze(a(USD(74(million(loan(from(the(Import(and(Export(Bank(of(China
("EXIM"),(pending(an(inves2ga2on(into(allega2ons(of(procurement(flaws(and(overpricing.(
Addi2onal(allega2ons(in(Uganda(involve(a(tender(by(Huawei(to(lay(fiber3op2c(cable(for(the(Ugandan(transmission
infrastructure(project,(based(on(a(USD(106(million(project(funded(with(a(loan(from(the(Export3Import(Bank(of(China.
This(project(has(been(suspended(due(to(allega2ons(of(inflated(costs(and(incorrect((substandard)(cables.
Zambia
A(contract(was(entered(into(between(the(government(of(Zambia(and(ZTE(and(Huawei(to(migrate(Zambian(networks

from(analogue(to(digital(broadcas2ng.(In(May(2012,(the(Zambian(Minister(of(Informa2on(and(Broadcas2ng,(Mr.
Shamenda,(led(a(delega2on(of(government(officials(to(visit(Huawei(and(ZTE(in(China,(which(was(paid(for(twice(over,(by
both(the(Zambian(government(and(the(two(Chinese(companies.(
In(September(2013,(the(Zambian(government(terminated(the(USD(210(million(closed(circuit(television(camera(contract
with(ZTE(because(of(the(alleged(corrup2on.(Zambia(es2mated(it(would(have(lost(USD(100(million(in(inflated(costs(had
the(contract(con2nued.(The(contract(was(reportedly(issued(by(senior(Zambian(government(officials(under(a(direct
agreement,(without(an(open(tender(procedure,(raising(suspicions(of(corrup2on.
RATIO$OF$IMPROPER$PAYMENTS$TO$BUSINESS$ADVANTAGE
HOW$CONDUCT$WAS$DISCOVERED
Algeria(
A(corrup2on(inves2ga2on(in(Luxembourg(related(to(the(construc2on(of(a(highway(connec2ng(the(eastern(and(western
por2ons(of(Algeria(revealed(that(Majdoub(Chani,(a(local(business(involved(in(the(highway(construc2on(scandal,(had
opened(offshore(bank(accounts(into(which(the(Chinese(businesses(deposited(their(commissions.
ENFORCEMENT$RESULT
Algeria
On(6(June(2012,(employees(of(both(Huawei(and(ZTE(were(convicted(of(bribery(related(to(telephone(company
contracts(in(Algeria(between(2003(and(2006.(The(men,(Mr.(Xiao(of(Huawei(and(Mr.(Chen(and(Mr.(Dong(of(ZTE,(were
sentenced(in(absen2a(to(ten(years(in(prison,(and(fined(USD(65,000,(in(a(case(concluded(in(Algiers(by(Judge(Derbouchi.
Mr.(Boukhari,(a(former(senior(official(with(Algérie(Télécom,(and(Mr.(Madjdoub,(a(businessman(who(also(holds
Luxembourg(ci2zenship,(were(found(guilty(of(money(laundering(and(mismanagement(and(received(sentences(of(18
years,(along(with(a(fine(of(USD(111,660,(plus(confisca2on(of(any(goods(or(wealth(acquired(during(the(period(in
ques2on.
Both(companies,(Huawei(and(ZTE,(were(fined,(and(have(been(debarred(from(bidding(on(public(contracts(in(Algeria(for
two(years.(It(is(the(first(2me(the(Algerian(government(has(ever(banned(a(company(from(public(tenders.(
Interna2onal(warrants(were(issued(for(the(arrest(of(the(three(Chinese(employees.
Zambia
The(Zambian(government(terminated(its(USD(210(million(contract(with(ZTE(as(a(result(of(the(allega2ons.
KEY$TAKEAWAYS
ZTE(is(under(increasing(pressure(following(years(of(allega2ons(of(large3scale(bribery(in(Algeria,(Kenya,(Liberia,
Mongolia,(Nigeria,(Philippines,(Uganda,(and(Zambia
RELATED$DOCUMENTS
CIPACO:("Liberia(:(Telecom(Bidders(in(Court(for('Illegal'(Contract"((17(February(2006)
IDG(News(Service:("Nigeria(inves2gates(ZTE(cybersecurity(contract"((9(December(2011)

Maghreb(Emergent:("Lourde(peine(de(prison(ferme(requise(contre(un(ex3(cadre(dirigeant(d'Algérie(Télécom"((24(May
2012)
Info(Algerie:("Medjdoub(et(Boukhari(condamnés(à(18(ans(de(prison(ferme:(Affaire(opposant(Algérie(télécom(aux(sociés
chinoises(zte(et(huawei"((7(June(2012)
Channel(News:("ZTE(et(Huawei(condamnés(en(Algérie(pour(corrup2on"((8(June(2012)
ZD(Net:("Huawei(et(ZTE(condamnés(pour(corrup2on(en(Algerie"((12(June(2012)
Global(Times:("Telecom(execu2ves(convicted(of(bribery"((12(June(2012)
Financial(Times:("ZTE(faces(Mongolia(corrup2on(probe"((12(April(2013)
All(Africa:("Zambian(Terminates(Ksh.(18.4(Billion(ZTE(Contract(Over(Corrup2on(Allega2ons"((11(September(2013)
CASE$CATEGORIES
Domes2c(Bribery(Enforcement(of(Foreign(En22es(3(Formal(Proceedings
Transporta2on/Communica2ons
©(2014(TRACE(Interna2onal,(Inc.

Philippine National Broadband Network controversy 1
Philippine National Broadband Network

controversy
The Philippine National Broadband Network controversy (also referred to as the NBN/ZTE deal or NBN/ZTE
mess) involved allegations of corruption in the awarding of a US$329 million construction contract to Chinese
telecommunications firm ZTE for the proposed government-managed National Broadband Network (NBN).
The contract with ZTE was signed on April 20, 2007 in Hainan, China. Following the emergence of irregularities,
President Gloria Macapagal-Arroyo cancelled the National Broadband Network project in October 2007. On July 14,
2008, the Supreme Court dismissed all three petitions questioning the constitutionality of the national broadband
deal, saying the petitions became moot when the project was cancelled.
History
Background
In April 2007, Philippine Department of Transportation and
Communications (DOTC) Secretary Leandro Mendoza and ZTE Vice
President Yu Yong entered into a US$329.5 million contract for a
National Broadband Network (NBN) that would improve government
communications capabilities.
On August 29, Nueva Vizcaya Congressman Carlos Padilla hinted in a
privilege speech that Commission on Elections (COMELEC)
Chairman Benjamin Abalos went to China to broker a deal for the
NBN project. The following day, Abalos denied brokering for the
NBN project, although he did admit going to China four times.
On September 5, Senator Aquilino Pimentel called for a Senate
investigation about the NBN project. As a result, three committees held
joint hearings about the issue: the Accountability of Public Officers &
Investigations (aka the Blue Ribbon Committee) headed by Alan Peter
Cayetano, the National Defense and Security committee headed by
Rodolfo Biazon and the Trade and Commerce committee headed by
Mar Roxas. President Arroyo
Senate investigations
De Venecia's testimony
Jose "Joey" de Venecia III, son of House Speaker Jose de Venecia, Jr., testified on September 10 that he was with
Abalos in China and that he heard Abalos "demand money" from ZTE officials. The younger de Venecia was
president of Amsterdam Holdings, the company that lost its bid to ZTE for the NBN project.
On September 11, the Supreme Court of the Philippines promulgated a temporary restraining order (TRO) on the
$329-million national broadband network (NBN) contract between the Philippine government and China's ZTE
based on separate certiorari suits filed by Iloilo Vice-Governor and former Representative Rolex Suplico and Joey de
Venecia III. Under political pressure from the opposition group, the court gave ZTE fifteen days to comment on the
injunction. Suplico, a former opposition congressman, alleged that the agreement was sealed without public bidding

and violated the Telecoms Policy Act, which required privatization of all telecommunications facilities.
Congressman Padilla sued DOTC and ZTE officials of violating the Anti-Graft and Corrupt Practices Act, the
Telecommunications Policy Act, the Build-Operate-Transfer (BOT) Act and the Government Procurement Act at the
Office of the Ombudsman. AHI also petitioned the Court to direct the DOTC to provide copies of the contract, since
it should have won the same.[1] The younger de Venecia testified on September 18 that Mike Arroyo, President
Gloria Macapagal-Arroyo's husband, personally told him to "back off" from pursuing the NBN project.
Neri's testimony
On the September 20 Senate hearing, Cabinet officials attended the hearing except for former National Economic
and Development Authority (NEDA) Chairman (now Commission on Higher Education Chairman) Romulo Neri,
who was sick. On September 22, 2007, president Arroyo suspended the broadband contract with ZTE after the
bribery scandal sparked major problems in her government.[2]
Neri and Abalos finally faced each other on the September 26 Senate hearing; Neri testified that Abalos told him
"Sec, may 200 ka dito (You have 200M pesos in this deal)" while playing golf at Wack Wack Golf Club; they had
been discussing the ZTE deal at that time. Abalos denied making the apparent bribe attempt. Neri later invoked
executive privilege in response to some Senators' questions. He later shunned succeeding Senate hearings still citing
executive privilege
On September 27, 2007, ZTE petitioned the Supreme Court to lift the TRO alleging, in its urgent omnibus motion,
inter alia, that the injunction cost the company millions.[3]
Abalos announced his resignation as COMELEC chairman on October 1; Resurreccion Borra succeeded him as
COMELEC chairman. President Arroyo on her October 2 trip to China, said to Chinese President Hu Jintao her
"difficult decision" to cancel ZTE Corp.'s contract for the NBN project.
On May 26, 2008, a Supreme Court decision (Neri vs. Senate) nullified the citation of contempt against Neri, ruling
that conversations between Neri and President Arroyo are considered classified information. [4]
Lozada's kidnapping and testimony

On January 30, 2008, the Senate produced warrants of arrest to Neri and Rodolfo "Jun" Lozada, Jr., former chief
executive officer of the government-run Philippine Forest Corporation and a consultant of the NEDA. Neri then went
into hiding while Lozada skipped the Senate hearing and went to Hong Kong.[5] Meanwhile, House Speaker de
Venecia lost a motion of confidence vote on February 5, which unseated him as House Speaker; his partymate at
Lakas-CMD, Prospero Nograles of Davao City, succeeded him as speaker.
On February 5, as the Senate arresting team waited on the Ninoy Aquino International Airport (NAIA) on Lozada's
arrival,[6] Lozada was taken by unidentified people "out of town" and Lozada's kin appealed for help on his
whereabouts.[7] On February 7, Lozada finally surfaced as police took him to La Salle Green Hills, Mandaluyong
City. Lozada linked Mike Arroyo and Abalos to the ZTE scandal.[8] On the same day, the Supreme Court stopped the
Senate from arresting Neri, ordering a status quo; Neri then resurfaced after the threat of arrest was taken off.[9]
The next day, on a Philippine Senate hearing, Lozada confirmed his NEDA boss Romulo Neri's testimony that
Commission on Elections (COMELEC) chairman Benjamin Abalos and Arroyo's husband Mike Arroyo were behind
the kickbacks in the deal. Lozada's statement was made after he was "abducted" on the orders of Department of
Environment and Natural Resources (DENR) secretary Lito Atienza, Neri, former Presidential Management Staff
head Michael Defensor, Secretary for Special Concerns Remedios Poblador and Deputy Executive Secretary Manuel
Gaite.[10]
On February 11, upon continuation of Senate hearings, the government denied on kidnapping Lozada. Lozada
claimed he was driven around Metro Manila and even reached Los Baños, Laguna, before he was transported to the
La Salle Green Hills seminary. According to DENR Secretary Atienza, Lozada, who is his boss as the Philippine
Forest Corp. is under the DENR, asked for his help as "he feared for his life" as he returned from Hong Kong. Joey

de Venecia later claimed that ZTE advanced USD 1 million to Abalos; senators pointed out that this qualifies as
"plunder" under Philippine criminal law since the advance was given when the foreign exchange was at about PHP
50 to $1, thus equaling the PHP 50 million floor for plunder.[11]
Deputy Executive Secretary Manuel Gaite appeared on the February 26 hearing. He had previously said that the
P500,000 he gave to Lozada's brother was for Lozada's expenses while staying at Hong Kong. Gaite said he "can't
rationally justify" the reason why he gave Lozada the hefty amount. He said that his action "was moved by my
conscience and my faith." Lozada earlier claimed that the P500,000 was a bribe.[12]
The Philippine Court of Appeals dismissed Jun Lozada's writ of amparo petition for lack of evidence on his claim
that there were threats to his life and security.[13] On September 23, 2008, Lozada asked the Supreme Court of the
Philippines to re-open and reconsider his case, thereby arguing for the protection of his siblings, Violeta and
Arturo.[14]
Countersuit
Mike Defensor, on July 4, 2008 filed a 6-page perjury lawsuit Friday versus Rodolfo Noel Lozada for "testifying
under oath that he had paid Lozada P 50,000 to change his statement that he was not kidnapped at the Ninoy Aquino
International Airport (NAIA) when he arrived from Hong Kong at the height of the Philippine National Broadband
Network controversy (ZTE Zhong Xing Telecommunication Equipment Company Limited scandal)."[15]
Madriaga testimony
Also on the February 26 hearing, Dante Madriaga, a ZTE-employed engineer, claimed that USD 41 million was
sought as "advances". ZTE then withheld more money, saying they needed to see President Arroyo's face at the
signing of the contract.
Ombudsman cases
The Ombudsman Ma. Merceditas N. Gutierrez subpoenaed First Gentleman Mike Arroyo, Neri, the de Venecias and
Abalos to hear their side of the story. The case was filed by former vice president Teofisto Guingona, Jr., several
lawyers, Fr. Jose Dizon and party-list Representatives Joel Villanueva and Ana Theresia Hontiveros-Baraquel,
among others.[16]
Judgment
President Arroyo decided to cancel the National Broadband Network project on October 2, 2007 in a meeting with
Chinese President Hu Jintao. On July 14, 2008, the Supreme Court dismissed all three petitions questioning the
constitutionality of the national broadband deal, saying the petitions became moot when President Arroyo decided to
cancel the project.
Reactions
Following the testimony of Jun Lozada, several sectors and prominent people such as Joey de Venecia and Senator
Panfilo Lacson have called for President Arroyo's resignation, while Senate President Manuel Villar and senator
Alan Peter Cayetano called for her to take a leave of absence. Vice President Noli de Castro has said that President
Arroyo and other government officials "should be charged" if they would be found directly involved in the alleged
anomalies.
The Catholic Bishops' Conference of the Philippines called an emergency meeting on February 25, 2007 wherein
they formed a collective stance which refused to call for Arroyo's resignation, instead calling on her to be part of a
"moral reform process".

On February 29, 2008, a rally was held in the Makati City central business district to protest corruption and call for
the resignation of President Arroyo. The rally's attendees, which included former Presidents Corazon Aquino and
Joseph Estrada, were estimated by police and rally organizers to be around 15,000 people.
References
[1] ABS-CBN Interactive, Supreme Court issues TRO on NBN deal (http:/ / www. abs-cbnnews. com/ topofthehour. aspx?StoryId=91959)
[2] Reuters, Arroyo suspends telecoms deal with Chinese firm (http:/ / in. reuters. com/ article/ worldNews/ idINIndia-29667620070922)
[3] ABS-CBN Interactive, ZTE asks SC to lift TRO (http:/ / www. abs-cbnnews. com/ topofthehour. aspx?StoryId=94151)
[4] supremecourt.gov.ph/jurisprudence, Summary of Voting (http:/ / www. supremecourt. gov. ph/ jurisprudence/ 2008/ march2008/
180643_summary. htm)
[5] Arrest order out for ZTE witnesses Neri, Lozada (http:/ / www. gmanews. tv/ story/ 78614/
Arrest-order-out-for-ZTE-witnesses-Neri-Lozada), GMA News
[6] Senate arresting team awaits Lozada's arrival at NAIA (http:/ / www. gmanews. tv/ story/ 79366/
Senate-arresting-team-awaits-Lozadas-arrival-at-NAIA), GMA News
[7] Missing ZTE witness taken out of town; Lozada kin asks for help (http:/ / www. gmanews. tv/ story/ 79389/
-Missing-ZTE-witness-taken-out-of-town-Lozada-kin-asks-for-help)
[8] Lozada finally surfaces, links Abalos, Big Mike to ZTE mess (http:/ / www. gmanews. tv/ story/ 79580/
Lozada-finally-surfaces-links-Abalos-Big-Mike-to-ZTE-mess)
[9] High Court stops Senate from arresting ZTE witness Neri (http:/ / www. gmanews. tv/ story/ 79331/
High-Court-stops-Senate-from-arresting-ZTE-witness-Neri)
[10] Lozada links First Gentleman, Abalos to NBN deal (http:/ / newsinfo. inquirer. net/ breakingnews/ nation/ view/ 20080208-117553/
UPDATE-7-Lozada-links-First-Gentleman-Abalos-to-NBN-deal) by Veronica Uy, Inquirer.net
[11] ‘ZTE advanced $1M to Abalos’--De Venecia III (http:/ / newsinfo. inquirer. net/ breakingnews/ nation/ view/ 20080211-118085/
UPDATE-12-ZTE-advanced-1M-to-Abalos--De-Venecia-III) By Veronica Uy, Philippine Daily Inquirer.
[12] Gaite: I can't rationally justify giving P500,000 to Lozada (http:/ / www. gmanews. tv/ story/ 82247/
Gaite-I-cant-rationally-justify-giving-P500000-to-Lozada), GMA News.
[13] inquirer.net, Lozada to go to SC to appeal ‘amparo’ petition (http:/ / newsinfo. inquirer. net/ breakingnews/ nation/ view/ 20080918-161379/
Lozada-to-go-to-SC-to-appeal-amparo-petition)
[14] gmanews.tv, Lozada asks High Court to reopen amparo petition (http:/ / www. gmanews. tv/ story/ 122286/
Lozada-asks-High-Court-to-reopen-amparo-petition)
[15] abs-cbnnews.com, Defensor files perjury raps vs Lozada (http:/ / www. abs-cbnnews. com/ storypage. aspx?StoryID=124144)
[16] Ombudsman subpoenas Mike Arroyo, 4 others in ZTE mess - report (http:/ / www. gmanews. tv/ story/ 80728/
Ombudsman-subpoenas-Mike-Arroyo-4-others-in-ZTE-mess---report), GMA News.
External links
• Related policy papers and NBN contract review at [[Action For Economic Reforms (http://www.aer.ph/index.
php?option=com_content&task=blogcategory&id=90&Itemid=91)] website]
• De Venecia son’s team claims overprice in NBN deal - Experts report P8-B discrepancy (http://newsinfo.
inquirer.net/breakingnews/nation/view/20080123-114176/
De-Venecia-sons-team-claims-overprice-in-NBN-deal), Inquirer.net
• The Madriaga file on broadband deal (http://pastebin.com/f7630c0df)
• Derivation of the ZTE scandal $329 Million 'BUKOL' (http://www.file-post.com/view_file.php?id=262), The
so-called dissection of $329 Million
• abs-cbnnews.com, The limits of executive privilege, By JUSTICE ANTONIO CARPIO (http://www.
abs-cbnnews.com/storypage.aspx?StoryID=113362)
• newsbreak.com.ph, TIMELINE: Exposing the ZTE Overprice, 07 February 2008 (http://www.newsbreak.com.
ph/index.php?option=com_content&task=view&id=4155&Itemid=88889366&ed=34)

Article Sources and Contributors 5
Article Sources and Contributors

Philippine National Broadband Network controversy Source: http://en.wikipedia.org/w/index.php?oldid=587249866 Contributors: AK456, Alan Liefting, Alexius08, BD2412, Bacierra,
Blabberhand, Blakegripling ph, Bloodpack, Bluezy, Bulhis899, Cirkero, DandyDan2007, DeadEyeArrow, Diannaa, E Wing, Florentino floro, Freakish3213, GlassCobra, Handtell, Howard the
Duck, Hugo999, Jdc944, Jjs gigantor, Joseph Solis in Australia, Kamuixtv, Khazar2, Klmn55, Lenticel, Mfo7787, Nuttycoconut, Ortizra, Philippinepresidency, RHaworth, Researcher1982,
Rizalninoynapoleon, SMC, Seav, Tassedethe, TheCoffee, Vivafilipinas, Woohookitty, Yellowdesk, 56 anonymous edits
Image Sources, Licenses and Contributors

Image:Gloria Macapagal-Arroyo, Davos.jpg Source: http://en.wikipedia.org/w/index.php?title=File:Gloria_Macapagal-Arroyo,_Davos.jpg License: Creative Commons Attribution-Sharealike
2.0 Contributors: World Economic Forum from Cologny, Switzerland
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Thu | 01/30/2014 05:05am | Forex: $1: 45.205
FOLLOW US:
Enough proof of fraud to jail ZTE contractors

GOTCHA By Jarius Bondoc | Updated February 25, 2008 - 12:00am
0 0 googleplus 0 0 Like 0
This week senators will probe further Malacañang’s efforts to silence ZTE-scam witness Jun Lozada, including a P500,000 gift from top official. A sidelight would be
affirmations by two senators’ aides that Sec. Romy Neri did call his President Gloria Arroyo evil thrice during a meeting in Dec. All dramatic stuff, fit for live TV
coverage. But after that senators would have to comb tediously the details of the $330-million telecom contract to see where the $200-million overpricing is. And then,
after reviewing similar Chinese-funded projects, they need to study the big picture of why China became so generous when Malacañang acceded to joint exploration of
the Spratlys and even the country’s continental shelf.
Already whistleblower Joey de Venecia has submitted an analysis of ZTE Corp.’s prices for Equipment, $194,051,628, and Services, $135,429,313. Citing open
industry figures, he swore that Equipment should be only $96,078,246, and Services, $36,733,786. In effect, there was overpricing of $196,668,909, that is
$329,480,941 minus $132,812,032 (Gotcha, 23 Jan. 2008). From outside the Senate halls, ZTE protested de Venecia’s figures, but refused to sit in the hearings it
called a “political circus.” It also went on invoking confidentiality of proprietary information in hiding the details that the Filipino people would have had to pay.
Unfortunately for the Chinese firm, senators already gave out copies to media outlets, which in turn posted these in websites.
If a confidential source of mine finally finds courage to testify, worse overpricing will unravel. He was a technical man of the Filipino lobbyists for ZTE, so was privy to
the specifications and unit costs. From his files he has recalled only $69,083,643 for Equipment and $29,498,000 for Services, for a total of $98,581,643 (Gotcha, 28
Jan. 2008). So the overpricing in the final contract was $230,899,298; or $329,480,941 minus $98,581,643. The source also has a lot to say about how much the
lobbyists got from ZTE bribers from late 2006 to early 2007, in effect showing consummated graft.
Still another source, also in telecoms, showed how at least one item in Equipment was overpriced (Gotcha, 18 Feb. 2008). He must stay anonymous for now because
of a quaint relationship to an official linked to the contract. But he zeroed in on ZTE’s price of $1,784 for 25,844 WiMax subscriber units, for a total of $46,107,524. This
is for BreezeMAX PRO CPE Outdoor Radio Unit, made by Israel’s Alvarion, a leading maker of WiMax solutions. The source pointed out that a leading competing
brand, Proxim Tsunami MP.16 3500 Subscriber Station with Integrated 18 dBi Panel Antenna, could be ordered online for $579.99 apiece. (Senators may check out the
link: http://www.wirelessnetworkproducts.com/index.asp?PageAction=VIEWPROD&ProdID=1404). Using the competitive price of $580 and assuming that ZTE doubled
it for profit (100-percent markup in telecoms very rare in highly competitive IT industry), the source found overpricing of $16 million in the hardware. He unearthed
another sting of $19 million in installation, testing and commissioning of the WiMax gadgets. This, from ZTE’S price of $1,000 for each of the 25,844 sites, or
$25,844,000s, when the going rate is only $250 tops per location, or a total of $6.5 million for 25,844 locations.
Still one more telecom source since Apr. (the one whose e-mail vile eavesdroppers had cloned), researched the Alvarion model stated in ZTE’s annexes. He noted that
it is vintage 2004. Meaning, it does not capable of beaming signals up to 30 kilometers, contrary to claims of USec Lorenzo Formoso at the Senate. Moreover, the same
model is not optimized to carry Voice over Internet Protocol (VoIP) traffic, again contrary to Formoso’s blabber. Meaning, the national broadband network would never
have worked as intended, but end up as another white elephant like the Bataan nuke plant.
Lastly, a NEDA insider pointed out overpricing in the Services side (Gotcha, 20 Feb. 2008. Citing government procedures, the source defined the contract as “design-
build” under the Federation of International Consulting Engineers. Then citing NEDA rules, the source further stated that detailed engineering design should not exceed
six percent, and construction supervision ten percent, or a total of 16 percent, of Equipment cost. Yet in the ZTE contract. the Services cost of $135,429,313 was 70
percent of the Equipment cost of $194,051,628. It was also 41 percent of the total contract price of $329,480,941.
The same NEDA source noticed many procedures breached, and requirements not attached to the ZTE contract (Gotcha, 22 Feb. 2008). These instances constitute
graft, for entering into a transaction grossly and manifestly disadvantageous to public interest.
***
The National Telecommunications Commission should look into the user of these numbers: 0916-3949807, 0915-4127945, 0916-4129034. During the 2007
congressional-local elections, those numbers were used in text brigades to malign candidates of the Opposition. After that, they were used to badmouth ZTE-scam
whistleblowers Joey de Venecia and Jun Lozada. Last week it was used to spread the canard that Vice President Noli de Castro had bought a P200-million mansion for
a supposed mistress.
The pattern gives the NTC a clue on who the cell phone menace is.
* * *
E-mail: jariusbondoc@workmail.com

Source No. 3 January 30, 2014 at 2:14 PM1
Back to previous page
Chinese company
ensnared in kickback
scandal in Philippines
By Andrew Higgins, Published: June 24,
2012
MANILA — After a tense showdown over a disputed
shoal in the South China Sea, the closest U.S. ally in
Southeast Asia and a rising China now face a new
source of potential friction over the alleged corrupt
practices of a well-connected Chinese corporation.
At the center of a case before the Philippine anti-graft tribunal is Zhongxing Telecommunications Equipment,
or ZTE, a state-linked manufacturing giant that sells communications gear in more than 140 countries. The
company is not on trial, but its alleged payment of tens of millions of dollars in kickbacks in connection with
a 2007 contract has led to graft charges against former president Gloria Magacapal-Arroyo, her husband and
two other former senior officials. All deny any wrongdoing.
The criminal prosecution, which follows a lengthy investigation into ZTE’s business practices by the
Philippine Senate, puts a spotlight on the role played by Chinese companies in extending China’s economic
reach around the world but also in straining Beijing’s doctrine of noninterference in the affairs of other states.
While insisting that it does not meddle in foreign lands, China keeps getting dragged deep into the affairs of
other countries by the pursuit of profit by corporations controlled by or closely tied to the state.
ZTE is also under scrutiny in Washington, where the House intelligence committee is investigating whether it
and another large Chinese company, Huawei Technologies, pose a threat to national security through their
equipment sales in the United States. In a letter sent this month to the company’s American subsidiary, ZTE
USA, the intelligence committee’s chairman, Republican Rep. Mike Rogers (Mich.), and ranking Democrat,
C.A. Dutch Ruppersberger (Md.), asked about ZTE’s “interactions” with China’s ruling Communist Party
and various government bodies and posed a blunt question about its contract in the Philippines: “Did ZTE
provide any kickbacks?”
Mitchell Peterson, a spokesman for ZTE in the United States, said the company will be “transparent, candid
and cooperative” with the intelligence committee’s inquiry.
The inquiries into the giant Chinese telecommunications company are only the latest to find China and its
state-linked firms in the center of foreign business disputes that have created headaches for Chinese
diplomacy.

In the North African state of Algeria, a recent corruption case involving ZTE has dented China’s reputation in
a country that had been one of its keenest supporters on the continent. ZTE has also come under criticism for
equipment sales to Iran that opponents of the Islamic regime say allow authorities in Tehran to monitor the
phone and Internet communications of dissidents.
The Nigerian government, meanwhile, is investigating a $470 million contract awarded to ZTE, complicating
China’s efforts to woo Africa’s biggest oil producer.
And in another resource-rich area of Africa, the oil interests of the state-owned China National Petroleum
Corp., or CNPC, and the company’s close ties to Sudanese President Omar Hassan al-Bashir, an indicted war
crimes suspect, have pushed Beijing into the middle of a venomous and often violent feud between Sudan
and the newly established Republic of South Sudan, which seceded last summer.
Ex-election official charged
In the Philippines, among those charged with graft is Benjamin Abalos Sr., the former head of the Election
Commission. According to testimony during hearings by the Philippine Senate, Abalos took large kickbacks
from ZTE in connection with a contract for the construction of a broadband network and fed some
$30 million into the campaign coffers of Philippine politicians ahead of a 2007 election.
His Manila attorney, Gabby Villareal, said Abalos “categorically denies receiving any money” from ZTE.
Claims that he did, the attorney said, are just hearsay.
Teddy Casino, a member of the Philippine Congress who initiated the current prosecution by filing a
complaint in the fall, said he does not believe ZTE was trying to buy votes. But Casino said he does think
that, through the payment of bribes, the company did unwittingly taint the electoral process.
“This is a serious matter,” he said, adding that Chinese money should “stay away from our politics.”
Casino is a member of Bayan Muna, a left-wing political group that has for years railed against interference
in Philippine affairs by the country’s former colonial master, the United States, which until 1991 had a large
naval facility and an air force base here. Casino still considers the United States — which is bound closely to
the Philippines by a 1951 mutual defense treaty — to be a menace, but he now sees China in much the same
way.
“They are both bullies,” he said.
In a written response to questions about its alleged illicit payments, ZTE did not address specific allegations
raised in the Philippines but said that “abiding by Chinese and local laws is a basic principle that ZTE has
always followed.” The company had no comment on the conviction in absentia this month by a court in
Algeria of two ZTE executives found guilty of “influence peddling” through the payment of illegal
commissions.
ZTE, which has nearly 90,000 employees and last year ranked as the world’s fourth-biggest maker of mobile
phones, has issued shares on stock markets in Hong Kong and nearby Shenzhen. It denies being state-
controlled and describes itself as an “independent company.” Its biggest shareholder, however, is a state-
dominated entity, as are at least seven of its other 10 largest shareholders. It won its 2007 broadband network
contract in the Philippines after China’s then-commerce minister, Bo Xilai, helped arrange a low-interest loan
from a Chinese state bank to finance the deal, which was subsequently canceled. Bo, who went on to become
Communist Party chief in Chongqing, was purged this year for unspecified “serious violations of discipline.”
‘Typical’ deal
When rumors of ZTE kickbacks began to surface and triggered a political storm in the Philippines, the U.S.
Embassy in Manila in 2008 sent a cable to Washington reporting that “the ZTE case is typical of the deals
that China reportedly uses worldwide to make friends and buy influence.” Unlike institutions such as the
World Bank, according to the cable, which was later made public by WikiLeaks, “China does not link its aid
to issues such as good governance, rule of law, or respect for human rights. Public skepticism and scrutiny
have underlined shortcomings in China’s soft power efforts.”
A witness list drawn up recently for the trial here at a special anti-graft court known as Sandiganbayan
includes two Chinese executives involved in the since-aborted ZTE contract for a broadband network to link
government offices. ZTE’s head office in Shenzhen said neither person now works for the company but
declined to say when they left or why.
The saga has shadowed efforts to resolve a potentially explosive dispute over the South China Sea, where a
recent maritime flare-up at Scarborough Shoal led China to restrict imports of Philippine bananas, ostensibly
for health reasons, and even raised fears of armed conflict.
President Benigno Aquino III, who took office in 2010, has made the fight against corruption a cornerstone of
his administration, vowing to end a culture of impunity that is widely blamed for making the Philippines the
economic laggard in an otherwise booming region.
His battle, however, has added to friction with China, an economic powerhouse that his predecessor, Arroyo,
often bent over backwards to please. Her government signed a raft of big-ticket business deals with mostly
state Chinese companies and, in a bid to reduce tensions in the South China Sea, also agreed to a program of
joint seismic surveys of waters believed to be rich in oil and natural gas. The joint surveys triggered outrage
here because they covered Philippine territory that is not claimed by China and, according to Arroyo’s critics,
thus undermined Philippine sovereignty.
Politicians and media commentators have linked the now lapsed seismic-survey deal to alleged Chinese
kickbacks, accusing Arroyo’s government of selling sovereignty in return for cash. “In short, it was territory
in exchange for pay-offs,” said a columnist recently in the Manila Standard Today newspaper.
Speaking to Washington Post editors and reporters recently in Washington, Aquino denied wanting to cool
relations with China and put an end to the ardor of the Arroyo years.
“We have set out to enhance the relationship,” he said, dismissing as “unfair” a suggestion that he took office
determined to reverse Arroyo’s push for close economic and diplomatic ties with Beijing.
He acknowledged, however, that China has perhaps been upset by investigations into various business deals
involving powerful Chinese companies. Beijing seems to have been angered most, he said, by his
government’s suspension of a railway project for which China had offered more than $500 million in soft
loans. This project, known as NorthRail, has also been mired in allegations of corruption.
But it is the ZTE affair that has attracted the most attention, thanks to intense media interest after Senate
hearings that featured detailed testimony of illicit payments.
Jose De Venecia, a businessman who first blew the whistle on alleged kickbacks, said in an interview that his
own company, Amsterdam Holdings, had proposed building a broadband network linking government offices
in 2006 and offered to do it for $130 million. ZTE later proposed doing the same for $329 million and got the
contract.
“I put two and two together — they were overpricing to pay so-called advances,” said De Venecia, recalling a
December 2006 meeting he attended with ZTE executives and the then-head of the Philippine Election
Commission in Shenzhen. The meeting, he said, revolved around discussion of kickbacks.
De Venecia, whose father served for more than a decade as speaker of the Philippine House of
Representatives and had close ties with Chinese leaders, puts most of the blame for the broadband fiasco on
officials in Manila, saying that China merely got sucked into local shenanigans by its determination to win
the contract.
“Officials here were trying to extort money from ZTE. Unfortunately, ZTE was willing to participate,” De
Venecia said. “ZTE is a company we will all remember.”
More world news coverage: - U.S. welcomes defection of Syrian pilot - Son of Mexico’s ‘El Chapo’ arrested
- Pakistan party picks nominee for PM - Read more headlines from around the world
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Aug 9 dismissed allegation that its officials were
involved in forging of a Union minister's letter to అ$ం&'() *ఎం ర-.,
get visas for its employees. /ల12న 45దం
The CBI has on Aug 8 registered a case of alleged

forging of the letter head of the then Minister of Kerala
ಕನ#ಡ
state for Home Ajay Maken to create a draft letter announces
addressed to Prime Minister. ZTE has been accused
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State for Youth Affairs and Sports, the agency has
ஏ ஆ&
booked arms dealer Abhishek Verma and unnamed
officials of Ganton and its Indian subsidiary Ganton
India alongwith ZTE.
Praful Patel
CBI spokesperson Dharini Mishra has said, "It was '(கதாைச கல.க ைவ0த
approves
alleged in the complaint that the accused had Modi's clean க1ப3 கழக1!
forged the Minister's letter-head and used the same chit
to create a letter with the objective of obtaining বাংলা
visas for the employees of a foreign company."
The CBI has found that Maken's purported letter

was part of alleged dealings between Verma's front MPs to have
company Ganton and ZTE Telecom working closely special
with the state-run companies MTNL and BSNL. facilities on
flight
The letter had requested the Prime Minister "to বাংলােদেশ িবিনেয়ােগ রািজ ভারত,
বলেলন িশlম2ী
take a reasoned view" on the visa issue as there
were around "60,000 such personnel on business
visa" working in various projects. ગ"જરાતી
TSD chief
"All visas issued to ZTE employees are being issued applies for
by Indian Government only after complying with VRS Pics : શ)લનનો આરોપ, /01 શરીર
procedural laws of the country. There is no સ3બ3ધ બ6ધવા ક9"3...

agreement signed by ZTE for procuring visas for
ZTE employees," ZTE statement added.
PTI
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Print Close
Huawei, ZTE banned from Algeria

Juha Saarinen | Jun 14, 2012 12:35 PM
Bribery case unfolds.
Chinese networking vendors Huawei and ZTE have been banned from tendering for Print Close
public telco contracts for two years in the North African country of Algeria, after a
bribery scandal involving executives from both companies erupted this week.
An Algerian court this week found two ZTE employees and a Huawei staffer guilty of
delivering $US10 million in bribes to a former executive of state-owned Algeria
Telecom, Mohamed Bukhari, between 2003 and 2006.
International arrest warrants have been issued for the vendors' employees, which each
receiving ten-year prison sentences under Algerian law. However, it remains uncertain
whether China will extradite them to Algeria.
The prosecutor had asked for a higher, five million dinar or $65,000 fines against
Huawei and ZTE, and also the seizure of the two companies’ property.
Instead, the companies will be banned from participating in any public tender
opportunities for telecommunications equipment in Algeria for two years.
According to Algerian reports, this is the first time the country has ever banned
companies from public tenders.
Huawei has similarly been banned from participating in government telco tenders in
Australia under advice from ASIO.
The companies denied participation in the bribery scandal, pleading they were victims
of the fraud perpetrated by the executives now on the run.
Bukhari claimed the bribes, which also included an offer to study economics, came as
part of his job as a communications adviser to the telco, with decision-making power
for the company's chief executive.
"I only wanted a bit of extra money,” he said, according to a report in Le Soir d’Algerie.
The funds were channelled through offshore companies created in Luxembourg and
through the British Virgin Islands
Bukhari and Luxembourg-based businessman Chami Medjdoub each received 18

years in prison and fines of five million dinars ($65,000). Medjdoub’s assets and bank

accounts were also seized by the court.
European woes
The two Chinese companies have continued to face scrutiny over their business
practices elsewhere.
In May this year, European Union officials informed its member states at a private
meeting in Brussels of evidence Huawei and ZTE had enjoyed government subsidies.
Both companies have denied the claim.
The EU could impose tariffs against Huawei and ZTE for dumping wireless network
components in Europe below cost, something Swedish trade minister Ewa Björling
said could lead to retaliation from China.
Huawei and ZTE’s combined market share of EU wireless equipment – at 30 percent –

remains dwarfed by the 45 percent market share owned by European companies in
the region. Björling warned that if China was to hit back because of EU sanctions, it
would hurt European companies proportionally more.
Swedish telco vendor Ericsson echoed Björling’s fears, saying punitive import tariffs
could be imposed on the company.
Rather than sanctions and tariffs, Björling said the European Union should start talks
with China and the United States to come up with guidelines for state-supported export
credits and financing.
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Executives from Chinese telecommunications hardware Huawei and ZTE

have been sentenced to ten years in jail in Algeria on charges of
corruption.
ZTE's Dong Tao and Chen Zhibo, and Huawei's Xiao Chuhfa were all
sentenced in absentia by an Algerian court on Wednesday morning,
according to a report on French language news site, Le Soir D'Algerie.
The two companies have been banned from public sector contracts in
Featured Report Events
the country and each fined 3 million Algerian dinar (£25,000).

The three Chinese executives were accused of paying a $10 million bribe
How To Guide:
to Mohamed Boukhari, a former executive at Algérie Télécom, via
offshore accounts in Luxembourg. Data Governance
Boukhari told the Algerian court that he used to work as a

communications advisor to the CEO of Algeria Telecom, and to the
Algerian Department of Telecommunications before that.
"I knew the leaders of the two Chinese companies in 2003, as part of my
job," Le Soir reports Boukhari as saying, (translated via Google). "They
invited me to a party, during which they offered to help by making
prospective studies in the economic field. I accepted and I do not see
how this is illegal. I had no decision making power to help them win
contracts. I wanted a little extra money."
International arrests warrants have been issued for all three executives.
A ZTE spokesperson commented on the sentence, saying: "We are

reviewing the local court's decision and we don't have any further
comments for the time being."
“We take this matter very seriously and we are currently reviewing the
court’s decision," Huawei said.
The news comes two months after Huawei was banned from Australia's
national broadband project over Australian national security concerns.
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FBI probes China's ZTE over Iran tech deals: report

Fri, Jul 13 2012
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.
According to the affidavit, Yablon told two FBI agents that ZTE officials had discussed shredding documents, altering the packing list
and denying it was genuine in an effort to subvert a Department of Commerce investigation into ZTE's sales of U.S. equipment to
Iran.
The Commerce Department issued a subpoena to ZTE the day after the Reuters report, seeking the Iranian contract and the
packing list, according to the affidavit.
SKIRTING SANCTIONS
The affidavit stated that Yablon told the FBI that a ZTE attorney had told him the company "was concerned about how the Reuters
reporter obtained a copy of the packing list ... because it could no longer ‘hide anything.'" Yablon said he told the attorney "he would
not be involved in a cover-up".
Yablon stated he later saw a copy of the Iranian contract that "essentially described how ZTE would evade the U.S. embargo and
obtain the U.S.-manufactured components specified in the contract for delivery to" the Iranian firm, Telecommunication Co. of Iran,
according to the affidavit.
Yablon also said he was told that ZTE owns "sub companies" that it uses to purchase U.S.-made telecommunications equipment for
sale to countries subject to embargoes, the affidavit states.
On Friday, ZTE spokesman David Shu said the company had no immediate comment. Yablon could not be reached for comment. A
spokeswoman for the FBI office in Dallas and a Justice Department spokesman in Washington both declined to comment.
Late last year, Nokia Siemens Networks, a venture between Nokia and Siemens, said it would gradually reduce its business in Iran,
pressured by tightening international sanctions. The venture was a key supplier to Iranian telecoms operators along with Ericsson
and China's Huawei.
The FBI probe presents new troubles for ZTE in the United States, where it has been trying to expand its operations. In addition to
the Commerce Department probe into its sales to Iran, ZTE is also under investigation by the U.S. House of Representatives'
Intelligence Committee over whether its equipment represents a threat to national security.
ZTE - China's second-largest telecoms equipment maker and the world's fourth-largest mobile device maker with 4.2 percent global
market share in the first quarter, according to Gartner - is publicly traded, but its largest shareholder is a Chinese state-owned
enterprise.
In Hong Kong, ZTE shares closed 1.5 percent higher at HK$12.50. The stock has almost halved so far this year and had fallen in all
of the previous six sessions on worries of weak first-half results and concerns over a dispute between China and the European
Union over industry subsidies. Its Shenzhen-listed shares fell 2.3 percent.
"Sentiment will be weakened, but I don't see any material impact on ZTE in terms of earnings," said Hong Kong-based Nomura
analyst Huang Leping, referring to the FBI probe and speaking before the company's profit warning.
"ZTE may find it harder to break into the U.S. in its technical equipment division, as (the U.S.) becomes more strict and puts more
restrictions on technical equipment due to security concerns."
(Additional reporting by David Ingram, Chyen Yee Lee in HONG KONG and Melanie Lee in SHANGHAI; Editing by Ian Geoghegan
and Alex Richardson)
© Thomson Reuters 2011. All rights reserved. Users may download and print extracts of content from this website for their own
personal and non-commercial use only. Republication or redistribution of Thomson Reuters content, including by framing or similar
means, is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters and its logo are registered
trademarks or trademarks of the Thomson Reuters group of companies around the world.
Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant
interests.

More Trouble for ZTE
By Stewart Baker on July 13, 2012
ZTE, the huge Chinese telecom equipment manufacturer, has found themselves in a kind of perfect storm. A
storm largely of their own making.
First, ZTE and its larger Chinese rival, Huawei, have been the subjects of great national security concern for
years. As I discussed last month the US intelligence community is worried that, if allowed to install equipment
here, the two companies will surreptitiously permit Chinese government wiretaps inside the United States. But
proof of this suspicion has been hard to find. And the firms, backed by Chinese government-subsidized loans,
have been able to offer enormous discounts to carriers, devastating the global telecom equipment market and
leaving carriers eager to buy their products. Whether the US government would continue to act on its suspicions
in the face of commercial pressure was an open question.
While that drama was unfolding, another morality tale was taking shape among the NGOs and journalists
covering unrest in the Muslim world. Story after story points a damning finger at Western technology companies
accused of providing wiretaps and surveillance gear to authoritarian Muslim regimes. Some of the sales are
alleged to have violated US export controls.
Of course, these two stories eventually intersected. In March, Reuters reported that ZTE was supplying the
Iranian mullahs with telecommunications gear that could spy on Iran’s restive population. ZTE, the news agency
reported,
“has sold Iran’s largest telecom firm a powerful surveillance system capable of monitoring landline, mobile and
Internet communications, interviews and contract documents show.”
That was bad. But it got worse. Reuters further revealed that the ZTE system sold to Iran included equipment
from US companies, like HP, Dell, Cisco and Juniper. Such sales violate US export control law. So ZTE soon faced
an investigation by the US Commerce Department.
And, to judge from a recent report in The Smoking Gun, that’s when ZTE took a bad situation and turned it into a
perfect storm:
“Concerned that they could no longer “hide anything” in the wake of the Reuters report, ZTE lawyers discussed
shredding documents, altering records, and lying to U.S. government officials, according to an insider’s account
provided to FBI agents by a Texas lawyer who last year began serving as general counsel of ZTE’s wholly owned
U.S. subsidiary.”
That brought the FBI in. Indeed, most of the recent allegations about ZTE are drawn from an FBI affidavit in
support of a search warrant, which is full of interesting details like ZTE meetings with US lawyers in which
damning documents were displayed on screens but never provided to the lawyers. In fact, the search affidavit
strongly suggests that ZTE’s general counsel was cut out of internal communications after he refused to go along
with a cover-up.
In the end, rather than actively lying to the US government, the company simply refused to comply with the
Commerce Department subpoena. In so doing, the company got the backing of its principal owner, the Chinese
government, which claimed that compliance with the subpoena would violate Chinese law.
Ironically, this debacle climaxed just as ZTE was trying to deal with a House Intelligence Committee investigation
that Huawei had practically demanded last year, thinking that it could put the intelligence community’s
suspicions to rest at last. The committee was moving to the last stages of that investigation. It had already served
ZTE with detailed questions and conducted interviews of its executives in China as the export control mess began
to spread.
Now, though, the mess is everywhere, and the House intelligence investigation will surely be heavily influenced
by the new evidence that ZTE at least is quite capable of carrying out sophisticated telecommunications
surveillance, of violating US law, and perhaps even lying about it later.
Which, come to think of it, is pretty much what US intelligence agencies have been saying all along.
Steptoe & Johnson LLP

1330 Connecticut Avenue, NW
Washington DC 20036
1114 Avenue of the Americas
New York NY 10036
Copyright © 2014, Steptoe & Johnson LLP. All Rights Reserved.

Back to previous page
Chinese telecom firm

ZTE probed for alleged
sale of U.S. surveillance
equipment to Iran
By Ellen Nakashima, Published: July 13,
2012
Federal investigators are probing a major Chinese
telecom firm and its U.S. subsidiary for allegedly
selling banned U.S. surveillance equipment to Iran, according to a newly disclosed document.
The investigations into ZTE and its Texas subsidiary, ZTE U.S.A., by the FBI and Commerce Department
reflect two major U.S. policy concerns — blunting Iran’s appetite for advanced technology that could be used
in warfare and understanding the activities of Chinese companies in the United States.
According to an excerpt from an FBI affidavit published on the Web site Smoking Gun, investigators are
zeroing in on ZTE’s apparent effort to ship to Iran hardware and software components bought from leading
U.S. technology firms despite trade restrictions and embargoes. The affidavit says ZTE attempted to obstruct
the investigations.
The Commerce Department has been looking into ZTE since at least March, when it served an administrative
subpoena on Dallas-based ZTE U.S.A. for information on monitoring equipment allegedly exported to Iran,
according to the affidavit.
Federal law bans the sale, export or re-export of goods, technology or services to Iran. Those who knowingly
export goods to Iran are subject to criminal prosecution, and those involved unwittingly face civil penalties.
Justice and Commerce officials declined to comment. Efforts to reach ZTE in Dallas were unsuccessful.
The Commerce Department subpoena followed a Reuters article reporting on ZTE’s sale of powerful
electronic surveillance technology to the Telecommunication Co. of Iran, a firm with close ties to the Iranian
government, the affidavit said.
Reuters had obtained a “packing list” dated July 2011 that identified products bound for Iran and
manufactured by Cisco, Dell, Hewlett-Packard, Microsoft, Oracle and Symantec. The article said the
$130.6 million contract between ZTE and the Iranian company was signed in December 2010.
According to the FBI affidavit, agents interviewed ZTE U.S.A.’s general counsel, Ashley Kyle Yablon, in

May.
At the time, Yablon told investigators he did not want to be part of a “cover-up” and described efforts by the
parent company to conceal the sales to Iran through at least one front company, according to the affidavit.
More world news coverage: - Syrian rebellion reaches heart of Damascus - Sri Lanka descending toward
dictatorship, critics say - China’s economic growth slowing - Read more headlines from around the world
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You are here: Home » Economy » Corruption Concerns over ZTE’s No-Bid Contract in Lusaka
Corruption Concerns over ZTE’s No-Bid Contract in Lusaka

Published August 24, 2013 By Charles Sakala
Accusations of government graft are quickly

spreading in Lusaka following the revelation that a
$210 million contract from the Ministry of Home
Affairs to provide CCTV services was awarded a
Chinese company, ZTE, without going through the
normal public tender procedures.
The tender to install street cameras in Lusaka was

awarded to ZTE early this year, but sources have
raised an alert saying the business was going to cost
the treasury colossal sums of money, with many Latest Comments Most Popular
people accusing Patriotic Front officials of getting a Felicicien on Sata Turns Opinion: Lessons from
kickback. to Online Media Despite Miles Sampa Vs Zambian
Threats to Shut Websites Watchdog War
There have been plans by the previous government to introduce closed circuit television (CCTV) cameras on Dignity Matters on PF Faces Tough
Zambian streets, but when the PF regime took over, the tender aspect was ignored and opted to engage ZTE Opinion: Scott is Better Challenge in 2016
through the direct contract method. Shutting Up Elections – Deputy
ben on Don’t Ratify Secretary General
The direct contract method is used to engage suppliers when there are “no other firms that have the capacity Judges Wood, Miles Sampa Declares
to do the required works,” but in the CCTV tender, other local and foreign companies had showed the Hamaundu War with Zambian
capacity and interest to do the work. Watchdog
pompwe on Opinion:
King Chumbu or King Shamenda's Defence for
“Without going through a public tender process, potential contractors do not have the opportunity to evaluate Dick Local Languages in
the bid carefully and submit the best solution and price for the work involved. Any public tender needs such Schools
pompwe on Don’t Ratify
scrutiny because savings are made. Without an open public tender, local companies were denied an
Judges Wood, Mukwita: Online Media
opportunity to do business,” said a source familiar with the Ministry contract.
Hamaundu Publishing Filth and
Poorly Written Articles
The initiative to install CCTV on the streets was meant to help the law enforcement agencies such as the
Watchdog Leaks Draft
police, Road Transport and Safety Agency and Drug Enforcement Commission to curb crime and assist in
Constitution
their criminal investigations.
Latest Topics
The Zambia Public Procurement Authority Act dictates that all public procurement deals must only be given to Drama as PF Switch Civic Zambia
the preferred supplier following an open public tender. This gives an opportunity to all deserving would-be Leaders in Wusakile Michael Sata
suppliers to participate and to also allow the government to weigh-in competition, compare rates and have a Nomination
PF
wider set of options. Fertiliser Chaos Persist as
Patriotic Front
Kazungula Farmers
Erupt Rupiah Banda
“Such an approach is the best and prescribed under the public tender procedures because it ensures the
best solutions and the government budgets are implemented with much efficiency,” the source said. Police Nab PF ‘Thugs’ Africa
GBM Opts to Ignore Corruption

Without such checks and balances, projects risk the same pitfalls as similar projects elsewhere that have run Scott’s Rant Politics
into problems amid allegations of sub-standard equipment, delayed installation and corruption.
European Union Wynter Kabimba
Cautions PF Policy on
According to sources at the ministry and Zambian firms that wanted to participate in the business, senior Robert Amsterdam
Languages
government official allegedly received hefty bribes before awarding the direct tender to ZTE.
“Some people have queried how the US$210 million tender was awarded to ZTE when there are other
interested people who have the equal capacity. This is the same corruption, which the PF members
complained about under MMD. In fact, the plan to install CCTV cameras was started by the previous but the
current leaders seem to have mishandled it,” the source said.
The sources from the ministry of Home Affairs and the private sector claimed that the US$210 million tender

awarded to ZTE was an exaggeration because the tender to install street cameras in Lusaka cost a quarter of
this amount.
“This amount of US$210 million is too much for such a job. It could have been much better if the tender was
subjected to a public tender so that the companies compete. According to people who wanted to participate
in the tender, the job was going to cost taxpayers about a quarter of that amount.
The government has other CCTV contracts with ZTE n which the Ministry of Defence is installing cameras in
strategic places and security installations. In January 2013, the Ministry of Home Affairs signed a US$13
million CCTV contract
That original US$13 million contract was signed in January and the Ministry of Home Affairs CCTV project
was tacked on to that just two weeks later as a next phase expansion and at US$210 million was more than
16 times the value of the original underlying agreement.
Ministry of Home affairs Permanent Secretary Maxwell and representatives from the Chinese ZTE firm were
not immediately available for comments at the time of publishing.
3 Comments
Bowa
Posted August 24, 2013 at 12:03 pm | Permalink
GOVERNMENT SHOULD CREATE JOBS FOR YOUTHS IF ZAMBIA IS TO MOVE FORWARD.

WAR TORN COUNTRIES ARE DOING BETTER THAN ZAMBIA AND THIS IS A TRAVERSITY
Bowa
Posted August 24, 2013 at 12:03 pm | Permalink
CORRUPTION CORRUPTION..!
Mpangula Mputyu
Posted August 29, 2013 at 10:36 am | Permalink
Donchi Kubeba BUFI bweka Bweka bane.
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CHINA NEWS
China Tech Giant Under Fire

Congressional Probe Says Huawei Poses National-Security Threat to the U.S.
By SIOBHAN GORMAN
Updated Oct. 8, 2012 5:18 p.m. ET
WASHINGTON—A Chinese telecommunications giant that has been attempting to expand in the U.S.
poses a national-security threat and may have violated U.S. laws, according to a congressional
investigation.
The Report The year-long investigation by the House intelligence

committee concluded the firm, Huawei Technologies Inc.,
Read the U.S. House intelligence committee's report
on Huawei. and a second firm, ZTE Inc., pose security risks to the U.S.
because their equipment could be used for spying on
Americans.
In a report to be released Monday, the committee

recommends that the U.S. block acquisitions or mergers
involving the two companies through the Committee on
Foreign Investments in the U.S. It also recommends that the
U.S. government avoid using equipment from the firms, and
that U.S. companies seek alternative vendors for
telecommunications equipment.
The report is likely to add to tensions with China. American

military and intelligence officials have long been warning
privately that China poses a cyberespionage threat to U.S.
defense systems and companies. Government officials have
been reluctant to voice those concerns publicly for fear of
angering China. That has begun to change, and the House
report represents the most direct statement of concerns
China's Huawei poses a national-security threat and
about specific Chinese companies.
may have violated U.S. laws, a year-long investigation
by the House intelligence committee has concluded.
Photo: Getty Images.
The report comes as a blow to the two Chinese firms, which
have mounted a major lobbying campaign in Washington to
allay fears of government influence in their operations. Both
companies, which have footholds in the U.S.
Source No. 12 January 30, 2014 at 2:14 PM
telecommunications market, have ambitions to expand their
share significantly, and both frequently undercut their
competitors on price as they seek additional clients in the
U.S.
The companies have repeatedly denied they would allow the

Chinese government to use their equipment for surveillance,
Chinese telecom firm Huawei had reached out to
banks to discuss a possible stock offering. Are IPO saying it wouldn't be in their business interests to do so.
plans now shelved? Spencer Ante reports on digits.
Both companies also said they cooperated extensively with
the committee and have made every effort to respond to
Heard on the Street requests.
Hurdles for Huawei's Listing Aim
Huawei spokesman William Plummer called national-
Corporate Intelligence security concerns "baseless," saying that "purporting that
Huawei: Congress 'Failed to Provide Clear Huawei is somehow uniquely vulnerable to cyber-mischief
Information'
ignores technical and commercial realities, recklessly
Digits threatens American jobs and innovation, does nothing to
protect national security."
What Is Huawei?
ZTE says that its status as a publicly traded company has

ensured that it is transparent about its practices with the
public and the intelligence committee. "ZTE has set an
unprecedented standard for cooperation by any Chinese
company with a congressional investigation," said David Dai
Shu, the company's director of global public affairs. "ZTE
equipment is safe."
House intelligence committee chairman Mike Rogers (R.,

Mich.) said of U.S. telecommunications networks: "We
Executives of Huawei Technologies and ZTE were
sworn in on Capitol Hill in Washington on Sept. 13. simply cannot trust such vital systems to companies with
The House intelligence committee concluded that the
firms pose security risks to the U.S. Associated Press known ties to the Chinese state, a country that is the largest
perpetrator of cyberespionage against the U.S."
Audio The House intelligence committee has no authority to reach

Listen to the latest technology news with the conclusions about violations of federal law. But committee
Wall Street Journal Tech News Briefing. officials plan to refer their findings about Huawei to the
Justice Department and the Department of Homeland
00:00 |
04:53 Security, the report says.
At a daily press briefing on Monday, Chinese Foreign

Ministry spokesman Hong Lei said that China's telecommunications companies "develop their
international businesses according to market economy principles. The investments they make in the U.S.
show the win-win aspect of China-U.S. trade relations."
Mr. Hong added, "We hope that the U.S. Congress can reject bias, respect the facts and do more to
promote China-U.S. economic relations, rather than the opposite."

In the report, the committee says it based its findings that Huawei and ZTE pose national-security
concerns in part on the companies' failure to provide sufficient information to allay their concerns.
The panel began its probe in November 2011 because of concern that the Chinese government could turn
the networks and equipment sold by the two companies into vehicles for spying inside the U.S.
Concerns about Chinese spying have grown in the past year. U.S. intelligence agencies allege China is
the most active and persistent perpetrator of economic espionage against U.S. firms. A string of alleged
Chinese cyberspying incidents targeting firms ranging from Google to the computer-security firm RSA
have contributed to these worries. China has denied engaging in corporate espionage.
"Neither company was willing to provide sufficient evidence to ameliorate the committee's concerns," said
a draft of the committee's report. "The risks associated with Huawei's and ZTE's provisions of equipment
to U.S. critical infrastructure could undermine core U.S. national security interests."
The 52-page report, which is unclassified, doesn't include evidence showing either company's equipment
has been used for spying. But it says some companies in the U.S. "have experienced odd or alerting
incidents" involving Huawei or ZTE equipment, although it provides no details. The report said a classified
annex includes information that adds to concerns.
The committee report says a major concern is that, as Chinese firms, the companies would be required to
comply with any Chinese government request for access to their systems.
Huawei is now the world's second-largest provider of telecommunications equipment, and it does 70% of
its business outside China. The Wall Street Journal reported last week that the company, which is closely
held, is exploring a public offering. The House report could complicate those plans. Huawei's U.S. sales
last year were $1.3 billion.
ZTE has a smaller U.S. footprint, primarily through sales of devices like smartphones. Its sales in the U.S
were $30 million last year. State-owned enterprises own 15.68% of the company.
Huawei officials said the House intelligence committee's focus on just two companies won't address the
full security problem because many telecommunications providers use equipment made in China that
would pose similar national-security risks.
The committee states in its report that it focused on the two companies because their Chinese ownership
poses the greatest threat to U.S. national security.
The report's allegations of potentially illegal practices by Huawei are based in part on interviews with
current and former employees, whom the committee didn't identify. Based on those interviews, the report
contends that there have been instances of alleged fraud and bribery by Huawei in seeking U.S.-based
contracts. It also points to cases of Huawei employees who were reported to be working full time in the
U.S. by using tourist visas, which do not allow for employment in the U.S.
Huawei's Mr. Plummer said the company "has not seen the committee report so has no familiarity with
such allegations." He said Huawei "has a well-demonstrated track record of responsibly adhering to local
laws and regulations in the markets in which it does business."

The report said that "party committees" within each company provide "a shadow source of power and
influence" for the Communist Party within the companies. Huawei didn't provide details about its party
committee for the report. ZTE provided a list of the 19 members of its party committee, which the report
says shows crossover with ZTE's board of directors and other company interests.
At Huawei, Mr. Plummer says the company is independent of the Chinese government and that security
of its systems remains a top priority.
In a recent letter to the committee, ZTE said that requiring severe threat assessments only of Chinese
companies would be "an obvious unfair trade practice." It also reiterated that the Chinese government has
never requested access to ZTE equipment, and while ZTE doesn't expect such a request, if it were to
occur, the company would be bound by U.S. law.
—Olivia Geng contributed to this article.
Write to Siobhan Gorman at siobhan.gorman@wsj.com
Copyright 2013 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law.
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» Print
U.S. lawmakers seek to block China Huawei, ZTE

U.S. inroads
Mon, Oct 8 2012
By Jim Wolf
WASHINGTON (Reuters) - U.S. telecommunications operators should not do
business with China's top network equipment makers because potential Chinese
state influence on the companies poses a security threat, the U.S. House of
Representatives Intelligence Committee said in a report on Monday.
The report follows an 11-month investigation by the committee into Huawei
Technologies Co Ltd and its smaller rival, ZTE Corp.
The companies have been fighting an uphill battle to overcome U.S. lawmakers'
suspicions and expand in the United States after becoming key players in the
worldwide market.
The House Intelligence Committee's bipartisan concerns are bound to set back
the companies' U.S. prospects and may also lead to new strains in trade ties
between the United States and China, the world's two biggest economies.
Committee Chairman Mike Rogers, at a press conference to release the report, said companies that had used Huawei equipment
had reported "numerous allegations" of unexpected behavior, including routers supposedly sending large data packs to China late
at night.
The panel cited what it called long-term security risks supposedly linked with the companies' equipment and services. It did not
provide any hard evidence to back up its concerns, at least not in the unclassified version of the report.
Rogers, a Michigan Republican who is a former FBI agent, said lawmakers' concerns had been heightened by what he and the
panel's top Democrat, C.A. Ruppersberger of Maryland, described as the companies' lack of full cooperation with the investigation.
If the committee's warnings about doing business with Huawei and ZTE prompt the Chinese government to get out of the business
of cyber espionage, a growing U.S. concern, "then that's great," he added.
The committee recommended that the Committee on Foreign Investment in the United States, an inter-agency group that evaluates
the national security risks of foreign investments, should block any deals involving Huawei or ZTE.
Government contractors and private-sector companies should seek other vendors for their network equipment, the panel said.
Rogers, responding to a question at the press conference, stopped short of urging a U.S. boycott of mobile phones and other
handheld devices made by Huawei and ZTE.
The panel's warning pertains only to devices that involve processing of data on a large scale, he said, not Huawei- and ZTE-made
mobile phones.
Employee-owned Huawei is the world's second-biggest maker of routers, switches and other telecommunications equipment after
Sweden's Ericsson. ZTE ranks fifth.
The panel said it had received credible allegations suggesting Huawei may be guilty of bribery and corruption, discriminatory
behavior and copyright infringement.
Such allegations will be referred to the Justice Department and Department of Homeland Security for investigation, the panel said.
A spokesman for the Justice Department, Dean Boyd, declined to comment.
'RUMORS AND SPECULATIONS'
The committee's warning comes as Huawei weighs a possible initial public offering, sources said, as part of an effort to overcome
suspicions that have all but blocked its U.S. efforts, including business tie-ins.
Huawei denounced the findings, which it said "employs many rumors and speculations to prove non-existent accusations."
"We have to suspect that the only purpose of such a report is to impede competition and obstruct Chinese (telecom) companies
from entering the U.S. market," Huawei said.
ZTE, in a newly released copy of a letter to the committee, said it "profoundly disagrees" with allegations that it is directed or
controlled by the Chinese government.
"ZTE should not be a focus of this investigation to the exclusion of the much larger Western vendors," it said.

Zeus Kerravala, a networking equipment analyst at ZK research, said the effect of the congressional probe was to hand the market
to Ericsson and Altactel-Lucent because he does not see any U.S. firm able to compete, for instance, with wireless technology.
ZTE's Hong Kong-listed shares fell as much as 3.4 percent early on Monday.
Huawei's U.S. sales totaled $1.3 billion last year, a small fraction of its worldwide sales of $32.4 billion. Handheld devices
accounted for about three-fourths of Huawei sales in the United States last year, including via T-Mobile, AT&T and Sprint.
ZTE's U.S. telecom infrastructure equipment sales last year were less than $30 million. In contrast, two of the larger Western
vendors alone had combined U.S. sales that topped $14 billion, ZTE has said, alluding to Espoo, Finland-based Nokia Siemens
Networks and Paris-based Alcatel Lucent.
GLOBAL PLAYERS
Huawei and ZTE, which are both based in Shenzhen, China, are rapidly becoming "dominant global players" in the
telecommunications market, the report said. It noted that telecoms are intertwined with computerized controls for electric power
grids; banking and finance systems; gas, oil and water systems; and rail and shipping.
The National Counterintelligence Executive, a U.S. intelligence arm, said in a landmark public report a year ago that "Chinese
actors are the world's most active and persistent perpetrators of economic espionage."
China has also been a frequent target on the campaign trail, with President Barack Obama and Republican challenger Mitt Romney
both saying the United States needs to get tougher on China for alleged abusive trade practices.
The committee's report criticized Huawei and ZTE for failing to answer questions or provide documentation regarding their business
activities in Iran. In the case of ZTE, the report said the company "consistently declined to comment on recent media reports that
ZTE had sold export-controlled items to Iran."
Reuters reported in March and April that ZTE had sold banned U.S. computer equipment to Iran's largest telecom firm. ZTE also
agreed last year to ship millions of dollars worth of additional U.S. tech products to a unit of the consortium that controls the telecom
firm. The Reuters stories have sparked investigations by the Commerce Department and the Federal Bureau of Investigation.
In the wake of those allegations, Cisco Systems has ended a longstanding sales partnership with ZTE Corp.
"MEANS, OPPORTUNITY, MOTIVE"
Huawei and ZTE may not be the only companies that present a risk to U.S. infrastructure, the committee's report said, but they are
the two largest Chinese-founded, Chinese-owned companies seeking to market critical network equipment in the United States.
Beijing has the "means, opportunity and motive" to use them to its own ends, it added.
The report underscores how little return Huawei in particular has gotten from its significant investment in lobbying in Washington
after suffering a number of high-profile setbacks.
In 2008, Huawei and private equity firm Bain Capital were forced to give up their bid for 3Com Corp after a U.S. panel rejected the
deal because of national security concerns. Then in 2011, the company was forced to relinquish plans to buy some assets from
U.S. server technology firm 3Leaf after the Committee on Foreign Investment mandated that Huawei divest certain parts of the deal.
The company has brought on seven firms registered to lobby U.S. lawmakers, including APCO, Doyce Boesch and Fleishman-
Hillard, according to forms filed under the lobbying disclosure act. That is up from four firms in 2011, two in 2010 and one in 2009.
(Additional reporting by Chyen Yee Lee, Diane Bartz, Steve Stecklow and Aruna Viswanatha; Editing by John Wallace and Leslie
Adler)
interests.

Chambers#Shreds#Huawei,#Cisco#Cuts#Ties#With#ZTE
By#Chad#Berndtson,#CRN 3:26%PM%EST%Tue.%Oct.%09,%2012
Following several recent statements, Cisco CEO John Chambers is making it abundantly clear that two Chinese telecom companies labeled "national
security risks" by U.S. lawmakers are absolutely, positively no friends of his.
In an exclusive interview with CRN at Cisco's San Jose, Calif., headquarters earlier this month, Chambers took aim specifically at $35 billion giant
Huawei, which a year ago, Chambers described as perhaps Cisco's most-formidable long-term threat.
"They've got some people really questioning do they play by the rules, of which I'm clearly one of them who says, no they don't," Chambers told CRN.
"And we're getting them very much in our crosshairs on innovation."
Huawei's growth is slowing, said Chambers, who claimed that in areas like service provider business, Cisco has "dramatically outgrown them on their
home court."
"Their operating margins are down to 9 percent," Chambers said, referencing the 9.1 percent operating margin Huawei reported for its fiscal 2011.
"That means real problems."
Chambers' CRN interview took place a week before a report published Monday by the U.S. House of Representatives' Permanent Select Committee
on Intelligence denounced Huawei and ZTE, another Shenzhen, China-based company, as national security threats.
In an interview that ran on CBS' 60 Minutes Sunday, anticipating the House committee report's release, Rep. Mike Rogers, a Michigan Republican and
the committee's chairman, urged U.S. business owners to "find another vendor if you care about your intellectual property, if you care about your
consumers' privacy, and you care about the national security of the United States of America." The report itself recommends that the U.S. block any
M&A activity involving the companies and American investments, and warns the U.S. government not to buy equipment from either firm.
In a statement posted to Huawei's corporate blog Monday, Huawei said the House committee's report "employs many rumors and speculations to
prove non-existent accusations."
Huawei's U.S. distributor, solution provider and BPO partners, including Synnex, Essintial Enterprise Solutions, Condre Storage and Communications
Test Design, have all declined to comment or have not responded to CRN requests for comment.
Chambers and Cisco did not comment specifically on the House Intelligence committee report, though Chambers and other executives have been
relentless in attempting to paint the company as unethical and untrustworthy.
The two companies have a long and contentious history. Cisco sued Huawei in 2002 for alleged patent infringement, agreeing to settle the lawsuit out
of court two years later after Huawei, according to Cisco, agreed to change its command line interfaces, user manuals and portions of its source code
for a number of products Cisco says it had ripped off.
The full details of that settlement have been kept confidential, though in a blog post earlier this month, Cisco General Counsel Mark Chandler said
Cisco would waive confidentiality requirements to dispute recent claims made by a Huawei lawyer about the nature of the agreement.
NEXT: Cisco Ends Reseller Relationship With ZTE
Meanwhile, Cisco's put House Intelligence committee target ZTE in its crosshairs, too.

In a separate story first reported by Reuters, Cisco cut ties with ZTE following an internal investigation said to have confirmed that ZTE is reselling
branded Cisco equipment to Iran-based companies -- a violation of economic sanctions.
According to Reuters, Cisco probed its reseller relationship with ZTE following reports from the news service that ZTE had sold equipment from Cisco
and other U.S. companies to Iranian telecom customers.
Chambers wouldn't discuss the ZTE probe, Reuters said, but he did say Cisco would not tolerate any direct or indirect sales to countries like Iran that
are under economic sanctions. "And when that occurs, we step up and deal with it very firmly," Cisco's Chambers said.
PUBLISHED OCT. 9, 2012

» Print
ZTE confirms security hole in U.S. phone

Fri, May 18 2012
By Jeremy Wagstaff and Lee Chyen Yee

(Reuters) - ZTE Corp, the world's No.4 handset vendor and one of two Chinese
companies under U.S. scrutiny over security concerns, said one of its mobile
phone models sold in the United States contains a vulnerability that researchers
say could allow others to control the device.
The hole affects ZTE's Score model that runs on Google Inc's Android operating
system and was described by one researcher as "highly unusual."
"I've never seen it before," said Dmitri Alperovitch, co-founder of cybersecurity
firm, CrowdStrike. The hole, usually called a backdoor, allows anyone with the
hardwired password to access the affected phone, he added.
ZTE and fellow Chinese telecommunications equipment manufacturer, Huawei
Technologies Co Ltd, have been stymied in their attempts to expand in the
United States over concerns they are linked to the Chinese government, though both companies have denied this.
Most such concerns have centered on the fear of backdoors or other security vulnerabilities in telecommunications infrastructure
equipment rather than in consumer devices.
Last month a U.S. congressional panel singled out Huawei and ZTE by approving a measure designed to search and clear the U.S.
nuclear-weapons complex of any technology produced by the two companies.
Reports of the ZTE vulnerability first surfaced this week in an anonymous posting on the code-sharing website, pastebin.com.
Others have since alleged that other ZTE models, including the Skate, also contain the vulnerability. The password is readily
available online.
ZTE said it had confirmed the vulnerability on the Score phone, but denied it affected other models.
"ZTE is actively working on a security patch and expects to send the update over-the-air to affected users in the very near future,"
ZTE said in an emailed statement. "We strongly urge affected users to download and install the patch as soon as it is rolled out to
their devices."
Alperovitch said his team had researched the vulnerability and found that the backdoor was deliberate because it was being used
as a way for ZTE to update the phone's software. It is a question, he said, of whether the purpose was malicious or just sloppy
programming.
"It could very well be that they're not very good developers or they could be doing this for nefarious purposes," he said.
While security researchers have highlighted security holes in Android and other mobile operating systems, it is rare to find a
vulnerability apparently inserted by the hardware manufacturer.
"I have never seen this before. There are rumors about backdoors in Chinese equipment floating around," Alperovitch said. "That's
why it's so shocking to see it blatantly on a device."
A Google spokesman declined to comment.
(Reporting by Jeremy Wagstaff and; Lee Chyen Yee; Editing by Matt Driskill)
interests.

HOME BUSINESS ENTERTAINMENT SPORTS GOVERNMENT TECH FOODIE FASHION
MUST READ Boko Haram: Jonathan reads riot act to service chiefs Posted 15 hours ago Search site
Lagos, Abuja CCTV Scam and the ZTE Connection

By Seun Peters on May 10, 2013
Speaking about corruption in Nigeria has become as common as singing any of the popular R&B songs in the media today. once
again this corruption is on display in the unfolding Federal Government’s $430 million surveillance camera contract. Not only has the
government wasted a huge sum on another failed project, it may be delaying a similar and more transparent project by the Lagos
State Government. The National Assembly should not relent in its efforts to unravel the mess and bring culpable public officers to
book.
This particular national embarrassment involves the Nigeria Public Security Communications System, formed in response to the dire
insecurity in the country. A main component of the NPSCS is the installation of Closed Circuit Television Cameras in Abuja, the federal
capital, and Lagos, the country’s economic powerhouse. Among the issues the parliament should demand answers to is why the
2,000 CCTV cameras claimed to have been installed in the two cities are not working. Initiated in 2009, the CCTV project entailed
Nigeria making a down payment of $70.5 million (15 per cent) while China’s Eximbank provided the balance of $399.5 million as a
loan to be repaid at three per cent interest.
While the project, awarded to China’s ZTE Corporation, has not been completed two years after it should have, the few cameras
installed are mere decorations; some have been vandalised, or damaged by exposure, others have come permanent residence to all
sorts of birds and a mere means of shade to destitute. The majority of the cameras have not been installed. Meanwhile, reports from
the Federal Capital Territory indicate rampant crime: robberies, house-breaking, carjacking and pickpocketing, with the criminals
operating while surrounded by CCTV cameras that don’t work.
This is one event that we cannot be allowed to be swept under the carpet like so many have been. Saying that the nation is under
siege is merely stating an already established fact. Criminal activities have reached a level where an unprecedented number of
military units are permanently engaged in internal security operations across the country, even when the country is not facing an
external enemy. The Federal Government devoted almost N1 trillion last year and a similar amount this year to security, underscoring
the precarious state of public safety. The state governments have similarly taken to allotting ever more resources to funding the
police, a federal monopoly under our perverse federal system, while corporate bodies are also providing support yet it seems the
more we spend on combating the loose security situation in the country, the more unsafe we become. It is sheer callousness and
cynical disdain for public safety for some officials to play the usual corrupt games with the CCTV project.
The introduction of CCTV has been one of the best weapons against crime across the world, in other developed nations CCTV
surveillance has been standardised and is being used in major cities. In the United Kingdom, the average person is likely to be
caught on camera as many as 300 times a day. It was CCTV footage that enabled the United States law enforcement officers to
quickly identify and track down the perpetrators of the recent Boston Marathon bombing. But Nigerians are paying a heavy price for
the corruption of their government and the chicanery of the parliament. Way back in 2011, the House of Representatives had known
that the FG/ZTE contract was faulty. But it did little beyond its usual barking. Nigerians do not know the outcome of the investigation
the House ordered its joint committee on public procurement, aid, loans/debt management, information technology and police affairs
to conduct into the contract. Hassan Saleh, a member of the House, had alleged that ZTE installed substandard CCTV cameras. His
more alarming allegation was that ZTE had built into the agreement a condition that details of the contract should not be made
public.
That is a serious issue. Nigerian laws do not permit secrecy in public procurement and all the officials who negotiated this contract
should be exposed and severely punished. They should not be allowed to take cover under the guise of national security. Banks, an
increasing number of corporate organisations and even individuals, have installed CCTV systems; there is no mystique about it and it
is available in the open market.
FEATURED VIDEO
The Lagos State Government, which has a plan to install 4,000 CCTV cameras to help in crime and traffic management should no
longer wait for a Federal Government that continues to exhibit irresponsible behaviour, but should go right ahead with its own solar
power-based plan. Other methods such as better streets lighting and more police patrols should be vigorously explored. Other states

should immediately follow suit as the security of lives and property of their people is paramount. This has become necessary because
a state that for so long has enjoyed safety and somehow been immune to security challenges that has floored the rest of the country
now combats issues like daily kidnapping, Boka Haram penetration (either for surveillance or being used as a hideout), we should not
wait to be in a war zone before necessary steps are taken. Dear Government, remember that the best security is a proactive security
and not a reactive one.
Several countries in the recent past have reviewed or completely terminated contracts with the Chinese firm ZTE for unethical
practices, I think the National Assemble has a duty to ensure this company or the federal government is held accountable and the
project is made to see the light of day.
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IT & TECH

Feature Article of Monday, 25 November 2013 Columnist: Ata, Kofi
Are Ghanaian MPs worth mobile phones?

The two arms of government in Ghana, the Executive and the Judiciary are perceived by the public to be
corrupt. There are good reasons for this perception and one does not need to go far to find the reasons. The
Executive is alleged to be in the midst of various corrupt acts such as Woyome, Waterville, ISOFOTON,
SADA, GYEEDA, GRA, SUBAH etc. The Judiciary also stand accused of various acts of bribery by judges to
give judgements in favour of lawyers who pay bribes on behalf of their clients.
The latest corruption allegation against the Judiciary is Vickileaks, that has compelled the Chief Justice to set up
a Judicial Committee to investigate whether Nana Oye Lithur influenced Supreme Court Justices who heard the
presidential petition. Until now, the Legislature could not collectively be accused of corruption, even if some
(dis)honourable members were corrupt.
This perception came to an end this week when it was reported that a Chinese company has given each of the
275 MPs a mobile phone after a loan agreement between Ghana and the company had been rejected by the
House. Shortly after that the same agreement was approved by Parliament (see “MPs in phone scandal”,
Ghanaweb, November 22, 2013). In this article, I want to discuss if an MP in Ghana could be bought with
mobile phones and corruption in general.
According to the original report by the Ghanaian Observer, Parliament threw out a report of the Joint
Committee on Communications, Defence and Interior on the supply contract for dedicated security information
system between the Government of Ghana (represented by Ministry of Communications) and ZTE Corporation
of China on the basis that it was full of errors. The NPP MP for Assin Central, (Dis)honourable Kennedy
Agyapong also raised issues on the floor of the House about the records and questionable character of ZTE
Corporation.
However, when the errors in the report were corrected and returned to Parliament, branded ZTE mobile phones
were strategically put into the pigeon holes of all 275 MPs by the Ministry of Communications as a gift from
ZTE Corporation. Subsequently, Parliament approved the contract for government to acquire a US$129.9
million security information system that will enable security agencies monitor the entire nation and respond
swiftly to security emergencies.
The above report, if accurate, is Parliament’s Day of Shame in the fight against corruption in Ghana. In fact,
when I read it, I asked myself a number of questions: Can Ghana’s August House be bought with mobile
phones? Do the (Dis)honourable Members know and understand what is conflict of interest? How can the
Legislature fight against corruption, especially within the Executive by this behaviour and how could the
minority partake in this act when they held placards in the House regarding Executive corruption during the
presentation of the 2014 Budget last Tuesday? Since no MP has denied the report, I assume the report is true
and accurate.
From the report, it appeared the agreement was rejected because it contained errors, though the nature of the
errors are unknown (whether typo, administrative or legal). We can assume that with the errors corrected,
approval would have been given without the mobile phones. The question is, why did ZTE Corporation
consider it necessary to present mobile phones as a gift to the MPs at such a critical time? The answer is
simple? Kennedy Ayapong raised the records and questionable character of ZTE in the first debate of the
committee report, which was not addressed by the Ministry of Communications.

ZTE sensing danger that a lucrative contract could be lost if their records and character were probed by Ghana’s
Parliament, decided to bribe the MPs in the hope that this matter will not be a hindrance and that is exactly what
they achieved. 275 branded mobile phones for $129.9 million. OMG? Is this what Ghanaians get from their
MPs? Are the MPs so poorly paid that they cannot afford the cost of the quality of mobile phones given to them
by ZTE?
The blame lies heavily on the Executive, through the Minister for Communications who agreed for ZTE to use
the ministry as a conduit to bribe the Legislature. The Minister should have been bold to tell ZTE that it is
unethical for them to try to influence a parliamentary decision. Second, he should have told ZTE that due to a
serious case of conflict of interest, it would be inappropriate for MPs to be given the mobile phones.
Instead, the minister went along with ZTE and ensured that his ministry carried the phones to parliament and
put them in MPs’ pigeon holes. In fact, it would still have been wrong had the phones been given to MPs after
the agreement had been approved. Did it not occur to the minister, his advisers and senior civil servants that
such gifts breached the recently introduced Code of Conduct by the Presidency?
If MPs got mobile phones for doing work they were elected and paid to do, what did the Executive and senior
civil servants who negotiated the agreement get from ZTE? Your guess is as good as mine? Is it not interesting
that some of the minority MPs claim they will not use the phones because they suspect some spying equipment
might have been installed by the Chinese? But why keep the phones if they would not use them? I wish those
MPs had taken the decision not to use the phones because in their view, it was bribery, wrong and unethical, and
actually returned the phones. Instead, they did not see anything wrong with the gifts but are more concerned
about their personal interest of being spied on and potentially being exposed rather than protecting the national
interest.
This is a case of clear conflict of interest which occurs when an individual or organisation is involved in
multiple interests, one of which could possibly corrupt the motivation for an act, in another, often for personal
or organisational gain. According to the Solicitors Regulatory Authority for England Handbook, conflict of
interests means any situation where one owes separate duties to act in the best interests of two or more parties in
relation to the same or related matters, and those duties conflict, or there is a significant risk that those duties
may conflict. Again, one’s duty to act in the best interests of any party in relation to a matter that conflicts, or
there is a significant risk that it may conflict with one’s own interests in relation to that or a related matter.
Form the above, it was abundantly clear, ZTE, Ministry of Communications and Parliament all had conflicting
interests with regards to the approval of the loan agreement and sadly all of them breached the conflict interests
for personal or organisational benefits.
The behaviour of the Executive and the Legislature is not only disturbing but despicable. They are the ones
expected to protect and safeguard the interest of Ghana against foreign interests. Yet, the Executive through the
Minister for Communication colluded with a foreign company to bribe Parliament for personal gains. ZTE
knowing that if the agreement is not approved by Parliament, it would lose the $129.9 million worth of contract,
resorted to bribery for organisation gain.
What is sad is the value of the bribe given to MPs for the contract. We are not told how much each of the 275
mobile phones costs but let’s assume that each is $500. Is it not shameful and sad that MPs could be bought for
$500 for their votes? This is not to suggest that had the bribe been in millions of dollars it would have been ok.
Ghana ought to be careful with the numerous contracts signed with Chinese companies because of the tendency
of Chinese companies to resort to unethical and even illegal means such as bribes to gain advantage. I am not
suggesting that unethical practices are not practised by non Chinese companies but such practices are embedded
in the culture of Chinese companies. I am aware that British arms companies were involved in bribery to secure
billions of contracts from rich Arab countries. However, the difference is that such companies and officials are
sanctioned when the practices are found. In fact, currently, there are laws in UK making such practices illegal.
That is not the case in China.
Again, I am aware that foreign companies sometimes use their Corporate Social Responsibility (CSR) policies
to influence governments to make decisions in their favour. The difference here is that the benefits of CSR go
directly to local people such as investment in education, health, provision of good drinking water or electricity
supply. ZTE could have spent the money on mobile phones for MPs to provide a school or health centre to a
community in Ghana after the approval of the agreement and that would have been acceptable.
This matter shows that when it comes to fighting corruption and protecting the interests of Ghana, NDC and
NPP are no different. The only difference, if any, between them is that they belong to different political parties.
Even ideologically, I see no differences between the two. On paper, yes, but in practice they are the same.
Indeed, the facts on the grounds are that NPP has implemented more social democratic or pro poor policies than
NDC.
The real differences between NDC and NPP is which party holds Executive power to be able to engage in
corruption and who benefits most from corruption. This should not be surprising because they are all Ghanaians
and corruption is endemic in the Ghanaian society. The competition between NDC and NPP is not about which
party will perform better and secure a better future for Ghana and Ghanaians, but who can loot more for
themselves and their families.
The fight against corruption in Ghana is dead with this shameful and scandalous bribery in Parliament. The
reputation of the Legislature is damaged beyond repair and this is a national humiliation in the eyes of the
democratic world. As long as the Chinese know that they can bribe our leaders with pittance they will continue
to treat Ghana with contempt and rape the nation with inflated contracts. By this behaviour, MPs failed in their
duty to conduct due diligence on the contract. For example, there was no indication that the important issues
raised by (Dis)honourable Kennedy Agyapong was addressed. The 275 MPs should bow their heads in shame.
Comments:
This article has 8 comments, give your comment
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ZTE in Mongolia corruption probe
Summary: Management of the Chinese telecoms gear maker is being investigated following the arrest of a
Mongolian tax official who handled ZTE's tax affairs.
By Ryan Huang | April 15, 2013 -- 03:48 GMT (20:48 PDT)
ZTE is under investigation for corruption in Mongolia, following the arrest of a Mongolian tax official who handled the
company's tax affairs.
E. Amarat, the lead investigation officer of Mongolia's Anti-Corruption Agency, confirmed the
earlier speculation of a bribery probe in March during a press conference, in a report
(http://www.ft.com/intl/cms/s/0/94ced06e-a362-11e2-ac00-00144feabdc0.html#axzz2QUmJX5oo) last
Friday by the Financial Times.
Senior managers of the Chinese firm had reportedly been detained for alleged bribery
involving a digital education project, according to The Standard
(http://www.thestandard.com.hk/news_detail.asp?we_cat=2&art_id=132170&con_type=3) . Following tip
offs, Mongolian anti-corruption officers had raided ZTE offices and its managers' homes, the article added.
The Standard noted from 2007 to 2012, the telecoms gear marker has been linked to bribery in the Philippines,
Algeria and Norway.
In March, ZTE posted its second straight quarterly loss for it fourth quarter (http://www.zdnet.com/cn/zte-books-456m-
annual-loss-on-delayed-deals-7000013224/) to round off its first yearly loss ever at US$456 million. It blamed a delay in
overseas projects and low-margin contracts.
That same month, the firm revealed it had reduced some middle and senior management positions
(http://www.zdnet.com/cn/zte-cuts-senior-middle-management-roles-in-restructure-7000012432/) amid an ongoing organizational
review which begun last year to streamline the organization.
ZTE, along with Chinese counterpart Huawei, have been under scrutiny by the United States government for being a
national security threat due to their alleged links to the military. It had also been under investigation by the FBI
(http://www.zdnet.com/zte-in-fbi-probe-for-allegedly-selling-spy-kit-to-iran-7000000860/) for allegedly selling surveillance
equipment against trade sanctions to Iran (http://www.zdnet.com/zte-to-restrict-iran-biz-after-alleged-spy-equipment-sale-
2062304280/) .
ZTE did not reply to queries at time of publishing.
Topics: Legal, Networking, Telcos, China
About Ryan Huang

Loves caption contests and leisurely strolls along supermarket aisles. Ryan has covered
finance, politics, tech and sports for TV, radio and print. He is also co-author of best seller
"Profit from the Panic". Ryan is an editor at ZDNet's Asia/Singapore office.

Top ZTE staff held in bribery probe
Senior managers of ZTE Corp (0763) have reportedly been detained in Mongolia for alleged bribery involving a digital
education project.
Grace Cao
Wednesday, March 20, 2013
Senior managers of ZTE Corp (0763) have reportedly been detained in Mongolia for alleged bribery involving a digital
education project.
Acting on tips, officers of Mongolia's anticorruption bureau raided ZTE offices and managers' homes as well as
checking cars and garages, itxinwen.com quoted insiders as saying.
"The bureau found evidence of bribery after a comprehensive investigation into the documents relating to ZTE's digital
education projects," according to a claim yesterday.
Executives of the Shenzhen-based firm - the world's fifth-largest telecommunications equipment supplier - were
refusing to comment on the arrests, according to the Global Times, though they were reported as saying the firm had
acted in accordance with the laws of Mongolia.
From 2007 to 2012, ZTE was linked to bribery in the Philippines, Algeria and Norway.
The Mongolia case was not the only matter troubling ZTE yesterday.
It is in a patent dispute with Huawei Technologies, which won an injunction from a German court on a complaint about
4G-ready base stations. ZTE is to appeal.
ZTE issued a profit warning in January, estimating losses for the past year would come up to 2.9 billion yuan (HK$3.62
billion) on project delays and lower sales.

» Print
China's Huawei and ZTE deny getting illegal subsidy

Tue, May 29 2012
By Lee Chyen Yee and Simon Johnson

HONG KONG/STOCKHOLM (Reuters) - China's top telecoms gear makers
Huawei and ZTE denied receiving illegal government subsidies that helped them
undercut rivals in recent years, after media reported the European Union
planned to take action over unfair trade practices.
Action by the EU could spark a trade war, analysts warned.
Cheap prices have allowed Huawei and ZTE Corp to grab a big share of the
global network gear market in recent years, pushing firms such as Nokia
Siemens Networks and Alcatel Lucent to the brink of extinction.
The Financial Times quoted unidentified EU officials and executives as saying
the Commission had been gathering evidence to show Huawei and ZTE had
used subsidies to allow them to sell goods below cost in the EU.
A spokesman for EU trade chief Karel De Gucht said he could not confirm the contents of the FT report.
Both companies said on Tuesday they had not been contacted by the EU.
"We deny claims made in the media that Huawei employs dumping practices and has benefited from illegal state subsidies," Huawei
said in an emailed statement.
ZTE said it "receives no illegal or hidden subsidies, nor does it dump products in any markets where it operates".
EU trade ministers are scheduled to meet in Brussels on Thursday, an EU diplomat said.
"We think that though the ministers will have an informal debate over lunch on China, and they might touch on this topic, there will
be no formal decision," he said.
"It's sensitive because there are some European firms in the Chinese market that might face consequences."
A European Commission report in 2011 said China's largest telecom equipment makers benefit from significant government
support, including "massive" credit lines from state-owned banks.
However, European telecoms firms rely on smaller-scale export credits from government-backed bodies, emphasizing the blurred
lines marking what is allowed under international rules and what is not.
COUNTERPRODUCTIVE
China is the European Union's second-biggest trading partner after the United States, and the bloc is China's biggest trade partner.
Trade between the two is forecast to hit a record 500 billion euros ($397 billion) this year.
Despite this, relations have been tense, with the EU's De Gucht complaining China subsidizes "nearly everything", distorting
competition.
However, action by the EU over telecoms equipment could be counterproductive.
"I don't think it'll be a very good move by the EU to launch an anti-dumping case," Yang Haofan, an analyst at Guotai Junan
Securities in Shanghai, said.
"If that happens, European vendors such as Ericsson and Alcatel-Lucent will have problems trying to sell equipment in China, which
is a bright spot of global telecom spending now."
Inge Heydorn, a fund manager at Sentat Asset Management in Sweden, also said China would likely hit back at European firms.
Ericsson, the world's biggest seller of mobile equipment, said it did not support any EU move and had not prompted it to act.
"The EU faces the risk of initiating a negative spiral by targeting individual firms," Ulf Pehrsson, head of government and industry
relations at Ericsson, said in an emailed comment.
"Ericsson is a strong supporter of free trade and we don't believe in this type of unilateral measure."
In the first quarter, Ericsson's sales to China and north-east Asia were roughly equivalent to its revenue from the EU, at 9.2 billion
crowns ($1.29 billion).
Nokia Siemens Networks and Alcatel-Lucent declined to comment.
(Reporting by Lee Chyen Yee, Simon Johnson, Olof Swahnberg and Tarmo Virki; Editing by Chris Gallagher and David Hulmes)

EC ready to hit Chinese companies with sanctions over illegal subsidies
The European Commission plans to send a formal warning to China that it is ready to levy
sanctions against telecoms equipment makers Huawei and ZTE Corp over illegal subsidies,
according to reports.
The decision will mark an intensification of the European Union's efforts to guard against what Brussels says is dumping by
China Photo: Getty Images
6:14PM BST 14 May 2013
EU trade chief Karel De Gucht is set to win support from the bloc's executive on Wednesday to send the
warning letter and show China's new president, Xi Jinping, that Brussels is serious about countering what
it says is state support, Reuters claimed.
"We want to send a warning to the Chinese, a letter of intent that if they don't change their practices, there
will be duties," said a source, who added that Mr De Gucht had the full backing of European Commission
President Jose Manuel Barroso.
The decision will mark an intensification of the European Union's efforts to guard against what Brussels
says is dumping by China, the EU's second-largest trading partner. From June, the Commission will also
levy duties on billions of dollars of solar panels from China, EU officials have told Reuters.
Huawei was a little known telecoms firm less than a decade ago but today, along with its smaller rival
ZTE, it holds almost a quarter of the European market.
That poses a security risk, the Commission says, because European industries ranging from healthcare to
water utilities are becoming reliant on cheaper Chinese wireless technology.
An internal EU report last year recommended that the 27-member bloc should take action against
Chinese telecoms equipment makers as their increasing dominance of mobile networks made them a
threat to security as well as to home-grown companies.
A Huawei spokeswoman in Brussels declined to comment on the move, but the company denies
receiving unfair subsidies. It says its advantages are due to low-cost manufacturing and that its products
are secure. There was no comment ZTE on Tuesday, but it also denies allegations of illegal subsidies.
Mr De Gucht told Reuters in February there were serious concerns about China's growing presence in
mobile telecoms networks, noting that the US and Australia had effectively shut Huawei out of their
markets.
Last year, Germany excluded Huawei from supplying the infrastructure for a national academic research
network.
But European manufacturers Ericsson, Alcatel-Lucent and Nokia Siemens Networks fear retaliation in
China if they push to launch an anti-subsidy case, so the Commission has been collecting evidence on
Huawei and ZTE with a view to launching a case on its own initiative.
Division between EU countries over the telecoms issue meant De Gucht has trodden cautiously. Britain
and the Netherlands have embraced Huawei as a major job provider, while France and Italy have been
backing De Gucht on going ahead with sanctions.
Officials say they now have proof of Chinese subsidies.
"This is a political decision tomorrow," said another person briefed on the Commission's thinking. "It's
basically saying, we have all the evidence we need, we don't need to launch an investigation," the person
said.
The Huawei spokeswoman noted that the company had offered several times to meet the European
Commission but was rebuffed.

"We are open to talking with stakeholders. Because there are allegations, there are misunderstandings and
misperceptions, that's why we are always keen to discuss with all the stakeholders," Tina Tsai said.
(Edited by Andrew Trotman)
How we moderate Our new look

© Copyright of Telegraph Media Group Limited 2014

ze habe sha.co m
https://www.zehabesha.co m/ethio pian-inquiry-po ints-to -illegal-impo rts-po ssible-co rruptio n-in-huawei-deal/
Ethiopian inquiry points to illegal imports, possible corruption

in Huawei deal
Customs authority alleges that Huawei avoided taxes
By Michael Malakata
October 23, 2013 05:03 pm | Computerworld Z ambia
Government investigators say that Huawei Technologies illegally imported $13 million worth of telecom
equipment into Ethiopia, adding to the number of cases involving allegedly corrupt activities by Chinese
telecom companies in Af rica.
T he equipment was allegedly imported into the country in the name of Ethio Telecom, a state-owned telecom
company, without Ethio’s knowledge, according to the Ethiopia Revenue & Customs Authority (ERCA). T his
was done to avoid paying taxes, ERCA said.
ERCA has said it will conf iscate the equipment and is likely to slap the company with tax avoidance charges.
T he equipment has been stuck at the country’s port since last year.
Ethio Telecom signed an $800 million telecom equipment deal with Huawei and another $800 million contract
with China-based Z T E to expand its mobile phone network only three months ago. T he equipment under
investigation, however, was imported into the country toward the end of last year.
Questions are being asked regarding the timing of the imports. Industry are asking how Huawei Technologies
knew it should start importing the equipment about nine months bef ore the Ethio tender was actually awarded
to the company.
Huawei declined to comment on the matter.
Huawei imported a total of 235 items including energy storage units, various types of batteries and microwave
telecom communication products. Ethio has told ERCA that it never told Huawei Technologies to import any
telecom equipment on its behalf .
T he projects with Huawei and Z T E aim to introduce 4G broadband internet in the capital, Addis Ababa, and
increase mobile phone and 3G Internet access across the country.
Less than 1 percent of Ethiopia’s 85 million people have access to the Internet on mobile phones, according to
the International Telecommunications Union. Ethio Telecom is the only operator in the East Af rican country that
is still under tight state control and the government wants it to expand its coverage to meet the growing
demand in the communications market.
“China’s growing inf luence in Af rica is one that is now turning into a heap of unprecedented embarrassment
due to underhanded methods being used to win tenders by Chinese companies,” said Edith Mwale, telecom
analyst at Af rica Center f or ICT Development.

In Z ambia, the Anti-Corruption Commission is still investigating China’s Star Sof tware Technologies and Z T E
over corruption allegations. T he ACC is investigating how Star Sof tware Technologies was irregularly awarded
a $220 million digital migration tender, which has since been cancelled. Z T E is being investigated over the
manner in which the company was awarded a $210 million circuit television (CCT V) camera contract, which has
also been terminated.
Chinese telecom companies have also been f acing numerous corruption allegations around Af rica because of
the manner in which telecom contracts are awarded to them.
In Algeria, Kenya, Uganda and Nigeria, Chinese companies have f aced investigations over corruption related to
telecom tenders. In Algeria, Huawei and Z T E are banned f rom bidding f or telecom tenders f or two years
f ollowing convictions f or corruption charges.
- See more at: http://www.cf oworld.com/operations/75308/ethiopian-inquiry-points-illegal-imports-possible-

corruption-huawei-deal#sthash.k0joWeD0.dpuf
Z e-Habesha Website may contain advice, opinions, and statements of various inf ormation and content
providers. T he Website neither represents nor endorses the accuracy of inf ormation or endorses the contents
provided by external sources. All blog posts and comments are the opinion of the authors.
Relat ed Post s:
Telecoms in Ethiopia: Out of – T he Economist

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Telecom Deal by China’s Z T E, Huawei in Ethiopia Faces…
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Federalism or Internal Colonialism-the Ethiopian situation.…

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AFRICA NEWS
Telecom Deal by China's ZTE, Huawei in Ethiopia

Faces Criticism
For Ethiopians, a Chinese Telecom Project Changes Lives but Draws Scrutiny
By MATTHEW DALTON
Updated Jan. 6, 2014 11:01 p.m. ET
Towers like the one pictured have spread cellphone use across Ethiopia. Matthew Dalton/The Wall
Street Journal
LAKE WENCHI, Ethiopia—In the green highlands here southwest of Addis Ababa, farmers like Darara
Baysa are proud owners of cellphones that run on a network built by China's ZTE Corp.
The trouble is, they have to walk several miles to get a good signal. "The network doesn't work well," says
Mr. Baysa, a former army sergeant, stopping on the unpaved road near his home to show his hot-pink
smartphone.
Among other troubles: Ethiopian government officials have

in recent years complained to ZTE that the company's
contract for building the network requires Ethiopia to pay too
much, say people familiar with the discussions.
The Ethiopian network's glitches underline the broader

troubles that sometimes face poorer nations as they borrow
Chinese telecom giant ZTE is expanding cell phone heavily to invest in telecommunications, roads, utilities and
service in Ethiopia, changing how farmers do
business. WSJ's Matthew Dalton reports. other infrastructure to help lift them out of poverty.
China's financial firepower helps its firms win many of these contracts. But in agreeing to such deals,
some governments appear to have flouted rules meant to foster sound public investment. When countries
sidestep such rules, say experts at institutions such as the World Bank, big projects often cost more and
are more likely to be poorly executed.
China's impact has been particularly visible in telecom projects. In

Ethiopia, ZTE beat out Western competitors in 2006 for a major
telecom project by offering $1.5 billion in low-interest financing,
funded by Chinese state-run banks.
A World Bank investigation found that the Ethiopian government

appeared to ignore its own procurement rules requiring
competitive bidding when it awarded the contract, which gave ZTE
a monopoly on supplying telecom equipment for several years.
The 2013 report also criticized Ethiopia for giving such a big
project to one company and called for the country to audit the
contract. It didn't find that ZTE acted improperly.
Ethiopia ended ZTE's monopoly in July 2013, bringing in its main

Chinese rival, Huawei Technologies Co. The two companies split
another big contract, for the next phase of the network's
expansion. Again, financing won the day, with the two pledging a
total of $1.6 billion, people close to the negotiations say. Western
equipment suppliers, such as Ericsson and Alcatel Lucent SA,
couldn't match the Chinese offer, these people say.
More A ZTE spokesman says it has complied with Ethiopia's

China Tightens Grip on Shadow Banks regulations. Ethiopia's telecommunications minister and a
spokesman for the state-owned telecom monopoly, Ethio
Telecom, didn't respond to queries. The World Bank report notes that Ethiopian authorities told its
investigators that they invited eight companies to bid for the project.
Tony Duan, chief executive of Huawei's Ethiopian division, says the company is "fully aware of the issues
linked to poor quality telecom services and frequent interruptions of mobile networks in the country."
Jia Chen, chief executive of ZTE's Ethiopian business, acknowledges that the network's service has been
uneven. He blames delays in awarding the next phase of expansion, construction projects that cut
telecom lines and slack maintenance by Ethio Telecom. "Maintaining the network is not our job," he says.

"We guarantee the quality of the network, but you have to guarantee our base stations get electricity." He
says ZTE must charge more in Ethiopia than elsewhere partly to offset the project loans' large size and
long repayment period of 13 years.
Ericsson and Alcatel decline to comment.
Complaints have surfaced in other developing countries

about alleged overbilling, mismanagement and flouted
contracting rules in telecom deals financed by Chinese
state-run banks.
Kenya's government late last year canceled a contract for a

national police-communication system that was tentatively
awarded to ZTE last year, with funding to come from loans
pledged by China, according to Kenyan government
documents. Anticorruption activists say Kenya violated its
constitution by letting only Chinese firms bid on the deal,
while a government review of ZTE's bid claimed the
company offered its equipment at double normal market
prices.
ZTE appealed the decision to a review board, which sided

with the Kenyan government: "It does not require rocket
science in view of the evidence before the Board to establish
that (ZTE's) financial proposal was highly exaggerated,"
according to the board's decision, reviewed by The Wall
Street Journal.
ZTE declines to comment. The Kenyan government didn't

respond to queries.
Uganda in 2011 canceled a $74 million contract that the

Uganda Broadcasting Corporation signed with Huawei—with
Export-Import Bank of China funding—saying procurement
rules were flouted. Ugandan government officials didn't
respond to queries. Huawei declines to comment on the
Uganda matter. The Export-Import Bank of China declines to comment for this article.
A $330 million Philippines contract with ZTE in 2007 to build

a broadband network—using money from the Export-Import
Bank of China—negotiated without competitive bidding,
rocked the government after lawmakers alleged that ZTE
Introducing WSJD, the Journal's new home for
tech news, analysis and product reviews. inflated the project's price to pay kickbacks to government
How Mark Zuckerberg Came of Age as a officials.
Corporate Executive
Manjoo: Boycott Snapchat and Send a Anticorruption prosecutors charged then-President Gloria
Message on Security Macapagal Arroyo with accepting bribes to approve the
Why Microsoft Hasn't Yet Chosen a New
CEO deal; the trial is continuing. Ms. Arroyo canceled the contract
French Contractors Push Snoop-Proof when she was president, and her lawyer says she maintains
Phone
Rovio Exec: Why New 'Angry Birds' Is Free
her innocence. ZTE declines to comment, citing the ongoing
legal process. In a statement to the Chinese press in 2007,
ZTE said it had done nothing wrong.
Governments need competitive bidding and other controls to get the best prices and ensure projects are
well-planned, says Neill Stansbury, director of London-based Global Infrastructure Anti-Corruption Centre,
who contributed to the World Bank report on Ethiopia's project.
Large loans can obscure project costs, he says: "You may end up overall, over 20 years, with a much
more expensive package than you would have done buying another manufacturer's equipment at a more
expensive financing cost."
ZTE and Huawei have grown to be two of the world's largest telecom-equipment makers, aided by access
to hefty financing that helps them outbid Western rivals.
Western companies can get loans supported by government export-finance banks. But almost all these
banks, unlike China's, have signed an agreement backed by the Organization for Economic Cooperation
and Development limiting such lending, especially to countries with debt-problem histories.
The state-owned Export-Import Bank of China and the China Development Bank finance exports and
overseas projects. They provided nearly $50 billion in financing for Africa from 1995 through 2012, mostly
export credits, according to estimates by Deborah Brautigam, director of the International Development
Program at Johns Hopkins University. Chinese companies also get financing from state-run China Export
and Credit Insurance Corp.
The U.S. Export-Import Bank has provided about $12 billion in financing for African buyers during the
same period. The U.S., the European Union, China and other nations have been negotiating international
guidelines on export financing that Western governments hope will restrain Chinese state-run banks.
China has had a sizable presence in Ethiopia for more than a decade, and ties between the two grew
closer after Ethiopia's disputed elections in 2005. Then-Prime Minister Meles Zenawi, who led Ethiopia for
more than 20 years until his death in 2012, began to view the West as less friendly.
He aligned Ethiopia with China, awarding ZTE the 2006 telecom deal, which was funded with loans from
the Export-Import Bank and China Development Bank. China Development Bank didn't respond to a
request for comment.
A ZTE spokesman says it has built more than 2,000 cellphone transmission sites in Ethiopia and laid
about 5,000 miles of fiber-optic cable in forbidding terrain. ZTE says paying cellphone users in Ethiopia
have soared from around one million in 2005 to over 12 million in 2013, a seventh of the population.
The network has vastly improved quality of life for many. Cellphone service now extends across much of
Ethiopia, an impoverished country whose 90 million people form one of Africa's largest, fastest-growing
markets.
In rural areas, where most live, the network has ushered in new ways of doing business.

Afework Wondimu uses his cellphone to check the price of teff, a millet-like grain used to make injera, the
Ethiopian cuisine's ubiquitous flat bread. If the price is good, he loads big bundles of teff onto donkeys
and heads into town.
"Otherwise we keep it and find another way to sell it another time," he says, as a team of oxen threshed
golden piles of teff on his farm west of the capital.
Two years ago, before he got a cellphone, Mr. Baysa, the farmer with the pink phone, says he sometimes
had to travel three days from his home by foot, horse and bus simply to check on friends and family.
Still, he wouldn't mind a luxury he has heard others enjoy: phoning from bed.
Ethiopians elsewhere also complain about the network's spottiness. In the capital of Addis Ababa, the
phone network appears overburdened and is sometimes inaccessible during the day.
If the network and other infrastructure projects don't work well, Ethiopia could see economic growth suffer
and its foreign-exchange reserves depleted to repay debts, says Benedicte Vibe Christensen, an
economist who was an Africa expert at the International Monetary Fund until 2009.
"If the quality of investment projects is not good, at the end of the day the risk is that foreign exchange
reserves would be insufficient to repay all loans," she says.
The Chinese loans for the 2006 project account for about 12% of Ethiopia's nondomestic public-sector
debt, according to government data. Ethio Telecom doesn't publish financial statements. It started
repaying the loan in 2010, and it has repaid around $300 million in principal, according to a person
familiar with the repayment.
Financing has a cost: ZTE's Mr. Jia says ZTE must charge Ethiopia more for its network partly because
the loans are large, the repayment period is long—13 years—and ZTE is liable if Ethio Telecom doesn't
repay.
"If you just think about the price compared with the others, you think, 'Oh, your prices are very high, then
you make a lot of money,' " Mr. Jia says. "But you have to think: This money, I'm going to get it back in 13
years!"
The network's uneven performance echoes worries that former Ethiopian telecom managers say they had
about ZTE's gear before it won the 2006 contract. Calls to and from ZTE-covered areas were frequently
dropped, and the mobile-phone signal in those areas was so weak that people living in brick or stone
houses often had to go outside to use their phones, the former managers say.
A ZTE spokesman says interconnection problems such as those the network experienced in that era are
a common result of different suppliers' equipment using the same frequency.
Some of those managers say they raised concerns about giving contracts to ZTE—and were punished for
it.
The former managers say they argued that Ethiopia's telecom operator hadn't run a proper competitive
bidding process for the 2006 ZTE contract. They say they worried the deal would make Ethiopia
completely dependent on ZTE.
"We complained: It will damage the future of the Ethiopian Telecommunications Corporation," says a
former manager at the ETC, a predecessor to Ethio Telecom. "If we select only one company, we are
going to depend on one company."
The managers who say they raised the concerns were among two dozen employees that the Federal
Ethics and Anti-Corruption Commission of Ethiopia prosecuted in 2008 for violating government
contracting rules, mainly for a previous contract that they awarded to Ericsson in 2005.
A court sentenced some to jail, including the former chief executive, Tesfaye Birru, who has denied the
charges and remains in jail.
Senior government officials "tried to intimidate others not to speak against the Chinese company," says
the former ETC manager.
Officials at the anticorruption commission deny the prosecutions were an attempt to silence ZTE's critics.
The commission didn't accuse the managers of personally profiting from the Ericsson deal.
The anticorruption commission says: "What is confirmed is that the defendants abused their power,
violated existing rules and regulations, conspired to benefit others and caused the government to incur
unnecessary costs."
A former Ericsson manager in Ethiopia who is no longer in the country, Moncef Mettiji, says there were no
improprieties involved in the 2005 contract.
—Olivia Geng contributed to this article.
Write to Matthew Dalton at Matthew.Dalton@wsj.com
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Home > Business > Norway's telco giant bans ZTE for 6 months
Norway's telco giant bans ZTE for 6 months [1]
By Carmela Fonbuena, abs-cbnNEWS.com, Newsbreak | 10/21/2008 2:46 PM
Printer-friendly version [2] | Send to friend [3] | Share your views [4]
[5] [6] [7] [8] [9] [10] [11]
Norwegian telecommunications giant Telenor banned for six months Chinese company ZTE
Corp. from participating in tenders and new business opportunities because of an alleged breach
of its code of conduct in a procurement proceeding,” international news agencies reported.
Telenor announced the ban Monday last week, October 13. It will take effect until March 3, 2009.
The news reports did not give further details on the breach.
Based on its company profile, Telenor ranked as the world’s 7th largest mobile operator having
ownership interests in 12 mobile operators across Europe and Asia. In 2007, it enjoyed annual
revenue of NOK 105 billion.
“This situation between Telenor and ZTE has arisen because of the actions of a single employee
in a ZTE subsidiary acting on his own behalf,” news agencies Reuters and Wall Street Journal
quoted a statement of ZTE Corp.
“The individual concerned has been disciplined and we are reviewing possible legal action. ZTE
has a very clear code of conduct and, as a listed company, our employees have to adhere to the
highest business standards,” the ZTE Corp.’s statement also said.
(Reuter’s report on the ban [12])
Remember the US$329-million broadband deal?
ZTE Corp. gained notoriety in the Philippines after its involvement with the government’s
controversial national broadband deal project.
Several witnesses came forward to testify on the allegedly irregular procurement process
undertaken by government agencies in awarding the project to ZTE Corp.
In a Senate hearing in February, self-proclaimed ZTE Corp. local consultant and liaison officer
Dante Madriaga testified that the Chinese company advanced a total US$41 million to President
Arroyo and her agents to seal the deal.
Before Madriaga, witnesses Jose “Joey” De Venecia III and Rodolfo Noel “Jun” Lozada surfaced
to accuse the President of involvement in the anomalous broadband deal project. But it was
Madriaga who named ZTE official Fan Yan’s involvement in the cash advances.
Madriaga said back then that Fan Yan (or Fan Yang) personally told him about the advances.
The ZTE official was supposedly worried about the delayed approval of the deal.
The controversy led President Arroyo to cancel the project with ZTE Corp. The Chinese
government, on the other hand, later cleared ZTE Corp. of any violations and laws and rules in
relation to its dealings in the Philipines.
All these moves did not provide a closure to the controversy, however. The allegedly anomalous
government project is one of the charges in the latest impeachment case against President
Arroyo.
as of 10/21/2008 2:49 PM
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Telenor Bans ZTE From New Deals
Norway's national operator, Telenor ASA (Nasdaq: TELN) has excluded Chinese
vendor ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), from any business
opportunities for six months because of a breach of the carrier's code of
conduct.
Telenor spokesman Dag Melgaard said that "for the moment we have
NEWS ANALYSIS
suspended ZTE from tender processes and new business opportunities for six
RAY LE MAISTRE, months, ending March 3 next year, because of a breach of our code of conduct
Editor-in-chief related to a recent tender process." He said the ban is worldwide, covering all of
10/13/2008 Telenor's international operations.
COMMENT (18)
Melgaard would not provide any details about the nature of the breach, or which
tender process it referred to, but an industry source has told Light Reading that
ZTE representatives attempted to bribe Telenor officials in the course of a recent
Login business tender.
ZTE says the problem was caused by a rogue employee. In a statement emailed
50% 50%
to Light Reading and attributed to the vendor's CEO Yin Yimin, the company
Tweet 0 noted: "ZTE has a very clear Code of Conduct and, as a listed company, our
Share 1
employees have to adhere to the highest business standards."
0
It continued: "This situation between Telenor and ZTE has arisen because of the
actions of a single employee in a ZTE subsidiary acting on his own behalf. The
individual concerned has been disciplined and we are reviewing possible legal
action. We expect to continue the strong and positive relationship between our
two companies in the very near future."
Telenor has operations throughout Northern Europe (Norway, Denmark, Finland,

and Sweden), Eastern Europe (Hungary, Montenegro, Serbia, Russia, and
Ukraine), and Asia/Pacific (Bangladesh, Malaysia, Pakistan, and Thailand).
ZTE is a supplier of GSM mobile infrastructure to Telenor. (See ZTE Touts GSM
Growth.)
— Ray Le Maistre, International News Editor, Light Reading
(18) | COMMENT | EMAIL THIS | PRINT | RSS
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Which way for Huawei? To ban or not to ban – the reasons why
Australia is the latest country following the U.S. and India to ban Huawei from bidding to supply equipment to
networks considered to be a critical part of national infrastructure. The justification for these bans is that Huawei may
introduce “trap doors” or other software-based means into the equipment it installs that will facilitate the Chinese
military or Chinese Government’s ability to monitor communications in the country or to disrupt communications and
information systems and other vital ICT-dependent facilities (e.g. the electric grid) whenever they decide it is in their
interests to do so. The Indian Government lifted its ban in 2010 after a few months of negotiation but ordered that all
Chinese equipment pass extensive security checks before certification, while the U.S. has if anything been reinforcing
the obstacles Huawei faces in becoming a major competitor in the U.S. market.
The bans on Huawei in these countries for bidding on sensitive network projects (and in the U.S. as well for acquiring
U.S. companies that supply equipment to the military and security agencies) highlight the growing concerns among
their governments over the increasingly frequent Chinese cyberattacks on their companies and governments' IT
infrastructure as well as the claims that China is not adhering to the rules of the World Trade Organization (WTO) of
which it is a member. The U.S. government has specifically named China as the "most active and persistent" cyber
attacker against the U.S. and allied governments.
Furthermore the treatment of Google in and by China is one example of Chinese behavior which has received
significant publicity. The obstacles Google has encountered in operating in China represent in American eyes not only
unreasonable censorship accompanied by the hounding and punishment of dissenters by Chinese authorities, but also
discrimination against a U.S.-based company accompanied by allegations of theft of its source code.
The protestations from Huawei about these bans have to contend with stories and evidence about computer hacking
originating from China to collect commercial and military and intelligence information as well as concerns about the
protection (or lack thereof) of intellectual property on the part of Chinese companies. Huawei was founded by a
former member of the PLA’s (People Liberation Army) research institute where he was credited with several
technological achievements before entering the electronic sector. In other words, so the argument goes, Chinese
companies, especially ones suspected of continuing and long-term ties to the Chinese military, do not play “fair” in
competing with non-Chinese companies. Furthermore use of the equipment and software provided by Chinese
suppliers in key parts of a country’s network infrastructure could pose an unacceptable risk to the national security of
that country and the ability of other companies to keep commercially sensitive information confidential.
There are several reasons which are outlined below to question this one-sided picture of Huawei’s role and activities.
However Huawei’s attempts to allay the fears about its behaviour are inhibited by its opaque ownership structure as
well as by widely reported stories of the proportion of hacking into U.S.-based and other computer systems that
reportedly originates from China. The Chinese claim reciprocally that their computers are regularly hacked into from
the U.S. and elsewhere. Furthermore the Western media regularly cover unfavourable commentaries about the
difficulties which Google has encountered in operating in China and the often apparently random ways in which
internet users in China find their communications blocked. These stories are used to persuade Western public opinion
and politicians who are only too happy to pander to jingoistic and paranoid tendencies among voters and accuse

Huawei of being untrustworthy and unworthy of participation in their markets as a mark of their true patriotism.
It is true that Chinese attitudes and traditions about what is considered legitimate and illegitimate behaviour in
commercial transactions and the rights of citizens differ from those that are prevalent in the U.S. and other Western
countries, which fosters an atmosphere in which it is easy to demonize Chinese companies. Nevertheless the
characterization of Huawei as an arm of the Chinese Government or military which competes unfairly against upright
Western companies and is simply a Trojan horse for China’s military and intelligence services neglects other
characteristics of the markets in which Huawei operates and the roles of many other players.
Several other factors paint a more nuanced picture than the one which emerges by simply focusing on concerns
about China that generate and underlie apprehension about Huawei and the risks it may pose. Firstly defenders of
civil liberties in the countries that have introduced bans on Huawei may or arguably should be as worried about the
activities of their own governments and locally-based companies as they are about threats from China. Provisions of
the U.S. Patriot Act as well as the role of AT&T in assisting the U.S. Government with the surveillance of the
telephone and Internet communications of millions of Americans indicate that significant threats to human rights can
arise from domestic as well as foreign sources. Are the risks from the actions of domestic organizations involved in
networks also not significant as well as those from foreign suppliers, if not in military terms at least in terms of the
daily lives of citizens?
Secondly India one of the countries which imposed bans on Huawei (and its fellow Chinese supplier ZTE) presents an
unusual and ironic twist to the debate about whether or not Huawei should be banned from bidding on sensitive
contracts. India has perhaps a more obvious justification than Australia or the U.S. for being leery about the
involvement of Chinese companies in its networks since it has a longstanding border dispute with China that
triggered the 1962 Sino-Indian war in which India suffered a humiliating defeat. Nevertheless in an apparent paradox
in mid-2011 India reportedly turned to Huawei for help in searching imported smartphones and communications
devices for signs of malware and spyware. Huawei opened a research lab at Bangalore's Indian Institute of Science
that will be used for this purpose among others. Of course it can be argued that opening a joint Indian-Chinese
cybersecurity lab may also present problems for Huawei, since it creates an environment where it will be easy for
Indians to observe Huawei's techniques and corporate behaviour. In other words perhaps there is a cyberanalogy to
the saying, “Keep your friends close and your enemies closer” as the Chinese general and military strategist Sun Tzu
wrote about 2400 years ago. The purpose of intimacy with possible enemies is to get to know them as well and
thoroughly as possible in order be able to anticipate and counter any hostile initiatives they may undertake.
Thirdly other countries most notably the U.K. , and very recently also New Zealand which has given approval for
Huawei to participate in its ultrafast broadband project, have not found it necessary to ban Huawei from participation
in supplying equipment to its major networks. Yet the U.K. presumably has comparable concerns as the U.S. and
Australia about both the risks as well as the benefits of allowing Chinese companies to sell ICT equipment in their
domestic market. In the UK, the fixed line incumbent BT has reiterated its confidence in Huawei, and said that it was
able to examine source code for products to check for "back doors" or eavesdropping functions. BT said in a
statement: "BT's relationship with Huawei and other suppliers is managed strictly in accordance with U.K. laws and
security best practice. BT's network is underpinned by robust security controls and built-in resilience. We continue to
work closely with all our suppliers and the government, where appropriate, to ensure that the security of the network
is not compromised."
Fourthly of course there is also the risk of retaliation in the Chinese market against firms based in countries that
impose bans on Huawei. It would be ironic for example if the competitive beneficiaries of bans on Huawei in the U.S.
– most obviously the Sweden-based Ericsson and the French headquartered Alcatel-Lucent - were also beneficiaries
of formal or informal reciprocal bans imposed on U.S.-based companies (such as Cisco and Juniper Networks) in the
Chinese market.
Finally it should not be forgotten that Huawei is competing against other companies not countries, and is not the sole
or necessarily preferred representative of Chinese telecommunications technology. In South Africa this competitive
environment has been made obvious by the filing of a law suit by the local arm of the second Chinese
telecommunications supplier ZTE which alleges irregularities in the award of Telkom’s contract for a major network
upgrade. In Telkom’s tender process the bid from ZTE was rejected and Telkom awarded the business to Huawei and
Alcatel-Lucent.
Conclusion
Huawei has already taken significant steps to attempt to allay and overcome fears about its motivations and
behaviour such as establishing local manufacturing and development facilities, hiring local nationals with
distinguished backgrounds and pedigrees to make its case and occupy executive positions in the target countries, and
offering third parties (such as BT above) access to its software so that it can be certified as safe to use. However,
these steps have manifestly not been sufficient in some countries.

In order for Huawei to improve its chances of avoiding or having bans on its bidding for some key contracts revoked
it could: (a) Become more open and transparent about its ownership structure; (b) Make senior Chinese executives
(not just Western lobbyists and former politicians and military officers whom it hires) available for interviews in
Western and other foreign media; and (c) Advocate visibly and actively for changes in Chinese policy about internet
censorship and the treatment of non-Chinese companies operating in the Chinese market. I do not know how
practical or likely it is or may become for Huawei to take these last two steps. This will depend on Huawei’s
relationships and illuminate its freedom or independence and strategy with respect to the powers-that-be in China
itself, which is undergoing a transition in the highest Communist Party and Government Posts within the next year.
As for the countries that impose these bans on Huawei, rational analysis (which may be as improbable as changes in
Huawei’s behaviour within China, at least in the U.S. given the prevailing dysfunctional political climate in this country
which makes coherent debates almost impossible to initiate or admit to in decision making circles) would suggest
that a more nuanced view of threats and risks should be developed. After all in the context of the portfolio of risks
that may conceivably have Chinese origins some risks may be inherent in the use of ICT equipment sold by non-
Chinese firms that are delivered from facilities in China owned by or under contract to non-Chinese suppliers, or from
Chinese nationals working outside China who develop products and software while employed by non-Chinese
companies or are enrolled in graduate programmes at major U.S. universities which work on sensitive research and
development programmes funded by the U.S. Department of Defense. It is also possible as in the Cold War era that
non-Chinese staff in sensitive positions in key suppliers may be persuaded by financial incentives or ideology to act
on behalf of Chinese interests in ways that are harmful to the country of which they are citizens. Furthermore the
reported success of the Stuxnet virus in destroying some of the centrifuges used in Iran’s nuclear programme
illustrates that there are many avenues for wreaking cyberdamage that do not depend on the insertion of spyware or
malware in equipment installed in a target’s own networks. The price of security like that of liberty may be eternal
vigilance, but the vigilance should be intelligent or properly targeted and proportionate. Some of the bans imposed
on Huawei may be neither.
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Investigative Report on the U.S. National Security
Issues Posed by Chinese Telecommunications
Companies Huawei and ZTE
A report by Chairman Mike Rogers and Ranking Member C.A.

Dutch Ruppersberger of the Permanent Select Committee on
Intelligence
U.S. House of Representatives

112th Congress
October 8, 2012

Contents
Executive Summary ................................................................................................... iv
Report............................................................................................................................... 1
I. The threat posed to U.S. national-security interests by vulnerabilities in the
telecommunications supply chain is an increasing priority given the country’s
reliance on interdependent critical infrastructure systems; the range of threats these
systems face; the rise in cyber espionage; and the growing dependence all
consumers have on a small group of equipment providers. ..................................... 1
A. China has the means, opportunity, and motive to use telecommunications

companies for malicious purposes. ................................................................. 2
B. Suggested “mitigation measures” cannot fully address the threat posed by

Chinese telecommunications companies providing equipment and services to
United States critical infrastructure. ................................................................ 4
II. Investigation ............................................................................................................. 7
A. Scope of Investigation ..................................................................................... 7
B. Investigative Process ....................................................................................... 8
C. Investigative Challenges................................................................................ 10
III. Summary of Findings ............................................................................................. 11
A. The Committee finds that Huawei did not fully cooperate with the
investigation and was unwilling to explain its relationship with the Chinese
government or Chinese Communist Party, while credible evidence exists that
Huawei fails to comply with U.S. laws. ........................................................ 12
i. Huawei did not provide clear and complete information on its corporate
structure and decision-making processes, likely remains dependent on the
Chinese government for support. .............................................................. 13
ii. Huawei failed to explain its relationships with the Chinese government,
and its assertions denying support by the Chinese government are not
credible. ..................................................................................................... 21
iii. Huawei admits that the Chinese Communist Party maintains a Party
Committee within the company, but it failed to explain what the Party
i

Committee does on behalf of the Party or which individuals compose the
Committee. ................................................................................................ 22
iv. Huawei’s corporate history suggests ties to the military, and Huawei failed
to provide detailed answers to questions about those connections. .......... 24
v. Huawei’s failure to provide information about the Chinese government’s

1999 investigation of the company for tax fraud exemplifies a company
that refuses to be transparent; the apparent ease with which Huawei ended
the investigation undermines Huawei’s assertion that the Chinese
government finds Huawei to be a disfavored telecommunications solutions
provider in China. ..................................................................................... 25
vi. Huawei failed to explain its relationships with western consulting firms,
and any claims that its success is on account of those relationships, rather
than support by the Chinese government, are not credible. ...................... 26
vii. Huawei failed to answer key questions or provide supporting

documentation for its claims to be financially independent of the Chinese
government. .............................................................................................. 27
viii. Huawei failed to provide sufficient details or supporting documentation on

its operations, financing, and management in the United States,
undermining its claims of being a completely independent subsidiary of
Huawei’s parent company in Shenzhen, China. ....................................... 29
ix. Evidence shows that Huawei exhibits a pattern of disregard for the
intellectual property rights of other entities and companies in the United
States. ........................................................................................................ 31
x. Huawei failed to provide details of its operations in Iran, though it denied

doing business with the government of Iran, and did not provide evidence
to support its claims that it complies with all international sanctions or
U.S. export laws. ....................................................................................... 32
xi. Huawei refused to provide details on its R&D programs, and other
documents undermine its claim that Huawei provides no R&D for the
Chinese military or intelligence services. ................................................. 33
xii. Former and current Huawei employees provided evidence of a pattern and
practice of potentially illegal behavior by Huawei officials. .................... 34
ii

B. ZTE failed to answer key questions or provide supporting documentation
supporting its assertions; instead, it asserted that answering the Committee’s
requests about its internal corporate activities would leave the company
criminally liable under China’s states-secrets laws. ...................................... 35
i. ZTE did not alleviate Committee concerns about the control of Chinese
state-owned enterprises in ZTE’s business decisions and operations. ..... 37
ii. ZTE maintains a Chinese Party Committee within the company, but has
not fully clarified how the Party Committee functions, who chooses its
members, and what relationship it has with the larger Chinese Communist
Party. ......................................................................................................... 40
iii. ZTE failed to disclose information about its activities in the U.S. ........... 42
iv. ZTE failed to provide any answers or evidence about its compliance with
intellectual property or U.S. export-control laws...................................... 42
v. ZTE failed to provide clear answers to Committee questions about its

R&D activities, particularly as they relate to any military or government
projects. ..................................................................................................... 43
Conclusion and Recommendations ................................................................................... 44
iii

House Permanent Select Committee on Intelligence
Chairman and Ranking Member Investigative Report on
The U.S. National Security Issues Posed by Chinese

Telecommunications Companies Huawei and ZTE
Executive Summary
In February 2011, Huawei Technologies Company, the leading Chinese

telecommunications equipment manufacturer, published an open letter to the U.S.
Government denying security concerns with the company or its equipment, and
requesting a full investigation into its corporate operations.1 Huawei apparently
believed – correctly – that without a full investigation into its corporate activities,
the United States could not trust its equipment and services in U.S.
telecommunications networks.2
The House Permanent Select Committee on Intelligence (herein referred to

as “the Committee”) initiated this investigation in November 2011 to inquire into
the counterintelligence and security threat posed by Chinese telecommunications
companies doing business in the United States. Prior to initiating the formal
investigation, the Committee performed a preliminary review of the issue, which
confirmed significant gaps in available information about the Chinese
telecommunications sector, the histories and operations of specific companies
operating in the United States, and those companies’ potential ties to the Chinese
state. Most importantly, that preliminary review highlighted the potential security
threat posed by Chinese telecommunications companies with potential ties to the
Chinese government or military. In particular, to the extent these companies are
influenced by the state, or provide Chinese intelligence services access to
telecommunication networks, the opportunity exists for further economic and
foreign espionage by a foreign nation-state already known to be a major
perpetrator of cyber espionage.
As many other countries show through their actions, the Committee

believes the telecommunications sector plays a critical role in the safety and
security of our nation, and is thus a target of foreign intelligence services. The
iv

Committee’s formal investigation focused on Huawei and ZTE, the top two
Chinese telecommunications equipment manufacturers, as they seek to market
their equipment to U.S. telecommunications infrastructure. The Committee’s
main goal was to better understand the level of risk posed to the United States as
these companies hope to expand in the United States. To evaluate the threat, the
investigation involved two distinct yet connected parts: (1) a review of open-
source information on the companies’ histories, operations, financial information,
and potential ties to the Chinese government or Chinese Communist Party; and (2)
a review of classified information, including a review of programs and efforts of
the U.S. Intelligence Community (IC) to ascertain whether the IC is appropriately
prioritizing and resourced for supply chain risk evaluation.3
Despite hours of interviews, extensive and repeated document requests, a

review of open-source information, and an open hearing with witnesses from both
companies, the Committee remains unsatisfied with the level of cooperation and
candor provided by each company. Neither company was willing to provide
sufficient evidence to ameliorate the Committee’s concerns. Neither company
was forthcoming with detailed information about its formal relationships or
regulatory interaction with Chinese authorities. Neither company provided
specific details about the precise role of each company’s Chinese Communist
Party Committee. Furthermore, neither company provided detailed information
about its operations in the United States. Huawei, in particular, failed to provide
thorough information about its corporate structure, history, ownership, operations,
financial arrangements, or management. Most importantly, neither company
provided sufficient internal documentation or other evidence to support the limited
answers they did provide to Committee investigators.
During the investigation, the Committee received information from

industry experts and current and former Huawei employees suggesting that
Huawei, in particular, may be violating United States laws. These allegations
describe a company that has not followed United States legal obligations or
international standards of business behavior. The Committee will be referring
these allegations to Executive Branch agencies for further review, including
possible investigation.

In sum, the Committee finds that the companies failed to provide evidence
that would satisfy any fair and full investigation. Although this alone does not
prove wrongdoing, it factors into the Committee’s conclusions below. Further,
this report contains a classified annex, which also adds to the Committee’s
concerns about the risk to the United States. The investigation concludes that the
risks associated with Huawei’s and ZTE’s provision of equipment to U.S. critical
infrastructure could undermine core U.S. national-security interests.
Based on this investigation, the Committee provides the following

recommendations:
Recommendation 1: The United States should view with suspicion the continued
penetration of the U.S. telecommunications market by Chinese
telecommunications companies.
The United States Intelligence Community (IC) must remain vigilant and
focused on this threat. The IC should actively seek to keep cleared private
sector actors as informed of the threat as possible.
The Committee on Foreign Investment in the United States (CFIUS) must

block acquisitions, takeovers, or mergers involving Huawei and ZTE given
the threat to U.S. national security interests. Legislative proposals seeking
to expand CFIUS to include purchasing agreements should receive
thorough consideration by relevant Congressional committees.
U.S. government systems, particularly sensitive systems, should not include

Huawei or ZTE equipment, including component parts. Similarly,
government contractors – particularly those working on contracts for
sensitive U.S. programs – should exclude ZTE or Huawei equipment in
their systems.
Recommendation 2: Private-sector entities in the United States are strongly

encouraged to consider the long-term security risks associated with doing business
with either ZTE or Huawei for equipment or services. U.S. network providers and
systems developers are strongly encouraged to seek other vendors for their
projects. Based on available classified and unclassified information, Huawei and
vi

ZTE cannot be trusted to be free of foreign state influence and thus pose a security
threat to the United States and to our systems.
Recommendation 3: Committees of jurisdiction within the U.S. Congress and

enforcement agencies within the Executive Branch should investigate the unfair
trade practices of the Chinese telecommunications sector, paying particular
attention to China’s continued financial support for key companies.
Recommendation 4: Chinese companies should quickly become more open and

transparent, including listing on a western stock exchange with advanced
transparency requirements, offering more consistent review by independent third-
party evaluators of their financial information and cyber-security processes,
complying with U.S. legal standards of information and evidentiary production,
and obeying all intellectual-property laws and standards. Huawei, in particular,
must become more transparent and responsive to U.S. legal obligations.
Recommendation 5: Committees of jurisdiction in the U.S. Congress should

consider potential legislation to better address the risk posed by
telecommunications companies with nation-state ties or otherwise not clearly
trusted to build critical infrastructure. Such legislation could include increasing
information sharing among private sector entities, and an expanded role for the
CFIUS process to include purchasing agreements.
vii

Report
I. The threat posed to U.S. national-security interests by vulnerabilities in the

telecommunications supply chain is an increasing priority given: the
country’s reliance on interdependent critical infrastructure systems; the
range of threats these systems face; the rise in cyber espionage; and the
growing dependence all consumers have on a small group of equipment
providers.
The United States’ critical infrastructure, and in particular its telecommunications

networks, depend on trust and reliability. Telecommunications networks are vulnerable
to malicious and evolving intrusions or disruptive activities. A sufficient level of trust,
therefore, with both the provider of the equipment and those performing managed
services must exist at all times. A company providing such equipment, and particularly
any company having access to or detailed knowledge of the infrastructures’ architectural
blueprints, must be trusted to comply with United States laws, policies, and standards. If
it cannot be trusted, then the United States and others should question whether the
company should operate within the networks of our critical infrastructure.
The risk posed to U.S. national-security and economic interests by cyber-threats is

an undeniable priority. First, the country’s reliance on telecommunications infrastructure
includes more than consumers’ use of computer systems. Rather, multiple critical
infrastructure systems depend on information transmission through telecommunications
systems. These modern critical infrastructures include electric power grids; banking and
finance systems; natural gas, oil, and water systems; and rail and shipping channels; each
of which depend on computerized control systems. Further, system interdependencies
among these critical infrastructures greatly increase the risk that failure in one system
will cause failures or disruptions in multiple critical infrastructure systems.4 Therefore, a
disruption in telecommunication networks can have devastating effects on all aspects of
modern American living, causing shortages and stoppages that ripple throughout society.
Second, the security vulnerabilities that come along with this dependence are
quite broad, and range from insider threats5 to cyber espionage and attacks from
sophisticated nation states. In fact, there is a growing recognition of vulnerabilities
resulting from foreign-sourced telecommunications supply chains used for U.S. national-
security applications. The FBI, for example, has assessed with high confidence that
threats to the supply chain from both nation-states and criminal elements constitute a high
cyber threat.6 Similarly, the National Counterintelligence Executive assessed that

“foreign attempts to collect U.S. technological and economic information will continue at
a high level and will represent a growing and persistent threat to US economic security.”7
Third, the U.S. government must pay particular attention to products produced by
companies with ties to regimes that present the highest and most advanced espionage
threats to the U.S., such as China. Recent cyber-attacks often emanate from China, and
even though precise attribution is a perennial challenge, the volume, scale, and
sophistication often indicate state involvement. As the U.S.-China Commission
explained in its unclassified report on China’s capabilities to conduct cyber warfare and
computer network exploitation (CNE), actors in China seeking sensitive economic and
national security information through malicious cyber operations often face little chance
of being detected by their targets.8
Finally, complicating this problem is the fact that Chinese telecommunications

firms, such as Huawei and ZTE, are rapidly becoming dominant global players in the
telecommunications market. In another industry, this development might not be
particularly concerning. When those companies seek to control the market for sensitive
equipment and infrastructure that could be used for spying and other malicious purposes,
the lack of market diversity becomes a national concern for the United States and other
countries.9 Of note, the United States is not the only country focusing on these concerns.
Australia expressed similar concerns when it chose to ban Huawei from its national
broadband infrastructure project.10 Great Britain has attempted to address the concerns
by instituting an evaluation regime that limits Huawei’s access to the infrastructure and
evaluates any Huawei equipment and software before they enter the infrastructure.11
A. China has the means, opportunity, and motive to use telecommunications

companies for malicious purposes.
Chinese intelligence collection efforts against the U.S. government are growing in
“scale, intensity and sophistication.”12 Chinese actors are also the world’s most active
and persistent perpetrators of economic espionage.13 U.S. private sector firms and cyber-
security specialists report an ongoing onslaught of sophisticated computer network
intrusions that originate in China, and are almost certainly the work of, or have the
backing of, the Chinese government.14 Further, Chinese intelligence services, as well as
private companies and other entities, often recruit those with direct access to corporate
networks to steal trade secrets and other sensitive proprietary data.15
These cyber and human-enabled espionage efforts often exhibit sophisticated

technological capabilities, and these capabilities have the potential to translate into efforts
to insert malicious hardware or software implants into Chinese-manufactured

telecommunications components and systems marketed to the United States.
Opportunities to tamper with telecommunications components and systems are present
throughout product development, and vertically integrated industry giants like Huawei
and ZTE provide a wealth of opportunities for Chinese intelligence agencies to insert
malicious hardware or software implants into critical telecommunications components
and systems.16 China may seek cooperation from the leadership of a company like
Huawei or ZTE for these reasons. Even if the company’s leadership refused such a
request, Chinese intelligence services need only recruit working-level technicians or
managers in these companies. Further, it appears that under Chinese law, ZTE and
Huawei would be obligated to cooperate with any request by the Chinese government to
use their systems or access them for malicious purposes under the guise of state
security.17
A sophisticated nation-state actor like China has the motivation to tamper with the
global telecommunications supply chain, with the United States being a significant
priority. The ability to deny service or disrupt global systems allows a foreign entity the
opportunity to exert pressure or control over critical infrastructure on which the country
is dependent. The capacity to maliciously modify or steal information from government
and corporate entities provides China access to expensive and time-consuming research
and development that advances China’s economic place in the world. Access to U.S.
telecommunications infrastructure also allows China to engage in undetected espionage
against the United States government and private sector interests.18 China’s military and
intelligence services, recognizing the technological superiority of the U.S. military, are
actively searching for asymmetrical advantages that could be exploited in any future
conflict with the United States.19 Inserting malicious hardware or software implants into
Chinese-manufactured telecommunications components and systems headed for U.S.
customers could allow Beijing to shut down or degrade critical national security systems
in a time of crisis or war. Malicious implants in the components of critical infrastructure,
such as power grids or financial networks, would also be a tremendous weapon in
China’s arsenal.
Malicious Chinese hardware or software implants would also be a potent

espionage tool for penetrating sensitive U.S. national security systems, as well as
providing access to the closed American corporate networks that contain the sensitive
trade secrets, advanced research and development data, and negotiating or litigation
positions that China would find useful in obtaining an unfair diplomatic or commercial
advantage over the United States.
In addition to supply chain risks associated with hardware and software, managed
services also pose a threat. Managed services, sold as part of the systems maintenance
3

contract, allow for remote network access for everyday updates to software and patches
to glitches. Unfortunately, such contracts may also allow the managed-service contractor
to use its authorized access for malicious activity under the guise of legitimate assistance.
Such access also offers an opportunity for more-tailored economic or state-sponsored
espionage activities. Telecommunications companies such as Huawei are seeking to
expand service portions of their business.20
The U.S. Government has acknowledged these concerns with telecommunications

supply chain risk for several years. Indeed, as one of twelve critical infrastructure
protection priorities outlined in the White House’s 2009 Comprehensive National
Cybersecurity Initiative (CNCI), Supply Chain Risk Management (SCRM) is identified
as a national concern. Similarly, the Executive Branch continues to review supply chain
issues consistent with its National Strategy for Global Supply Chain Security, released in
January 2012. A key part of the management of supply chain risk, as explained in the
report, is to properly “understand and identify vulnerabilities to the supply chain that
stem from both exploitation of the system by those seeking to introduce harmful products
or materials and disruptions from intentional attacks, accidents, or natural disasters.”21
B. Suggested “mitigation measures” cannot fully address the threat posed by

Chinese telecommunications companies providing equipment and services to
United States critical infrastructure.
Many countries struggle with the potential threats posed by untrustworthy

telecommunications companies. In Great Britain, the government took initial steps (as
part of an overall mitigation strategy) to address its concerns by entering into an
agreement with Huawei to establish an independently managed Cyber Security
Evaluation Centre (CSEC). CSEC conducts independent reviews of Huawei’s equipment
and software deployed to the United Kingdom’s telecommunications infrastructure, and
provides such results to the relevant UK carriers and UK government. The goal of the
British government is to attempt to lessen the threat that Huawei products deployed in
critical UK telecommunications infrastructure pose to the availability or integrity of UK
networks.
Huawei and ZTE have proposed similar schemes for products entering the United
States market, administered without U.S. government involvement, but by Electronic
Warfare Associates or other private-sector security firms.22 These partnerships seek to
address concerns that the companies could permit the Chinese government to insert
features or vulnerabilities into their products, which would assist espionage or cyber
warfare. Unfortunately, there are concerns that such efforts if taken in the United States

will fall short of addressing security concerns given the breadth and scale of the U.S.
telecommunications market.
Post-production evaluation processes are a standard approach to determining the

security properties of complex, software-intensive systems. Processes like the Common
Criteria for Information Technology Security Evaluation and various private certification
services define a process by which an evaluator measures a product against a set of
standards and assigns a security rating. The rating is meant to help a consumer know
how much confidence to place in the security features of the device or software package.
Both the implementation of the system and the methodology used to develop it, as
documented by the manufacturer, are typically used as evidence for the chosen rating.
Further, such processes are not necessarily designed to uncover malicious code but to
encourage a foundational security baseline in security-enabled products.
For a variety of technical and economic reasons, evaluation programs as proposed

by Huawei and ZTE are less useful than one might expect. In fact, the programs may
create a false sense of security that an incomplete, flawed, or misapplied evaluation
would provide. An otherwise careful consumer may choose to forego a thorough threat,
application, and environment-based risk assessment, and the costs such evaluations
entail, because an accredited outside expert has “blessed” the product in some way.
One key issue not addressed by standardized third-party security evaluations is

product and deployment diversity. The behavior of a device or system can vary wildly
depending on how and where it is configured, installed, and maintained. For time and
cost reasons, an evaluation usually targets a snapshot of one product model configured in
a specific and often unrealistically restrictive way. The pace of technology development
today drives products to evolve far more rapidly than any third-party comprehensive
evaluation process can follow. The narrow configuration specification used during
testing almost ensures that an evaluated device will be deployed in a way not specifically
covered by a formal evaluation. A security evaluation of a complex device is useless if
the device is not deployed precisely in the same configuration as it was tested.
The evaluation of products prior to deployment only addresses the product portion
of the lifecycle of networks. It is also important to recognize that how a network operator
oversees its patch management, its trouble-shooting and maintenance, upgrades, and
managed-service elements, as well as the vendors it chooses for such services, will affect
the ongoing security of the network.
Vendors financing their own security evaluations create conflicts of interest that
lead to skepticism about the independence and rigor of the result. A product

manufacturer will naturally pursue its own interests and ends which are not necessarily
aligned with all interests of the consumers. A different, but related, race to the bottom
has been noted for the similarly vendor-financed Common Criteria evaluations.23 The
designers of the Common Criteria system understood this danger and implemented
government certification for evaluators. The precaution seems mostly cosmetic as no
certification has ever been challenged or revoked despite gaming and poor evaluation
performance. Given similar concerns and about conflicts of interest, Huawei’s U.K.
evaluators of Huawei equipment have been vetted by the U.K. government and hold
government security clearances, and the U.K. process has the support of the U.K.
Carriers. It is not clear yet, however, that such steps would readily transfer to the U.S.
market or successfully overcome the natural incentives of the situation and lead to truly
independent investigations.
The task of finding and eliminating every significant vulnerability from a

complex product is monumental. If we also consider flaws intentionally inserted by a
determined and clever insider, the task becomes virtually impossible.24 While there is a
large body of literature describing techniques for finding latent vulnerabilities in
hardware and software systems, no such technique claims the ability to find all such
vulnerabilities in a pre-existing system. Techniques do exist that can prove a system
implementation matches a design which has been formally verified to be free of certain
types of flaws.25 However, such formal techniques must be incorporated throughout the
design and development process to be effective. They cannot currently be applied to a
finished product of significant size or complexity. Even when embedded into a design
and development process, formal techniques of this type do not yet scale to the size of
complete commercial telecommunication systems. It is highly unlikely that a security
evaluation partnership such as that proposed by Huawei or ZTE, independent of its
competence and motives, will be able to identify all relevant flaws in products the size
and complexity of core network infrastructure devices. If significant flaws remain in
widely fielded products and processes that are known to a potential adversary, it seems
like the evaluation process has provided only marginal benefit.
A security evaluation of potentially suspect equipment being deployed in critical

infrastructure roles may seem like an answer to the security problems posed.
Unfortunately, given the complexity of the telecommunications grid, the limitations of
current security evaluation techniques, and the economics of vendor-financed analyses
provide a sense of security but not actual security. Significant security is available only
through a thoughtful design and engineering process that addresses a complete system-of-
systems across its full lifecycle, from design to retirement and includes aspects such as
discrete technology components, their interactions, the human environment, and threats

from the full spectrum of adversaries. The result of such a process should be a
convincing set of diverse evidence that a system is worthy of our trust.26
II. Investigation
A. Scope of Investigation
The House Permanent Select Committee on Intelligence is responsible for

authorizing the intelligence activities of the United States and overseeing those activities
to ensure that they are legal, effective, and properly resourced to protect the national
security interests of the United States. Specifically, the Committee is charged with
reviewing and studying on a continuing basis the authorities, programs, and activities of
the Intelligence Community and with reviewing and studying on an exclusive basis the
sources and methods of the community.27 Along with this responsibility is the obligation
to study and understand the range of foreign threats faced by the United States, including
those directed against our nation’s critical infrastructure. Similarly, the Committee must
evaluate the threats from foreign intelligence operations and ensure that the country’s
counterintelligence agencies are appropriately focused on and resourced to defeat those
operations.28
The Committee’s goals in this investigation were to inquire into the potential
security risk posed by the top two Chinese telecommunications companies and review
whether our government is properly positioned to understand and respond to that threat.
An additional aim of this process has been to determine what information could be
provided in an unclassified form to shed light on the key questions of whether the
existence of these firms in our market would pose a national-security risk through the
potential loss of control of U.S. critical infrastructure.
Of course, the United States’ telecommunications sector increasingly relies on a

global supply chain for the production and delivery of equipment and services. That
reliance presents significant risks that other individuals or entities – including those
backed by foreign governments – can and will exploit and undermine the reliability of the
networks. Better understanding the supply-chain risks we face is vital if we are to protect
the security and functionality of our networks and if we are to guard against national
security and economic threats to those networks. The investigation’s scope reflects the
underlying need for the U.S. to manage the global supply chain system using a risk-based
approach.
Recent studies highlight that actors in China are the source of more cyber-attacks
than in any other country. The National Counterintelligence Executive, for example,
7

explained, in an open report on cyber-espionage, that “Chinese actors are the world’s
most active and persistent perpetrators of economic espionage.”29 Thus, the Committee
focused on those companies with the strongest potential Chinese ties and those that also
seek greater entry into the United States market. Both Huawei and ZTE are indigenous
Chinese firms, with histories that include connections to the Chinese government. Both
Huawei and ZTE have already incorporated United States’ subsidiaries, and both are
seeking to expand their footprint in the United States market. Huawei has received, thus
far, the greatest attention from analysts and the media. Given the similarities of the two
companies, however, including their potential ties to the Chinese government, support by
the Chinese government, and goals to further their U.S. presence, the Committee focused
on both Huawei and ZTE.
Both Huawei and ZTE assert that the Committee should not focus only on them to
the exclusion of all other companies that manufacture parts or equipment in China. The
Committee recognizes that many non-Chinese companies, including U.S. technology
companies, manufacture some of their products in China. But it is not only the location
of manufacturing that is important to the risk calculation. It is also ownership, history,
and the products being marketed. These may not be the only two companies presenting
this risk, but they are the two largest Chinese-founded, Chinese-owned
telecommunications companies seeking to market critical network equipment to the
United States. To review supply chain risk, the Committee decided to focus first on the
largest perceived vulnerabilities, with an expectation that the conclusion of this
investigation would inform how to view the potential threat to the supply chain from
other companies or manufacturers operating in China and other countries.
B. Investigative Process
The Committee’s investigative process included extensive interviews with

company and government officials, numerous document requests, and an open hearing
with a senior official from both Huawei and ZTE. Committee staff reviewed available
information on the specific companies, and Committee staff and members met with
Huawei and ZTE officials for lengthy, in-depth meetings and interviews. Committee
staff also toured the companies’ facilities and factories.
Specifically, on February 23, 2012, Committee staff met with and interviewed
corporate executives of Huawei at its corporate headquarters in Shenzhen, China. The
delegation toured Huawei’s corporate headquarters, reviewed company product lines, and
toured a large manufacturing factory. Officials involved in the discussion from Huawei
included Ken Hu, Huawei’s Deputy Chairman of the Board and Acting CEO; Evan Bai,

Vice President of the Treasury Management Office; Charlie Chen, Senior Vice President
in charge of Huawei (USA); Jiang Xisheng, Secretary of the Board; John Suffolk, Global
Security Officer; and Rose Hao, Export Regulator.
On April 12, 2012, Committee staff met with and interviewed corporate
executives of ZTE at its corporate headquarters in Shenzhen, China. In addition to these
meetings, the delegation took a brief tour of ZTE’s corporate headquarters, including a
factory site. Officials from ZTE included Zhu Jinyun, ZTE’s Senior Vice President,
U.S. and North America Market; Fan Qingfeng, Executive Vice President of Global
Marketing and Sales; Guo Jianjun, Legal Director; Timothy Steinert, Independent
Director of the Board (and Ali Baba Counsel); Ma Xuexing, Legal Director; Cao Wei,
Security and Investor Relations with the Information Disclosure Office; Qian Yu,
Security and Investor Relations with the Information Disclosure Office; and John
Merrigan, attorney with DLA Piper.
In May of 2012, Ranking Member Ruppersberger along with Committee

members Representative Nunes, Representative Bachmann, and Representative Schiff
traveled to Hong Kong to meet with senior officials of both Huawei and ZTE. In
addition to the senior officials present at the staff meetings, the Committee members met
with Ren Zhengfei, the founder and President of Huawei.
After the meetings, the Committee followed-up with several pages of written
questions and document requests to fill in information gaps, inconsistent or incomplete
answers, and the need for corroborating documentary evidence of many of the
companies’ factual and historical assertions. Unfortunately, neither company was
completely or fully responsive to the Committee’s document requests. Indeed, neither
Huawei nor ZTE provided internal documents in response to the Committee’s letter.30 To
attempt, again, to answer the remaining questions, the Committee called each company to
an open hearing.
On September 13, 2012, the Committee held an open hearing with representatives
of both ZTE and Huawei. The witnesses included Mr. Charles Ding, corporate senior
vice president and Huawei’s representative to the United States, and Mr. Zhu Jinyun,
ZTE senior vice president for North America and Europe. The hearing was designed to
be both thorough and fair. The witnesses were each given twenty minutes for an opening
statement and each was aided by an interpreter during the question and answer portion of
the hearing to ensure that the witnesses were given the maximum opportunity to
understand the questions and answer completely and factually.31

Once again, the witnesses’ answers were often vague and incomplete. For
example, they claimed to have no understanding or knowledge of commonly used terms,
could not answer questions about the composition of their internal Party Committees,
refused to provide straightforward answers about their operations in the United States,
sought to avoid answering questions about their histories of intellectual property
protection, and claimed to have no understanding or knowledge of Chinese laws that
force them to comply with the Chinese government’s requests for access to their
equipment. The companies’ responses to the Committee’s questions for the record after
the hearing included similar evasive answers.
C. Investigative Challenges
This unclassified report discloses the unclassified information the Committee

received when trying to understand the nature of these companies, the formal role of the
Chinese government or Chinese Communist Party within them, and their current
operations in the United States. In pursuing this goal, the Committee faced many
challenges, some of which are shared by many who seek to understand the relationship
between the government and business in China and the threat posed to our infrastructure.
These challenges include: the lack of transparency in Chinese corporate and bureaucratic
structures that leads to a lack of trust; general private sector concerns with providing
proprietary or confidential information; fears of retribution if private-sector companies or
individuals discuss their concerns; and uncertain attribution of cyber attacks.
The classified annex provides significantly more information adding to the

Committee’s concerns. That information cannot be shared publicly without risking U.S.
national security. The unclassified report itself, however, highlights that Huawei and
ZTE have failed to assuage the Committee’s significant security concerns presented by
their continued expansion into the United States. Indeed, given the companies’ repeated
failure to answer key questions thoroughly and clearly, or support those answers with
credible internal evidence, the national-security concerns about their operations have not
been ameliorated. In fact, given their obstructionist behavior, the Committee believes
addressing these concerns have become an imperative for the country.
In addition to the Committee’s discussions with the companies, the Committee

investigators spoke with industry experts and former and present employees about the
companies. Companies around the United States have experienced odd or alerting
incidents using Huawei or ZTE equipment. Officials with these companies, however,
often expressed concern that publicly acknowledging these incidents would be
detrimental to their internal investigations and attribution efforts, undermine their
ongoing efforts to defend their systems, and also put at risk their ongoing contracts.
10

Similarly, statements by former or current employees describing flaws in the Huawei or
ZTE equipment and other potentially unethical or illegal behavior by Huawei officials
were hindered by employees’ fears of retribution or retaliation.32
Further, the inherent difficulty in attributing the precise individual or entity

responsible for known attacks within the United States continues to hinder the
technological capability for investigators to determine the source of attacks or any
connections among industry, government, and the hacker community within China.33
III. Summary of Findings
Chinese telecommunications companies provide an opportunity for the Chinese

government to tamper with the United States telecommunications supply chain. That
said, understanding the level and means of state influence and control of economic
entities in China remains difficult. As Chinese analysts explain, state control or influence
of purportedly private-sector entities in China is neither clear nor disclosed.34 The
Chinese government and the Chinese Communist Party, experts explain, can exert
influence over the corporate boards and management of private sector companies, either
formally through personnel choices, or in more subtle ways.35 As ZTE’s submission to
the Committee states, “the degree of possible government influence must vary across a
spectrum.”36
The Committee thus focused primarily on reviewing Huawei’s and ZTE’s ties to
the Chinese state, including support by the Chinese government and state-owned banks,
their connections to the Chinese Communist Party, and their work done on behalf of the
Chinese military and intelligence services. The Committee also probed the companies’
compliance with U.S. laws, such as those protecting intellectual property, to determine
whether the companies can be trusted as good corporate actors. The Committee did not
attempt a review of all technological vulnerabilities of particular ZTE and Huawei
products or components. Of course, the Committee took seriously recent allegations of
backdoors, or other unexpected elements in either company’s products, as reported
previously and during the course of the investigation. But the expertise of the Committee
does not lend itself to comprehensive reviews of particular pieces of equipment.
The investigation sought to answer several key questions about the companies that
would, including:
What are the companies’ histories and management structures, including any
initial ties to the Chinese government, military, or Communist party?
11

How and to what extent does the Chinese government or the Chinese Communist
Party exert control or influence over the decisions, operations, and strategy of
Huawei and ZTE?
Are Huawei and ZTE treated as national champions or otherwise given unfair or
special advantages or financial incentives by the Chinese government?
What is the presence of each company in the United States market and how much
influence does the parent company in Shenzhen influence its operations in the
United States?
Do the companies comply with legal obligations, including those protecting
intellectual property rights and international sanctions regimes (such as those with
respect to Iran)?
The Committee found the companies’ responses to these lines of inquiry

inadequate and unclear. Moreover, despite repeated requests, the companies’
consistently provided very little – if any – internal documentation substantiating their
answers. The few documents provided could rarely be authenticated or validated because
of the companies’ failure to follow standard document-production standards as provided
by the Committee and standard with such investigations. Moreover, the apparent control
of the Chinese government over this information remains a hindrance to a thorough
investigation. One of the companies asserted clearly both verbally and in writing that it
could not provide internal documentation that was not first approved by the Chinese
government.37 The fact that Chinese companies believe that their internal documentation
or information remains a “state secret,” only heightens concerns about Chinese
government control over these firms and their operations.
The Committee is disappointed that Huawei and ZTE neither answered fully nor
chose to provide supporting documentation for their claims, especially given that Huawei
requested a thorough and complete investigation. The Committee simply cannot rely on
the statements of company officials that their equipment’s presence in U.S. critical
infrastructure does not present a threat, and that the companies are not, or would not be,
under pressure by the Chinese government to act in ways contrary to United States
interests. The findings below summarize what the Committee has learned from
information available, and suggest avenues for further inquiry.
A. The Committee finds that Huawei did not fully cooperate with the
investigation and was unwilling to explain its relationship with the
Chinese government or Chinese Communist Party, while credible
evidence exists that it fails to comply with U.S. laws.
Throughout this investigation, Huawei officials sought to portray the company as

transparent. Huawei consistently refused, however, to provide detailed answers in
12

written form or provide internal documentation to support their answers to questions at
the heart of the investigation. Specifically, Huawei would not fully describe the history,
structure, and management of Huawei and its subsidiaries to the Committee’s
satisfaction. The Committee received almost no information on the role of Chinese
Communist Party Committee within Huawei or specifics about how Huawei interacts in
formal channels with the Chinese government. Huawei refused to provide details about
its business operations in the United States, failed to disclose details of its dealings with
the Chinese military or intelligence services, and would not provide clear answers on the
firm’s decision-making processes. Huawei also failed to provide any internal documents
in response to the Committee’s written document requests, thus impeding the
Committee’s ability to evaluate fully the company’s answers or claims.
In addition to discussions with Huawei officials, the Committee has interviewed

several current and former employees of Huawei USA, whose employees describe a
company that is managed almost completely by the Huawei parent company in China,
thus undermining Huawei’s claims that its United States operations are largely
independent of parent company. The testimony and evidence of individuals who
currently or formerly worked for Huawei in the United States or who have done business
with Huawei also brought to light several very serious allegations of illegal behavior that
require additional investigation. The Committee will refer these matters to the Executive
Branch for potential investigation.
These allegations were not the focus or thrust of the investigation, but they were
uncovered in the course of the investigation. The Committee believes that they reveal a
potential pattern of unethical and illegal behavior by Huawei officials, allegations that of
themselves create serious doubts about whether Huawei can be trusted to operate in the
United States in accordance with United States legal requirements and international codes
of business conduct.
i. Huawei did not provide clear and complete information on its

corporate structure and decision-making processes, and it likely
remains dependent on the Chinese government for support.
Huawei markets itself as a “leading global ICT [“Information Communications

Technology”] solution provider,” that is “committed to providing reliable and secure
networks.”38 Throughout the investigation, Huawei consistently denied having any links
to the Chinese government and maintains that it is a private, employee-owned company.39
Many industry analysts, however, have suggested otherwise; many believe, for example,
that the founder of Huawei, Ren Zhengfei, was a director of the People’s Liberation
13

Army (PLA) Information Engineering Academy, an organization that they believe is
associated with 3PLA, China’s signals intelligence division, and that his connections to
the military continue.40 Further, many analysts suggest that the Chinese government and
military proclaim that Huawei is a “national champion” and provide Huawei market-
distorting financial support.41
In seeking to understand the Chinese government’s influence or control over

Chinese telecommunications companies, the Committee focused on Huawei’s corporate
structure and decision-making processes. Better information about Huawei’s corporate
structure would also help answer lingering questions caused by Huawei’s historic lack of
transparency.42 For years, analysts have struggled to understand how Huawei’s purported
employee-ownership model works in practice, and how that ownership translates into
corporate leadership and decision-making.43 Huawei repeatedly asserts that it is a
private, employee-owned and controlled company that is not influenced by the Chinese
government or Chinese Communist Party.44 Executives also asserted that the unique
shareholder and compensation arrangement is the foundation of the company’s rise and
success.
Available information does not align with Huawei’s description of this structure,
and many analysts believe that Huawei is not actually controlled by its common
shareholders, but actually controlled by an elite subset of its management.45 The
Committee thus requested further information on the structure of the company’s
ownership. For example, the Committee requested that Huawei list the ten largest
shareholders of the company. Huawei refused to answer.46 At the hearing on September
13, 2012, Huawei admits that its shareholder agreement gives veto power to Ren
Zhengfei, the founder and president of the company.47 Other public statements by the
company undermine the suggestion that the 60,000 supposed shareholders of Huawei
control the company’s decisions. For example, in the company’s 2011 report, Mr. Ren
highlighted that Huawei’s Board of Directors:
will not make maximizing the interests of stakeholders (including employees,

governments, and suppliers) its goal. Rather, it holds on to the core corporate
values that are centered on customer interests and encourage employee
dedication.48
Such statements undermine the credibility of Huawei’s repeated claims that its
employees control the company. Thus, to explore these conflicts, the Committee focused
much attention on the shareholder program. Of note, the only nonpublic, purportedly
internal documents that Huawei provided to the Committee in the course of the
14

investigation are unsigned copies of its shareholder agreement documents.
Unfortunately, the Committee could not verify the legitimacy of these documents,
because they were unsigned and non-official.
Huawei officials explained that Chinese law forbids foreigners from holding
shares in Chinese companies absent a special waiver.49 Current and former Huawei
employees confirm that only Chinese nationals working at Huawei in the United States
participate in the shareholding plan. The inability of non-Chinese employees of Huawei
to hold shares of the company further erodes its claim that it is truly an employee-run
organization as an entire group of employees are not only disadvantaged, but
automatically excluded from any chance to participate in the process.
Huawei consistently asserted that the Chinese government has no influence over
corporate behavior and that the company is instead managed as an employee-owned
enterprise through Huawei’s Employee Stock Ownership Program (ESOP). Officials
explained that the shareholding plan is not a benefits plan; rather, it provides high-
performing employees an option to buy dividend-providing shares and thereby share in
the value of the company. Eligible employees are given the option to buy shares at a
certain company determined price, and can only sell the shares when they leave the
company or with approval.50
Huawei also provided staff access to shareholder ballots for shareholder

representatives and the Board of Directors. These too did not appear to be facially
fraudulent, but they were impossible to authenticate, especially as investigators were not
allowed to remove the documents from Huawei’s facilities for third-party validation. The
documents appeared to highlight that shareholders have a write-in option for union
representatives, but there is no such option for the Board of Directors. Rather, Huawei
officials stated that the nominees for the Board are chosen prior to the vote by the
previous Board. It was unclear how the original Board was established, and Huawei has
consistently failed to provide any answers about who was previously on its Board of
Directors.
Huawei further explained that in 1994, the first Company Law of China was
officially published, regulating the establishment and operations of limited liability
companies.51 Under this law, the maximum number of shareholders was 50 individuals.
Thus, in 1997, Huawei claims to have changed its legal structure to a limited liability
company, and started the employee stock ownership program through the union.
Similarly, Huawei asserted that in 1997, the City of Shenzhen issued policies regarding
15

employee shareholdings. According to Huawei, it designed its shareholder program to
conform to the the Company Law of China, and the laws and policies of the City of
Shenzhen.52
According to Huawei, the union, known as Union of Huawei Investment and

Holding Co., Ltd., facilitates ESOP implementation. The Union is a lawfully registered
association of China. Huawei officials stated that “Huawei’s success can be directly
linked to the company’s unique compensation structure.”53 Currently, Huawei claims
that the Union holds 98.7% of the ESOP shares, and Mr. Ren holds 1.3%. At the Huawei
explained that as of December 31, 2011, ESOP has 65,596 participants, which it alleges
are all Huawei employees (current and retired), it claims that there are no third parties,
including government institutions, holding any ownership-stake in the company.
Questions remained after the Committee staff’s meeting with Huawei officials.
Most importantly, the Committee did not receive clear information about how precisely
candidates for the Board of Directors are chosen. This is a concern because such
individuals are key decision-makers of the company and those whose potential
connections to the government are of high concern. According to Huawei officials, the
previous Board nominates the individuals for the current Board. But it is not clear how
the original Board was established and Huawei refuses to describe how the first Board of
Directors and first Supervisory Board were chosen.54
As described above, Huawei provided the Committee unsigned, unauthenticated

documents purporting to be: (1) Articles of Restricted Phantom Shares; (2) Letter of
Undertakings of Restricted Phantom Shares; (3) Notice of Share Issuance and
Confirmation Letter; (4) List of Shareholding Employees; (5) Record of Employee
Payments and Buyback, (6) Receipts of Employee Share Payments and Buyback; (7)
Election Records of the 2010 ESOP Representatives Election (procedures, ballots,
results, announcements, etc.); (8) and conclusions of the 2010 ESOP Representatives
Meeting. The Committee could not validate the legitimacy of these documents given that
Huawei only provided unsigned drafts. Below are summaries of key information from
these documents.55
(1) ESOP Restricted Phantom Shares--Summary
ESOP Restricted Phantom Shares Article 20 states that target

grantees of employee stocks are current employees with high
performance.
16

Each year, the company determines the numbers of shares an
employee can purchase based on job performance. Eligible
employees must sign the Confirmation Letter and the Letter of
Undertakings and make payments for the shares.
An employee’s stocks can be held only by the employee

him/herself, and cannot be transferred or disposed by the
employee. When an employee leaves the company (except for
those who meet the retirement requirements with minimal eight
years of tenure and 45 years old), stocks will be purchased back by
the company.
The current stock price is the net asset value of the stock from the
previous year. When an employee purchases more shares or the
Union takes shares back, it is based on the current stock price. The
dividend amount of each year is based on the performance of the
company.
(2) Articles of Restricted Phantom Shares—
a. The Commission
The Commission is composed of 51 Representatives and nine

alternates, elected by the Active Beneficiaries as organized by the
Union with a term of five years.
o Active beneficiary is defined as an active employee who

works at Shenzhen Huawei Investment and Holding Co,
Ltd or any of its equity affiliates and participates in the
Plan of the Union.
o In the event there is a vacancy, the Alternate shall take up

the vacancy in sequence. The Alternates can attend, but not
vote at, all meetings.
o The Commission reviews and approves restricted phantom

share issuance proposals; reviews and approves dividend
distribution proposals; reviews and approves reports of the
17

board of shareholding employees; elects and replaces any
member of the board; elects and replaces any member of
Supervisory Board; reviews and approves procedures for
electing representatives; approves amendments of these
articles; reviews and approves the use of the reserve fund;
reviews and approves other material matters with respect to
restricted phantom share; perform functions as the
shareholders of the company, exercises the rights of the
shareholder, and develops resolutions regarding material
matters such as capital increase, profit distribution, and
selection of Directors and Supervisors.
Meetings of the Commission shall be convened at least once a

year, and shall be convened by the Board and presided over by the
Chairman of the Board or the Vice Chairman.
b. The Board
The Board is responsible for regular management authority and

shall be responsible to the Commission.
The main functions of the Board are to: prepare restricted

phantom share issuance proposal; preparation of the dividends
distribution proposal; formulation, approval, and amendment of the
detailed rules, processes, and implementation methods with respect
to the restricted phantom shares; preparation of the amendments to
articles; determination on the detailed proposal as to the use of the
Reserve Fund; execution of the resolutions of the Commission;
exercise of the specific rights and powers of a shareholder of the
Investee Company except for the matters on which a resolution
from Commission is required; determination of other matters that
shall be determined by the Board.
The Board consists of 13 directors selected by the Commission;

each serves for five years.
18

The Board must convene at least once a year; it needs 2/3 present,
and resolutions of the meetings shall be approved by at least 1/2 of
all Directors.
The Board may establish a restricted phantom share management

committee and other necessary organizations responsible for
carrying out and implementing the work assigned by the Board and
for detailed matters with respect to the management of the
restricted phantom shares, such as evaluation, distribution, and
repurchase of the restricted phantom shares as well as management
of the account and the Reserve Fund/treasury shares related to
restricted phantom shares.
c. Supervisory Board
The Supervisory Board is the organization responsible for

supervising the implementation of the shareholder plan with its
main functions and powers as follows:
 supervising the implementation of the resolutions by the
Board;
 making recommendations or inquiries in event of any
violation of any law, regulation or these Articles by the
Board;
 making work reports to the Commission; and
 other regular functions and powers.
Supervisors may attend Board meetings as non-voting delegate.
The Supervisory Board shall consist of five Supervisors who shall

be elected by the Commission to five year terms; no Director can
serve concurrently as a Supervisor.
Convene at least once a year, need minimum of 2/3 present,

resolutions require approval of at least 2/3 of all Supervisors
d. Validity of Resolutions
19

Before 31 December 2018, Mr. Ren shall have a right to veto the
decisions regarding restricted phantom shares and Huawei’s
material matters (resolutions of the Board, Commission, and
Shareholder’s Meeting of the Company).
Starting from 1 January 2013, the confirmed Active Beneficiaries

who represent a minimum of 15% of the restricted phantom shares
(excluding the restricted phantom shares held by the Restructuring
Beneficiaries and the Retained Restricted Phantom Shares) shall
have a right to veto the decisions regarding restricted phantom
shares and Huawei’s material matters (including resolutions of the
Board, the Commission, and the Shareholders’ Meeting of the
Company).
The relevant resolutions shall take effect in the event that the
owner(s) of the right of veto does (do) not exercise the right of
veto against the aforementioned resolutions.
(3) Acquisition of Restricted Phantom Shares
The restricted phantom shares of the Union shall be issued to those

key employees of the Company who have displayed excellent
work performance.
The Restricted Phantom Share Management Committee shall

decide annually whether to issue shares, and the number of shares
to be issued, based on the comprehensive evaluation of the work
performance of such employee and in accordance with the
evaluation rules of the restricted phantom shares. Retired or
restructuring beneficiaries are not allowed to purchase new shares.
(4) Confidentiality and Non-Competition Obligations of the Beneficiaries
No Active Beneficiary or Restructuring Beneficiary shall directly

or indirectly have a second job in any way, work for any enterprise
other than the Company without written consent of the Company
or without entering into the relevant agreement with the Company.
****************
20

ii. Huawei failed to explain its relationships with the Chinese
government, and its assertions denying support by the Chinese
government are not credible.
The nature of the modern Chinese economy is relevant for understanding

Huawei’s connection to the Chinese state. The Chinese government often provides
financial backing to industries and companies of strategic importance. Indeed, analysts
of the Chinese political economy state that:
Huawei operates in what Beijing explicitly refers to as one of seven “strategic

sectors.” Strategic sectors are those considered as core to the national and
security interests of the state. In these sectors, the CCP [Chinese Communist
Party] ensures that “national champions” dominate through a combination of
market protectionism, cheap loans, tax and subsidy programs, and diplomatic
support in the case of offshore markets. Indeed, it is not possible to thrive in one
of China’s strategic sectors without regime largesse and approval.56
Similarly, the U.S.-China Commission has explained, with Chinese companies,

“the government’s role is not always straightforward or disclosed.” Despite some
reforms, “much of the Chinese economy remains under the ownership or control of
various parts of the Chinese government.”57 The U.S. China-Commission lists Huawei as
a form of enterprise in China that exists in a relatively new market and receives generous
government policies to support its development and impose difficulties for foreign
competition.58
The Committee thus inquired into the precise relationship between the Chinese
government and Huawei. During the Committee’s meetings with Huawei executives, and
during the open hearing on September 13, 2012, Huawei officials consistently denied
having any connection to or influence by the Chinese government beyond that which is
typical regulation.59 Specifically, Huawei explained in its written responses to the
Committee, that “Huawei maintains normal commercial communication and interaction
with relevant government supervisory agencies, including the Ministry of Industry and
Information Technology and the Ministry of Commerce.”60 Huawei claims that it “does
not interact with government agencies that are not relevant to its business activities,
including the Ministry of National Defense, the Ministry of State Security, and the
Central Military Commission.”61 Huawei, however, did not provide information with
which the Committee could evaluate these claims, as Huawei refused to answer the
21

specific questions of the Committee inquiring about the company’s precise mechanisms
of interaction with and regulation by these government bodies.
The Committee did not expect Huawei to prove that it has “no ties” to the
government. Rather, in light of even experts’ lack of certainty about the state-run
capitalist system in China, the Committee sought greater understanding of its actual
relationship with the Chinese government. The Committee requested that Huawei
support and prove its statements about its regulatory interaction by providing details and
evidence explaining the nature of this formal interaction. Any company operating in the
United States could very easily describe and produce evidence of the federal entities with
which it must interact, including which government officials are their main points of
contact at those regulatory agencies.
In its written submission in response to the Committee’s questions, Huawei

simply asserted that it “maintains normal commercial communication and interaction
with relevant government supervisory agencies, including the Ministry of Industry and
Information Technology and the Ministry of Commerce.”62 Huawei’s failure to provide
further detailed information explaining how it is formally regulated, controlled, or
otherwise managed by the Chinese government undermines the company’s repeated
assertions that it is not inappropriately influenced by the Chinese government. Huawei
appears simply unwilling to provide greater details that would explain its relationships
with the Chinese government in a way that would alleviate security concerns.
Similarly, Huawei officials did not provide detailed answers about the
backgrounds of previous Board Members. Rather, the Committee simply received the
same biographies as previously disclosed of current members of the Board of Directors
and Supervisory Board.63 Previous Board Members may have significant ties to the
Party, military, or government. And since the previous Board is responsible for
nominating the current Board members, this information is important to understanding
the historical progression of the company. Because the biographies of the previous
members would highlight possible connections to military or intelligence elements of the
Chinese government, Huawei’s consistent failure to provide this information is alerting.
iii. Huawei admits that the Chinese Communist Party maintains a Party
Committee within the company, but it failed to explain what that
Committee does on behalf of the Party or which individuals compose
the Committee.
Huawei’s connection to the Chinese Communist Party is a key concern for the
Committee because it represents the opportunity for the State to exert its influence over
22

the decisions and operations of a company seeking to expand into the critical
infrastructure in the United States. This concern is founded on the ubiquitous nature of
the Chinese Party in the affairs of institutions and entities in China, and the consensus
view that the Party exerts pressure on and directs the resources of economic actors in
China.64
In response to the numerous opportunities to answer questions about its

connection to the Party, Huawei stated that the company has no relevant connections.
For example, in response to the Committee’s written questions about the role of the Party
in the company’s affairs, Huawei merely stated that it “has no relationship with the
Chinese Communist Party in its business activities.”65
Huawei admits, however, that an internal Party Committee exists within Huawei.
Huawei simply states that party committees are required by Chinese law to exist in all
companies in China.66 The existence of these Committees is, however, of particular
relevance. Huawei states in its defense that all economic institutions in China are
required to have a state Party apparatus inside the company. This is not, however, a
compelling defense for companies seeking to build critical infrastructure in the United
States. Indeed, experts in Chinese political economy agree that it is through these
Committees that the Party exerts influence, pressure, and monitoring of corporate
activities. In essence, these Committees provide a shadow source of power and influence
directing, even in subtle ways, the direction and movement of economic resources in
China.67 It is therefore suspicious that Huawei refuses to discuss or describe that Party
Committee’s membership. Huawei similarly refuses to explain what decisions of the
company are reviewed by the Party Committee, and how individuals are chosen to serve
on the Party Committee.
Similarly, Huawei officials did not provide information about Mr. Ren’s role or
stature in the Party. In his official biography, Mr. Ren admits that he was asked to be a
member of the 12th National Congress of the Communist Party of China in 1982. The
National Congress is the once-in-a-decade forum through which the next leaders of the
Chinese state are chosen. The Party members asked to play a role in China’s leadership
transition are considered key players in the state apparatus.68 Mr. Ren proudly admits
that he was invited to that Congress, but he will not describe his duties. Shortly after
being given such a prestigious role, Mr. Ren successfully founded Huawei, though he
asserts he did so without any government or Party assistance.69 Huawei likewise refuses
to answer whether Mr. Ren has been invited to subsequent National Congresses or has
played any role in Party functions since that time.70
23

From the review of available information, Huawei may have connections and ties
to Chinese leadership that it refuses to disclose. In light of Huawei’s refusal to discuss
details of its acknowledged Chinese Communist Party Committee, the Committee
questions the company’s ability to be candid about any other possible connections to the
government, military, or Chinese Communist Party.
iv. Huawei’s corporate history suggests ties to the Chinese military, and
Huawei failed to provide detailed answers to questions about those
connections.
Huawei explained the founding and development of the company by focusing on

the life and history of Ren Zhengfei, Huawei’s founder. According to Huawei officials,
Mr. Ren was a member of the Chinese military’s engineering corps as a soldier tasked to
establish the Liao Yang Chemical Fiber Factory and was promoted as a Deputy Director,
which was a professional role equivalent to a Deputy Regimental Chief, but without
military rank.71 Mr. Ren then retired from the army in 1983 after the engineering corps
disbanded, and next worked for a State Owned Enterprise (SOE) following his
retirement. According to this account, Mr. Ren was “dissatisfied” with his low salary and
career path at the SOE, so in 1987, he established Huawei. Huawei officials did not
explain how he was able to leave his employment with a SOE or whether he got
agreement of the state to do so. Huawei officials denied that Mr. Ren was a senior
member of the military.72 The Committee’s requests for more information about Mr.
Ren’s military and professional background were unanswered. Huawei refused to
describe Mr. Ren’s full military background. Huawei refused to state to whom he
reported when he was in the military. Huawei refused to answer questions about how he
was invited to join the 12th National Congress, what duties he performed for the Party,
and whether he has been asked to similar state-party matters.
Huawei similarly denied allegations that Ms. Sun Yafang, Chairwoman of

Huawei, was previously affiliated with the Ministry of State Security. Mr. Ding
responded to Committee questions after the hearing that, to his knowledge, reports about
Ms. Yafang in Chinese publications, such as those in Xinjing Bao, are erroneous.73 Mr.
Ding did not respond to questions asking about how such publications received such
information, or whether Ms. Yafang’s previous biography on the Huawei website was
erroneous as well. Rather, Mr. Ding simply provided again Ms. Yafang’s corporate
biography from the Huawei Annual Report 2011.74
With respect to Huawei’s founders, Huawei cited a Chinese legal requirement that
new companies in the economic development zone must have a minimum of five
24

shareholders and 20,000 RMB registered capital. During meetings with the Committee,
Huawei officials claimed that in 1987, Mr. Ren raised 21,000 RMB with personal savings
and five other private investors. To the best of the officials’ knowledge, none of the five
investors had worked with Mr. Ren prior to start-up and one individual has previous
affiliation with the government.75 According to Huawei officials, the five investors never
actually worked for Huawei and withdrew their investments several years later.76
The Committee struggled to get answers from Huawei on the details of this
founding, including how Mr. Ren came to know the initial individual investors, whether
his connections to the military were important to the eventual development of the firm,
and whether his role in the Party remains a factor in his and his company’s success.
v. The Committee finds that Huawei’s failure to provide information

about the Chinese government’s 1999 investigation of the company
for tax fraud exemplifies how it refuses to be transparent; the
apparent ease with which Huawei ended the investigation undermines
Huawei’s assertion that the Chinese government finds Huawei to be a
disfavored telecommunications solutions provider in China.
Huawei officials claimed that after growing in rural areas in China throughout the
1990s, the Chinese government investigated the company at length between 1998-99 for
tax fraud.77 Huawei officials stated that they believed this investigation was politically
motivated and performed at the urging of the company’s competition – specifically, other
telecommunications companies that are also state-owned enterprises. Mr. Ken Hu
explained the investigation was a turning point in the history of the company.
Specifically, Mr. Hu stated that Huawei’s movement to opportunities outside of China
was the result of this investigation.78 Indeed, these officials sought to explain that this
episode proves that Huawei was not in fact a “national champion” or otherwise a favored
company in China.79
Given the obvious importance Huawei placed on this tax-fraud investigation, the
Committee’s subsequent questions and document requests sought detailed information
and further documentary support for its version of events. In particular, the Committee
sought information on the conclusion of the Chinese investigation. This information is
particularly important to the Committee given the apparent pride displayed by certain
Huawei officials in Shenzhen when describing how they successfully used their
connections to end the investigation. The ability of these corporate officers to end a
politically-motivated investigation suggests that Huawei officials were not as lacking in
political power or influence with the government as they suggested.
25

Despite the importance placed on this event, Huawei failed to address the
Committee’s questions in its written submission.80 The company also failed to provide
any material that would support Huawei’s assertions that the investigation was closed
legitimately or without attendant conditions placed on Huawei.81
vi. Huawei failed to explain its relationships with western consulting

firms, and any claims that its success is on account of those
relationships, rather than support by the Chinese government, are not
credible.
Huawei officials stated that one reason for the company’s success was its reliance
on the advice of western consulting firms, such as IBM, Accenture, and Price Waterhouse
Cooper.82 Huawei sought to convince the Committee that it was the advice of these
companies -- and not support by the Chinese government -- that explains Huawei’s
miraculous growth in recent years.83
Because of the importance Huawei places on the advice given by these consulting
firms, the Committee sought greater information and evidence showing that such advice
had important effects for the company. The Committee made clear that it did not seek
information on the terms of the contractual arrangements with the consulting firms, but
rather what information they reviewed from Huawei and what advice was provided. The
Committee offered to keep such information confidential to avoid concerns about
disclosing proprietary information.
Huawei responded with only a vague description of the advice provided by these
companies. Specifically, although “[s]ince 1997, Huawei has relied on western
management consulting firms to help improve [its] capabilities, build [its] processes, and
develop a comprehensive management system driven by customer requirements,”
Huawei failed to provide details about how those companies reformed the company other
than providing a few sentences mentioning standard business practices, including lead to
cash (LTC), integrated product development (IPD), issue to resolution (ITR), and
integrated financial services (IFS). Huawei, refused “to provide additional details as to
[its] consultancy relationships” citing concerns about proprietary information contained
in that advice.84 The Committee explained that it is most interested in evidence revealing
what Huawei did in response to the advice of these firms, and specifically financial or
other evidence that supports its position that those changes were responsible for
efficiencies, growth, and market success.85 Huawei could have answered such questions
without revealing proprietary information held by these companies.86 The Committee
26

was also willing to enter into a confidentiality agreement with all parties, an offer Huawei
declined to accept or pursue.87
Huawei has made the details of this consulting advice relevant to this
investigation by attributing its rapid success to the advice rendered by these consulting
firms. It is not then reasonable for Huawei to withhold that information from the
Committee so that it could evaluate those claims. If Huawei has within its possession
information and documents that would prove that the advice given by these firms was key
to Huawei’s success, Huawei should provide such information.88 The Committee was
and remains willing to enter into confidentiality agreements with all parties to solve any
concerns about the release of proprietary information. Huawei has failed to accept this
offer. Its failure to do so is indicative of the lack of cooperation shown throughout this
investigation.
vii. Huawei failed to answer key questions or provide supporting

documentation for its claims to be financially independent of the
Chinese government.
As a company of strategic importance to China, Huawei’s stature will be reflected

in the level of financial support and direction it receives from the Chinese government
and Party.89 One way to review that support and direction provided by the state is
through the financing the company receives. Many industry experts and
telecommunications companies describe below-market pricing.90 Thus, the Committee
sought more information about Huawei’s financing, including its customer financing.
Such financial information would also help provide greater understanding about the
financial structuring of a firm that remains largely opaque.
During the Committee’s hearing, Mr. Ding suggested he did not understand and
had no knowledge of the term “national champion,” which is often used to describe
favored Chinese companies throughout the economic literature on China.91 The
Committee finds that Mr. Ding’s suggestion that he does not understand the term is not
credible. Huawei itself provided Capitol Hill offices a slide presentation in November
2011, which used the term “national champion” several times.92 In response to the
Committee’s questions about use of the term in that document, Huawei did not deny that
it used the document and provided the document containing the term.93 Rather, Huawei
stated that the particular slide in the larger document was created by a third party and thus
not Huawei’s responsibility.94 The Committee finds that Huawei’s knowing use of the
document in its discussions with United States elected representatives is sufficient
evidence to prove that Huawei does in fact have an understanding of the term. Mr.
27

Ding’s consistent refusal to answer questions about which firms are considered national
champions in the Chinese telecommunications sector was obstructionist. In fact, his
response to the Committee’s question that “Huawei has not paid attention to the meaning
of ‘national champion’ before,” is obviously untrue given the company’s use of the term
in its presentations previously.95 Moreover, his answers suggest that he did not want to
explain how it was that Huawei, the number one telecommunications provider in China,
is not a company of strategic importance in China, as recognized by others around the
world.
Huawei officials also deny that they have received any special financial incentives
or support from the Chinese government.96 Huawei claimed that the company simply
takes advantage of general Chinese banking opportunities, but does not seek to influence
or coordinate with banks such as the Chinese Development Bank and the Export-Import
Bank, which are both state owned. In previous presentations, Huawei had suggested that
it served as an “intermediary and bridge” between the state-backed financial institutions
and Huawei customers.97 Huawei refused, however, to provide more detail about
precisely how those lines of credit developed. Huawei also refused to answer specifics
about its formal relationships with the Chinese banks, opting to simply answer that it
maintains “normal business relations” with the Export-Import Bank of China.98
In its presentation to the Committee during the February meeting, Huawei

provided a list of the Memoranda of Understanding (MOUs) it claims to have signed with
Chinese banks for lines of credit for its customers.99 Huawei admits that its customers
have a US $100 billion in credit available, yet Huawei asserts that only $5.867 billion has
been drawn in the period between 2005 and 2011. Further, in its written responses,
Huawei states that it is a “financing opportunity available to customers, not to
Huawei.”100 Yet Huawei explained at the February 23, 2012, meeting with Committee
investigators that the goal of the large available credit lines was for China “to appear
impressive” and that “Huawei had to participate or would no longer receive loans” from
Chinese banks.101 In response to repeated questions and document requests, Huawei
failed to provide further written explanation of the benefits Huawei gains from these
financing arrangements, and it did not provide internal documents or any auditable
information that would substantiate its claims about the scope and processes of this
financing.
Similarly, Huawei refused to describe the details of its relationships with Chinese
state-owned banks. For example, in Mr. Ding’s statement for the record, he explained
that Huawei receives loans from ten Chinese banks. But Mr. Ding refused to answer how
many of those ten banking institutions in China are state-owned.102 As described in the
28

previous section, Huawei also refused to provide “additional details as to [its]
consultancy relationships” because it would “include highly sensitive proprietary
information” governed by non-disclosure agreements.103 In response to Committee
questions about Huawei’s success and whether it was owing to the company’s support
from the Chinese government, Huawei represented to the Committee that its relationships
with and advice received from these companies are the source of the company’s global
success.104 Because Huawei refuses to provide details on those relationships and advice
rendered, the Committee cannot evaluate its claim that any of its success is due to these
relationships. Accordingly, the Committee discounts the role played by these consulting
companies, and continues to find it likely that Huawei has substantially benefited from
the support of the Chinese government.
In sum, Huawei admits that its customers receive billions of dollars in support
from Chinese state-owned banks and that it has received favorable loans from Chinese
banks for years. Huawei refuses to provide answers to direct questions about how this
support was secured, nor does it provide internal documentation or auditable financial
records to evaluate its claims that the terms of these agreements comply with standard
practice and international trade agreements. The Committee is equally concerned with
statements by company leaders that undermine the Committee’s confidence in the
financial information the company has provided. For example, in a June 2007 speech to
Huawei employees in the United Kingdom, Mr. Ren stated that he appreciated the
subsidiary’s attempt to create financial statements, “whether the data is accurate or
not.”105 Based on available information, the Committee finds that Huawei receives
substantial support from the Chinese government and Chinese state-owned banks, which
is at least partially responsible for its position in the global marketplace.
viii. Huawei failed to provide sufficient details or supporting

documentation on its operations, financing, and management in the
United States; evidence undermines its claims of being a completely
independent subsidiary of Huawei’s parent company in Shenzhen,
China.
To understand the United States’ current vulnerability to supply-chain threats

posed by Huawei equipment, it is necessary to know the extent to which Huawei’s
equipment is already placed in U.S. infrastructure. Because the U.S. telecommunications
infrastructure is largely built and owned by the private sector, the U.S. government does
not have the full picture of what is contained within it and thus is not yet fully informed
to develop policies to protect that critical infrastructure from vulnerabilities.106
29

The Committee thus asked Huawei for information on its contracts for products
and services within the United States. Understanding the extent to which Huawei
equipment already exists in the United States is necessary to evaluate the present risk to
the country, as well as to confirm Huawei’s statements about the size and scope of its
operations in the United States. Unfortunately, Huawei failed to provide specific
information about its dealings within the United States. Huawei did provide the
Committee a list of Huawei’s major customers in the United States: Cricket
Communications; Clearwire; Cox TMI Wireless, Hibernia Atlantic, Level 3/BTW
Equipment, Suddenlink; Comcast and Bend Broadband. Huawei, however, did not
provide information on the size and scope of its operations, which elements of the
infrastructure it is providing, and where these operations are located.107
The information requested by the Committee about Huawei’s contracts in the

United States is also necessary to evaluate Huawei’s claims that they comply with all
laws and trade obligations regarding the price of their products and services.108 To date,
Huawei has failed to provide any information to validate its claims that the prices of
Huawei’s products are based on market conditions. Huawei’s refusal to answer clearly or
provide documents supporting its claims necessitates the Committee finding that
Huawei’s defense is not credible. The Committee considers it possible that Huawei
receives substantial support from the Chinese government such that Huawei can market
at least some of its products in the United States below the costs of production.
Similarly, the extent to which Huawei’s subsidiaries in the United States operate
independently of the parent company in Shenzhen remains unclear. Such information is
important, because any connections between the parent company in China to the Chinese
government might affect the operations and behavior of the company in the United
States. The Committee therefore requested information on the extent to which Huawei
USA’s decisions are controlled, influenced, or reviewed by the parent company.
Huawei explained that the first US-based Huawei subsidiary was established in
the United States in 2005 with headquarters in Plano, Texas. Huawei stated that the
parent company does not require approval for individual contracts in the United States.109
Rather, it stated that the Board of Directors in China does set general terms for operations
in the United States, and the parent company can help mobilize resources and set strategy
should the subsidiary need it. The Committee has heard from several former Huawei
employees in the United States who dispute Huawei’s explanation of its business model.
Sources from around the United States have provided numerous specific instances of
business decisions in the United States requiring approval by the parent company in
China. In one instance, an individual with first-hand knowledge explained that senior
30

level executives in the United States could not sign a contract for cyber-security services
in the United States without approval in China. In fact, in one instance, a contract
previously signed by a U.S.-based senior official at Huawei was repudiated by the parent
company.110 These employees provided documentary evidence, including internal
memoranda and emails, discussing corporate policy from China. This description of
Huawei’s US subsidiaries also comports with reports about the ties between other
Huawei subsidiaries and the parent company in China.111
To resolve this conflict, the Committee sought more information through its
written questions to understand the precise mechanisms through which the Huawei parent
company in Shenzhen controls Huawei’s strategy for entry and growth into the United
States market. Concerns that Beijing’s support to Huawei could impact the U.S. market
were heightened by Huawei officials’ statements to Committee staff that Huawei USA is
given general guidance and “resources” from the parent company if needed.112 In its
written response, however, Huawei failed to answer the Committee’s detailed questions
or provide any further information about the level of coordination between Huawei USA
and the parent company.113
The information and material provided by Huawei employees with first-hand

access coupled with Huawei’s failure to provide detailed, internal information,
undermines Huawei’s claims. For these reasons, the Committee does not find credible
Huawei’s claims that its U.S. subsidiaries operate independently of the Huawei
headquarters in Shenzhen, China.
ix. Evidence shows that Huawei exhibits a pattern of disregard for the
intellectual property rights of other entities and companies in the
United States.
Huawei’s ability to protect intellectual property rights is an important indicator of

the company’s ability to abide by the laws of the United States. Thus, the Committee
sought greater information on Huawei’s history of IP protection.
The Committee has reason to believe that Huawei is careless with its compliance
with intellectual property protections. Investigators heard from numerous sources that
Huawei has a checkered history when it comes to protecting the intellectual property of
other entities.114 Specifically, several former employees of Huawei said it is known to
purposely use the patented material of other firms. First-hand accounts of former
employees suggest that Huawei does not appropriately purchase software applications for
use by its employees.115 Similarly, the Committee heard from industry experts that
31

Huawei has purposely used and marketed patented products of other companies.116
Finally, the Committee is in receipt of a Huawei slide presentation that was provided to
Capitol Hill offices that itself violates copyright obligations by knowingly using
proprietary material from an outside, nonaffiliated consulting firm.117
Huawei officials consistently denied ever infringing other companies’ intellectual

property rights. Even with respect to the litigation with Cisco, in which Huawei agreed
to remove certain products from the marketplace, Huawei asserts that it had not violated
Cisco’s interests.118 Rather, Huawei suggested that the expert’s review in that case of
their equipment found no infringement of Cisco patents.119
Huawei’s defense is not credible. First, with respect to the Cisco litigation,
Huawei’s statements do not comport with statements made by Huawei officials at the
time of the lawsuit acknowledging that the company will remove infringing equipment.120
Second, the Cisco settlement itself required Huawei to “update and change all of the
products that have been accused of violating copyright or intellectual property rights.”121
Finally, during the hearing on September 13, 2012, Charles Ding refused to answer the
clear question of whether Cisco code had ever been in Huawei equipment.122 Mr. Ding’s
obstructionism during the hearing undermines Huawei’s claims that it did not violate
Cisco’s patented material.
The Committee finds that Huawei’s denials of intellectual property infringement

were not credible or supported by available evidence. Because Huawei failed to produce
any internal documents or support for its defenses, the Committee finds that Huawei has
exhibited a pattern of, at the very least, reckless disregard for the intellectual property
rights of other entities.
x. Huawei failed to provide details of its operations in Iran, though it

denied doing business with the government of Iran, and did not
provide evidence to support its claims that it complies with all
international sanctions or U.S. export laws.
Huawei’s ability to comply with international sanctions regimes and U.S. export
control regulations is an important indicator of the company’s ability to comply with
international standards of corporate behavior and to abide by U.S. laws irrespective of
China’s influence or interests. Public reporting raises questions about the company’s
compliance with these laws.
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In response to the Committee’s questions, Huawei officials provided only vague
assertions about their commitment to all laws. Specifically, Huawei asserted that the
company seeks to abide by all legal obligations and has transformed its business practices
with the help of outside consultants to better monitor its actions to ensure compliance
with international sanctions regimes. To highlight the lack of influence of the Chinese
regime over its decisions, Huawei indicated the Chinese Embassy in Iran was surprised
by Huawei’s decision to limit its business dealings in Iran. Huawei also stated that it
does not allow its employees to participate in cyber activities, such as population
monitoring, anywhere in Iran.
Huawei has refused, however, to answer detailed questions about its operations in
Iran or other sanctioned countries. In its written submission to the Committee, Huawei
again reiterated that it limited its future business in Iran because of the enhanced
sanctions and an inability to collect payment for operations in Iran. Huawei highlights,
though, that “Huawei respects the contracts signed with [its] customers” and thus will not
end current contracts in Iran.123 Huawei claims to “observe laws and regulations of the
UN, the U.S., the E.U. and other countries and regions on sanctions.”124 It also claims to
have instituted an internal program on trade compliance representing best practices to
manage these issues.125 But Huawei refused to provide any internal documents relating
to its decision to scale-back operations in Iran or otherwise ensure compliance with U.S.
laws.
Such documents would have validated Huawei’s claims that the decision was
based on legal compliance requirements and not influenced by any pressure by the
Chinese government.
xi. Huawei refused to provide details on its R&D programs, and other
documents undermine its claim that Huawei provides no R&D for the
Chinese military or intelligence services.
To understand the extent to which Huawei performs R&D activity on behalf of

the Chinese military or intelligence services, the Committee asked for information about
its activities on behalf of the Chinese government or military. Specifically, the
Committee requested information on the technologies, equipment, or capabilities that the
funding or grants by the Chinese government was supporting. In its written submission
to the Committee, Huawei failed to provide responsive answers to the Committee’s
questions about the specifics of government-backed R&D activities.126 Rather, Huawei
simply asserted that it only bid on R&D projects open to the rest of the industry.127
33

Huawei similarly claimed in its meetings with the Committee that it does not provide
special services to the Chinese military or state security services.128
In its answers to the Committee’s questions after the hearing, Huawei again
simply asserted that it “has never managed any of the PLA’s networks” and “has never
been financed by the Chinese government for R&D projects for military systems.”
Huawei did admit, however, that it develops “transport network products, data products,
videoconferencing products, and all centers, and voice over IP (VoIP) products” for the
Chinese military “accounting for .1% of Huawei’s total sales.”129 Huawei also claimed,
however, that it “develops, researches, and manufactures communications equipment for
civilian purposes only.”130
The Committee also received internal Huawei documentation from former

Huawei employees showing that Huawei provides special network services to an entity
the employee believes to be an elite cyber-warfare unit within the PLA.131 The
documents appear authentic and official Huawei material, and the former employee stated
that he received the material as a Huawei employee.132 These documents suggest once
again that Huawei officials may not have been forthcoming when describing the
company’s R&D or other activities on behalf of the PLA.
The Committee finds that Huawei’s statements about its sales to the Chinese
military are inherently contradictory. The Committee also finds that Huawei’s failure to
respond fully to questions about the details of its R&D activities, coupled with its
admission that it provides products for the Chinese military and documents received from
employees, undermine the credibility of its assertion that it does not perform R&D
activities for the Chinese government or military.
xii. Former and current Huawei employees provided evidence of a

pattern and practice of potentially illegal behavior by Huawei
officials.
During the course of the investigation, several former and current Huawei
employees came forward to provide statements and allegations about Huawei’s activities
in the United States. Given the sensitivities involved, and to protect these witnesses from
retaliation or dismissal, the Committee has decided to keep the identities of these
individuals confidential. The Committee has received multiple, credible reports from
these individuals of several potential violations by Huawei officials. Those allegations
include:
34

Immigration violations;
Bribery and corruption;
Discriminatory behavior; and
Copyright infringement.
Specifically, the Committee heard from numerous employees that Huawei

employees visiting from China on tourist or conference visas are actually working full-
time at Huawei facilities, in violation of U.S. immigration law. Similarly, Huawei
employees provided credible evidence that individuals coming to the United States on
particular visas, for example, for jobs requiring engineering expertise were not in fact
employed by Huawei as engineers. These and other alleged violations of immigration
law will be referred to the Department of Homeland Security for review and potential
investigation.
Second, employees have alleged instances fraud and bribery when seeking
contracts in the United States.133 Those allegations will be referred to the Justice
Department for further review and potential investigation.
Third, employees with whom the Committee spoke discussed allegations of

widespread discriminatory behavior by Huawei officials. These individuals assert that it
is it very difficult if not impossible for any non-Chinese national to be promoted in
Huawei offices in the United States. Further, these employees assert that non-Chinese
nationals are often laid-off only to be replaced by individuals on short-term visas from
China.134 These allegations will be referred to the appropriate agencies in the Executive
Branch to review and consider.
Finally, the Committee heard from former Huawei employees that may constitute
a pattern and practice of Huawei using pirated software in its United States facilities. As
previously described, the Committee received information with Huawei’s logo that
knowingly and admittedly violated another firm’s copyrighted material.135 The
Committee thus finds that Huawei has exhibited a careless disregard for the copyrighted
material of other entities. As there may indeed be credibility to these employee
allegations, the Committee will also refer these claims to the Justice Department for
investigation.
B. ZTE failed to answer key questions or provide supporting documentation

supporting its assertions, arguing that answering the Committee’s
35

requests about its internal corporate activities would leave the company
criminally liable under China’s states-secrets laws.
ZTE sought to appear cooperative and timely with its submissions to the
Committee throughout the investigation. ZTE consistently refused, however, to provide
specific answers to specific questions, nor did the company provide internal
documentation that would substantiate its many claims. As with Huawei, the Committee
focused its review of ZTE on the company’s ties to the Chinese state, as well as the
company’s history, management, financing, R&D, and corporate structure. The
Committee did not to receive detailed answers on a number of topics described below.
ZTE did not describe its formal interactions with the Chinese government. It did not
provide financial information beyond that which is publicly available. It did not discuss
the formal role of the ZTE Communist Party Committee and only recently provided any
information on the individuals on the Committee. The Committee did not receive details
on ZTE’s operations and activities in Iran and other sanctioned countries. Finally, ZTE
refused to provide detailed information on its operations and activities in the United
States.
Importantly as well, ZTE argued at great length that it could not provide internal
documentation or many answers to Committee questions given fear that the company
would be in violation of China’s state-secrets laws and thus subject ZTE officials to
criminal prosecution in China.136 In fact, ZTE refused even to provide the slides shown
to the Committee staff during the meeting in April, 2012, for fear that they might be
covered by state secrets. To the extent ZTE cannot provide detailed and supported
answers to the Committee because China’s laws treat such information important to the
security of the Chinese regime, the Committee’s core concern that ZTE’s presence in the
U.S. infrastructure represents a national-security concern is enhanced.
The Committee notes that ZTE’s many written submissions were never numbered
to align with the Committee’s specific questions and document requests, as would be
typical with formal legal processes. The Committee believes that, through this method,
ZTE sought to avoid being candid and obvious about which questions it refused to
answer. Moreover, ZTE’s answers were often repetitive, lacking in documentary or
other evidentiary support, or otherwise incomplete.
The Committee also notes that ZTE did not simply deny all national-security
concerns arising from the global telecommunications supply chain. ZTE has advocated
for a solution – one based on a trusted delivery model – in which approved “independent
third-party assessors” transfer “hardware, software, firmware, and other structural
elements in the equipment to the assessor.”137 Such a model, as advocated by ZTE,
36

would include among other things, a “thorough review and analysis of software codes,”
“vulnerability scans and penetration test,” “review of hardware design and audit of
schematic system diagram,” “physical facility review and independent comprehensive
audit of vendor’s manufacturing, warehousing, processing, and delivery operations,”
“periodic assessments.”
ZTE suggests that a model, as previously proposed by Huawei and other

companies, and similar in some respects to that introduced in United Kingdom, be
implemented across the spectrum for telecommunications equipment providers. As
discussed above, the Committee remains concerned that, although mitigation measures
can be of some assistance, this model fails to appreciate the nature of telecommunications
equipment.
i. ZTE did not alleviate Committee concerns about the control of

Chinese state-owned enterprises in ZTE’s business decisions and
operations.
As with Huawei, the Committee is concerned with the influence of the Chinese
state in ZTE’s operations. Such access or influence would provide a ready means for the
Chinese government to exploit the telecommunications infrastructure containing ZTE
equipment for its own purposes. To evaluate the ties to the Chinese state, the Committee
focused on the company’s history, structure, and management. Many commentators
have noted that ZTE’s founding included significant investment and involvement by
Chinese state-owned enterprises, and thus the Committee sought to unpack the current
operations and ownership structure with the hope of understanding whether there are
remaining ties to the Chinese state.
ZTE describes itself as a global provider of telecommunications equipment and

network solutions across 140 countries. Founded in 1985, ZTE states that its 2011
revenue led the industry with a 24% increase to $13.7 billion; its overseas operating
revenue grew 30% to U.S. $7.42 billion during the period, accounting for 54.2% of
overall operating revenue.138 ZTE markets itself by explaining that its systems and
equipment have been used by top operators in markets around the world. Importantly,
ZTE also highlighted in its 2011 Annual Report that China’s 12th five-year national plan
has significantly contributed to ZTE’s recent domestic success.139
During the interviews with ZTE officials in April and May 2012, ZTE officials
stressed that ZTE is a publicly traded company, having been listed on the Shenzhen stock
exchange in 1997, and the Hong Kong stock exchange in 2004. ZTE contends that it did
not begin with government assistance, either with technology transfers or financial
37

assistance. Rather, ZTE stated that the Chinese government became a shareholder during
the 1997 public offering. ZTE has also asserted that the state-owned-enterprise
shareholders have no influence on strategic direction of the company.140 ZTE officials
often contrasted themselves with Huawei, though often did not mention Huawei by name.
In particular, officials suggested that Huawei is ZTE’s main competitor, but often stated
that ZTE is more transparent since it is a publicly traded company.
These officials often relied on this public listing to claim that ZTE finances are
transparent and comply with both Chinese and Hong Kong regulations regarding
financial disclosures. The officials often simply referred to the fact that they have annual
reports that detail information requested, such as amount and extent of government loans,
subsidies, and credits. ZTE refused, however, to explain whether it would be willing to
meet the reporting and transparency requirements of a western stock exchange such as
the New York Stock Exchange.141 As with Huawei, when the Committee sought more
detailed answers from ZTE on its interactions with key government agencies, ZTE
refused to answer.
The history and structure of ZTE, as admitted by the company in its submissions
to the Committee, reveal a company that has current and historical ties to the Chinese
government and key military research institutes. In response to questioning, the ZTE
officials first discounted and seemingly contradicted their own public statements, which
suggest that ZTE formed originally from the Ministry of Aerospace, a government
agency. In fact, exhibits displayed during the meeting in Shenzhen highlighted an early
collaboration between ZTE and the government-run No. 691 Factory, and other state-
owned enterprises. ZTE refused to provide the Committee copies of the slides presented
during this meeting.
ZTE officials instead suggested that Mr. Hou Weigui founded ZTE in 1985 with
five other “pioneer” engineers. Although they had all previously worked for state owned
enterprises, ZTE officials insisted that the formation of ZTE did not arise from any
relationship with the government. The company’s written submission to the Committee
admits that the company had an early connection to No. 691 Factory, which was
established by the Chinese government.142 As described by ZTE, No. 691 Factory is now
known as Xi’an Microelectronics Company, and is a subsidiary of China Aerospace
Electronics Technology Research Institute, a state-owned research institute. In its
submission, ZTE admits that Xi’an Microelectronics owns 34% of Zhongxingxin, a
shareholder of ZTE.143 ZTE’s evolution from research entities with connections to the
Chinese government and military highlight the nature of the information-technology (IT)
sector in China. In fact, taking as true ZTE’s submission of its history and ownership,
38

ZTE’s evolution confirms the suspicions of analysts who study the IT sector in China and
describe it as a hybrid serving both commercial and military needs.144
In 1997, ZTE was publicly listed for the first time on the Shenzhen stock
exchange. ZTE executives claim that it was at this point that other state owned
enterprises began investing in ZTE.
Currently, 30% of ZTE is owned by Zhongxinxin group and the remaining 70% is
held by dispersed public shareholders. The Committee is particularly interested in
whether the 30% ownership by Zhongxingxin constitutes a controlling interest or
otherwise provides the state owned enterprises an opportunity to exert influence over the
company. This question is particularly relevant because two state owned enterprises own
51% of Zhongxingxin. ZTE executives stressed that the public ownership of ZTE is
increasing as Zhongxingxin sells its shares (for example, in 2004, Zhongxingxin owned
44% of ZTE, and now Zhongxingxin holds only 30%). In ZTE’s July 3 submission to the
Committee, ZTE states that “[v]ery few knowledgeable individuals in China would
characterize ZTE as a state-owned entity (SOE) or a government-controlled company.”145
But the Committee specifically asked how it is that ZTE remains accountable to its
shareholders and not influenced or controlled by its largest shareholder given this
ownership structure. In its submission to the Committee, ZTE admits that a 30% share is
the point at which Hong Kong and Chinese law considers the holder to be a “controlling
shareholder.”146 ZTE simply stated that the company’s fiduciary duty to the numerous
shareholders means that the controlling shareholder does not in fact exert much actual
control over the company.147 ZTE does not explain in more detail how the Board
members, five of whom are chosen by state-owned enterprises, and some of whom are
acknowledged members of the Chinese Communist Party and members of ZTE’s internal
Communist Party Committee, would not exert any influence over the decisions of the
company.
Zhongxingxin, ZTE’s largest shareholder is owned in part by two state-owned

enterprises, Xi’an Microelectronics and Aerospace Guangyu, both of which not only have
ownership ties to the Chinese government, but also allegedly partake in sensitive
technological research and development for the Chinese government and military. ZTE
failed to address the Committee’s questions seeking detailed information on the history
and mission of these two companies. ZTE also failed to answer questions about these
companies’ relationship to key leaders within ZTE, specifically Mr. Weigu Hou, and
ZTE’s other major shareholder, Zhongzing WXT.
39

Because ZTE failed to answer key questions about its history and the connections
to government institutions, the Committee cannot trust that it is free of state influence,
particularly through its major shareholders and Board members.
ii. ZTE maintains a Chinese Party Committee within the company, and
has not fully clarified how that Committee functions, who chooses its
members, and what relationship it has with the larger Chinese
Communist Party.
As with Huawei, ZTE’s connection to the Chinese Communist Party is a key

concern for the Committee. Such a connection offers the Party the opportunity to
influence the decisions and operations of a company seeking to expand into the critical
infrastructure in the United States. As described previously, the modern Chinese state-
capitalistic economy is largely influenced if not controlled by the Party, in large part
through the party committees that exist within individual firms.
During interviews with ZTE officials, ZTE refused to answer whether the
executives or board members are members of the Chinese Communist Party. ZTE first
downplayed the existence of the Party Committee within ZTE, and company
representatives were unable to answer whether any members of the Board were also
members of the state Party. Subsequently, in response to continued Committee
questions, ZTE acknowledged that it does, in fact, contain an internal Committee Party,
which ZTE suggests is required by the laws of China.148 In response to the Committee’s
written questions, ZTE again refused, however, to provide information about the names
and duties of the Party Committee members. At the September 13, 2012, hearing, Mr.
Zhu attested under oath that ZTE would provide the names of those individuals on the
Party Committee.149
In response to questions posed at the September 13, 2012, hearing ZTE did
provide the Committee a list of 19 individuals who serve on the Communist Party
Committee within ZTE. At least two of those individuals appear to be on the ZTE Board
of Directors. Other individuals are major shareholders in ZTE entities. ZTE has
requested and the Committee has agreed to keep the names of these individuals out of the
public domain. ZTE discounts the influence of that these individuals may have over the
company. The company asked that the Committee not release the names of the
individuals for fear that the company or the individuals might face retaliation by the
Chinese government or Communist Party. The Committee has decided to keep the
names of those members out of this public report, but the company’s concern with the
potential retaliatory measures it faces by the government for simply providing the
40

Committee the names of an internal ZTE body highlights why this Committee remains
very concerned that the Chinese state is, or could be, responsible for the actions of the
company. China clearly seeks to maintain deep ties into and secrecy about its role in
economic actors in China. The control Chinese government maintains over the
company’s actions and level of transparency is of particular concern when that company
seeks to build critical U.S. infrastructure.
ZTE also did not fully explain the function of the Party Committee. Instead, ZTE
simply states that the Party Committee is controlled by company management. This
assertion is contradicted by ZTE’s own statement that ZTE executives and board
members actually are members of the [Chinese Communist Party] and delimit its
activities.”150 To the extent these executives and Board Members have obligations to
both the company’s shareholders and the State through the Communist Party, there is an
inherent conflict of interest in their duties, and this statement provides confirmation that
the Party likely does in fact have influence and input into the business affairs of the
company through these individuals.
The affidavit by the independent director, Timothy Steinert, seeks to allay any
concerns of influence by the government or Party by stating that:
In my experience and to my knowledge, no member of ZTE’s Board of Directors

has raised for consideration an interest on behalf of the Chinese Government, the
People’s Liberation Army or the Chinese Communist Party.151
This statement does not resolve the Committee’s concerns. First, there is a range of
operational and strategic decisions made on a daily basis within companies that are not
decided by or reviewed by the Board. Mr. Steinert’s affidavit says nothing about the role
of the Party Committee in those decisions prior to their reaching the Board, or for
decisions that do not reach the Board at all. Second, the Party’s influence through ZTE’s
Party Committee may not be facially obvious in the decision documents appearing for
review to the Board. Since at least two members of the Board are also members of the
Chinese State Party, it is impossible to know whether the votes of the Board are
conducted without influence by the Chinese Communist Party. When considering ZTE’s
activities or voting on certain measures, those Board members need not cite the Party to
be acting on the state’s behalf or in pursuit of the state’s interests. For these reasons, the
Committee finds unpersuasive ZTE’s claims that Mr. Steinert’s affidavit “confirms that
ZTE business decision making is not influence by the government or Party
considerations”152
41

ZTE recently suggested that the Party Committee “performs only ceremonial and
social functions.” For six months, the Committee has asked ZTE about the role of the
Party Committee, but only at the final hour, did it provide any response at all. Without
further information and specifics about the role and influence of the Party Committee in
the operations of the company, the Committee simply cannot allay the concerns about the
internal party apparatus existing within a company seeking to build U.S. critical
infrastructure.
iii. ZTE failed to disclose information about its activities in the United
States.
ZTE discussed its extensive presence in 140 countries, but significantly

downplayed any potential threats to the U.S., by suggesting that 95% of its U.S. sales are
from handsets. ZTE officials highlighted that they have five R&D centers in the U.S.
employing about 300 people. ZTE officials attempted to suggest that the company’s
presence in rural infrastructure and networks was to assist the U.S. effort with its rural
broadband plans. Committee staff questioned this logic, and ZTE officials admitted that
ZTE’s role in these projects were not for charity or public service, as they had initially
suggested, but to get a “foothold” in the country and learn the technology in the United
States. ZTE officials even admitted that they are willing to provide this equipment to the
U.S. below cost in order to learn the U.S. market. Specifically, during the Committee’s
meeting with ZTE officials in Shenzhen, Mr. Zhu stated that the company was willing to
lose money on projects in the United States to get a foothold in the United States and to
understand the technology and standards in the United States.
ZTE’s description of its current U.S. activity is simply a picture at a particular

point in time. The Committee could not confirm the extent of the company’s contracts or
access to the United States market absent responses to the Committee’s document
requests.153 Despite numerous requests, ZTE has not provided detailed information on
infrastructure projects in the United States.154 ZTE also failed to answer follow-up
questions that would explain whether ZTE purposely bids on projects below cost and
how the company is able to sustain these losses. Further, at the HPSCI hearing on
September 13, Mr. Zhu reversed his previous answers and refused to acknowledge that
ZTE ever bids below cost for projects in the United States.155
iv. ZTE failed to provide any answers or evidence about its compliance
with intellectual property or U.S. export-control laws.
The protection of intellectual property and compliance with United States export
control laws are a core concern for U.S. interests. The ability of a company to comply
42

with these laws provide a useful test of that company’s ability to follow international
codes of business conduct and remain free of undue state influence.
Representatives of the company consistently declined to comment on recent

media reports that ZTE had sold export-controlled items to Iran.156 At the hearing on
September 13, 2012, ZTE acknowledged that it is performing an internal review to
determine if the company destroyed any documents or other evidence related to its
activities in Iran.157 Mr. Zhu provided no information that could allow the Committee to
evaluate the extent of those activities, their compliance with U.S. laws, or management’s
involvement in the potential destruction of documents and evidence. ZTE did not answer
in specific written questions from the Committee asking why it sought to limit its Iranian
business activities; whether ZTE will honor its current contracts in Iran; or whether those
contracts include training or maintenance of surveillance equipment. Further, ZTE
refused to answer questions about what products ZTE resold in Iran. ZTE also refused to
provide any documents on its activities in Iran.
v. ZTE failed to provide clear answers to Committee questions about its

R&D activities, particularly as they relate to any military or
government projects.
Given ZTE’s background, the Committee was interested in ZTE’s R&D activities,
and particularly its R&D activities with or on behalf of the Chinese military or security
services. This information would help the Committee evaluate whether a company
seeking to build critical infrastructure in the United States could also be working with the
Chinese government on R&D projects with the purpose of finding or exploiting
vulnerabilities in those systems.
ZTE’s known connections to Chinese government-related research institutes are

of particular interest. For example, ZTE acknowledges that one of its primary
shareholders, Zhongxingxin, is owned in part by Xi’an Microelectronics, a subsidiary of
China Aerospace Electronics Technology Research Institute, a state-owned research
institute.158 Another 17% of Zhongxingxin is held by Aerospace Guangyu, a subsidiary
of a state-owned enterprise whose business includes production of, among other things,
aerospace technology products.159 ZTE failed to answer questions from the Committee
seeking further details about the range of products theses research institute have produced
on the Chinese government so the committee could not evaluate whether those
technologies were produced for military or intelligence purposes.160
These ties to Chinese government research institutes and production companies,

the Committee sought more information on the details of ZTE’s R&D activities, and
43

particularly its potential work on behalf of the government, military, or security services.
ZTE was proud to explain that it had established 18 state-of-the-art R&D centers
throughout China, France, and India, and to employ over 30,000 research professionals.
ZTE further claims that 10% of the company’s annual revenue is invested in R&D. ZTE
failed, however, to answer Committee questions about the technologies it may create or
sell to the Chinese government and military. During the Committee’s April 12, 2012
meeting with company officials, Mr. Steinert, the independent board member, stated that,
ZTE’s work on behalf of the Chinese telecommunications providers that happen to be
state-owned enterprises does not suggest that ZTE does work on behalf of the military or
intelligence services. When providing written answers ZTE refused to provide clear
answers about the nature and extent of any work it does on behalf of the Chinese military
or security services. Rather, ZTE states that “[t]he funding ZTE has received from
government or consortia during the past several years is indistinguishable from similar
funding available throughout the world in companies engaged in R&D through normal
procurement processes.”161
To the extent ZTE’s R&D activities are simply in response to standard

government procurement processes, the Committee does not understand why it refuses to
answer direct questions about the details of those projects. For this reason, the
Committee cannot allay concerns that ZTE is aligned with Chinese military and
intelligence activities or research institutes.
Conclusion and Recommendations
The Committee launched this investigation to seek answers to some persistent

questions about the Chinese telecommunications companies Huawei and ZTE and their
ties to the Chinese government. Throughout the months-long investigation, both Huawei
and ZTE sought to describe, in different terms, why neither company is a threat to U.S.
national-security interests. Unfortunately, neither ZTE nor Huawei have cooperated fully
with the investigation, and both companies have failed to provide documents or other
evidence that would substantiate their claims or lend support for their narratives.
Huawei, in particular, provided evasive, nonresponsive, or incomplete answers to

questions at the heart of the security issues posed. The failure of these companies to
provide responsive answers about their relationships with and support by the Chinese
government provides further doubt as to their ability to abide by international rules.
Recommendations
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Based on this investigation, the Committee provides the following
recommendations:
Recommendation 1: The United States should view with suspicion the continued
penetration of the U.S. telecommunications market by Chinese telecommunications
companies.
The United States Intelligence Community (IC) must remain vigilant and focused
on this threat. The IC should actively seek to keep cleared private sector actors as
informed of the threat as possible.
The Committee on Foreign Investment in the United States (CFIUS) must block
acquisitions, takeovers, or mergers involving Huawei and ZTE given the threat to
U.S. national security interests. Legislative proposals seeking to expand CFIUS
to include purchasing agreements should receive thorough consideration by
relevant Congressional committees.
U.S. government systems, particularly sensitive systems, should not include

Huawei or ZTE equipment, including in component parts. Similarly, government
contractors – particularly those working on contracts for sensitive U.S. programs
– should exclude ZTE or Huawei equipment in their systems.
Recommendation 2: Private-sector entities in the United States are strongly encouraged

to consider the long-term security risks associated with doing business with either ZTE or
Huawei for equipment or services. U.S. network providers and systems developers are
strongly encouraged to seek other vendors for their projects. Based on available
classified and unclassified information, Huawei and ZTE cannot be trusted to be free of
foreign state influence and thus pose a security threat to the United States and to our
systems.
Recommendation 3: Committees of jurisdiction within the U.S. Congress and

enforcement agencies within the Executive Branch should investigate the unfair trade
practices of the Chinese telecommunications sector, paying particular attention to China’s
continued financial support for key companies.
Recommendation 4: Chinese companies should quickly become more open and

transparent, including listing on western stock exchange with advanced transparency
requirements, offering more consistent review by independent third-party evaluators of
their financial information and cyber-security processes, complying with U.S. legal
standards of information and evidentiary production, and obeying all intellectual-property
45

laws and standards. Huawei, in particular, must become more transparent and responsive
to U.S. legal obligations.
Recommendation 5: Committees of jurisdiction in the U.S. Congress should consider

potential legislation to better address the risk posed by telecommunications companies
with nation-state ties or otherwise not clearly trusted to build critical infrastructure. Such
legislation could include increasing information sharing among private sector entities,
and an expanded role for the CFIUS process to include purchasing agreements.
1
Ken Hu, “Huawei Open Letter.” http://online.wsj.com/public/resources/documents/Huawei20110205.pdf
(accessed August 2, 2012).
2
Huawei’s letter was issued in February, 2011, when the Committee on Foreign Investment in the United
States (CFIUS) issued a recommendation that Huawei voluntarily divest assets it received in a 2010 deal
with 3Leaf, a United States company that developed advanced computer technologies. Shayndi Raice,
“Panel Poised to Recommend Against Huawei Deal,” Wall Street Journal, February, 11, 2011.
http://www.wsj.com/article/SB20001424052748704629004576136340771329706.html (accessed August
2, 2012)
3
A classified annex to this report provides both classified information relevant to the discussion, as well as
information about the resources and priorities of the IC.
4
Steven M. Rinaldi, James P. Peerenboom, and Terrence K. Kelly, “Identifying, Understanding, and
Analyzing Critical Infrastructure Interdependencies,” IEEE Control Systems Magazine, December 2001.
5
“The former National Counterintelligence Executive, Mr. Robert Bryant, recently noted that, ‘Insider
threats remain the top counterintelligence challenge to our community.’ An insider threat arises when a
person with authorized access to U.S. Government resources, to include personnel, facilities, information,
equipment, networks, and systems, uses that access to harm the security of the United States. Malicious
insiders can inflict incalculable damage. They enable the enemy to plant boots behind our lines and can
compromise our nation's most important endeavors. Over the past century, the most damaging U.S.
counterintelligence failures were perpetrated by a trusted insider with ulterior motives.”
http://www.ncix.gov/issues/ithreat/index.php
6
FBI, Intelligence Bulletin, “Supply Chain Poisoning: A Threat to the Integrity of Trusted Software and
Hardware,” June 27, 2011: 1.
7
Office of National Counterintelligence Executive, Report to Congress on Foreign Economic Collection
and Industrial Espionage, “Foreign Spies Stealing US Economic Secrets in Cyberspace.”(October 2011,
Washington, DC: 1.)
8
United States Congress, 2011 Annual Report of U.S.-China Economic and Security Review. (2011,
Washington DC: 59.)
9
National Institute of Standards and Technology, Draft NISTIR 7622, “Piloting Supply Chain Risk
Management for Federal Information Systems,” June 2010, 28.
10
Joint Press Conference, March, 29, 2012, Sydney, Australia. http://www.pm.gov.au/press-
office/transcript-joint-press-conference-sydney-1.
11
The Economist, “Huawei: The Company that Spooked the World,” Economist, August, 4, 2012.
http://www.economist.com/node/21559929 (accessed September 30, 2012).
12
Washington DC: 148.)
46

13
Office of National Counterintelligence Executive, Report to Congress on Foreign Economic Collection
and Industrial Espionage, “Foreign Spies Stealing US Economic Secrets in Cyberspace.”(October 2011,
Washington, DC: i.)
14
Ibid, 5; HPSCI staff interviews with cyber-security experts.
15
Ibid, 5.
16
Defense Science Board, Report on Mission Impact of Foreign Influence on DoD Software, September
2007: viii.
17
“Where State security requires, a State security organ may inspect the electronic communication
instruments and appliances and other similar equipment and installations belonging to any organization or
individual.” State-Security Law of the People’s Republic of China, Article 11.
18
Defense Science Board, Report on Mission Impact of Foreign Influence on DoD Software, September
2007: viii.
19
Northrop Grumman Corp, Occupying the Information High Ground: Chinese Capabilities for Computer
Network Operations and Cyber Espionage, prepared for U.S.-China Economic and Security Review
Commission, March 7, 2012, 6-8.
20
The Economist, “The Long March of the Invisible Mr. Ren,” the Economist, June 2, 2011.
http://www.economist.com/node/18771640 (accessed on September 15, 2012).
21
FBI, Intelligence Bulletin, “Supply Chain Poisoning: A Threat to the Integrity of Trusted Software and
Hardware,” June 27, 2011: 4.
22
ZTE, Submissions to HPSCI, July 3, 2012; ZTE, Submission to HPSCI, August 3, 2012; Ken Hu,
“Huawei Open Letter.” http://online.wsj.com/public/resources/documents/Huawei20110205.pdf (accessed
August 2, 2012). John Suffolk, Huawei’s Global Security Officer, previously served as the Chief
Information Officer with the UK government at a time when the UK entered into its agreement with
Huawei to set up the Cyber Security Evaluation Center (CSEC). Mr. Suffolk advocated for a cyber-
security and supply-chain solution that would recognizing the issues as a global concern that must be
addressed at an international level, preferably by an international standards-setting organization through
which all products must pass. Mr. Suffolk also highlighted that in the present age, technology is moving
faster than our ability to adapt our institutions. Key assumptions are that security requires a whole systems
approach, and that all systems will be breached at some point. Thus, in Mr. Suffolk’s view,
telecommunications companies and governments must manage the risk, focus on areas of most concern,
instill diversity and adaptability, and learn to deal with the consequences. Mr. Suffolk acknowledged that
Huawei’s desire to be an end-to-end provider for whole network solutions does not align with his proposed
solutions to the supply-chain concerns, which depend on diversity of supply. HPSCI meeting with John
Suffolk, February 23, 2012.
23
Anderson, R., & Fuloria, S. Certification and Evaluation: A Security Economics Perspective. Emerging
Technologies and Factory Automation, (2009).
24
Ken Thompson, Reflections on Trusting Trust. Turing Award Lecture, (1984).
25
Gerwin Klein, Formal Verification of an OS Kernel. Symposium on Operating Systems Principles. Big
Sky, MT, USA: Association of Computing Machinery, (2009).
26
Daniel Jackson, Martyn Thomas, and Lynette I. Millett, Eds. Software for Dependable Systems:
Sufficient Evidence? Committee on Certifiably Dependable Software Systems, National Research Council.
(National Academies Press, 2007.)
27
Rules of the House of Representatives, 112th Congress, Rules 10(3)(m), 11.
28
Understanding and developing a strategy to protect the country from Chinese cyber espionage in the
United States is one of the obligations of U.S. counterintelligence professionals. Many reports have
suggested that the Intelligence Community continues to struggle integrating and acting on its
counterintelligence mission. As Michelle Van Cleave, former head of the National Counterintelligence
Executive, has explained, “the U.S. government has been slow to appreciate the effects of foreign
intelligence operations, much less to address the threats they pose to current U.S. foreign policy objectives
or enduring national security interests.” Michelle Van Cleave, “Chapter 2: The NCIX and the National
Counterintelligence Mission: What Has Worked, What Has Not, and Why,” in Meeting Twenty-First
Century Security Challenges, 62.
47

Office of National Counterintelligence Executive, Report to Congress on Foreign Economic Collection and
Industrial Espionage, “Foreign Spies Stealing US Economic Secrets in Cyberspace.”(October 2011,
Washington, DC)
30
In response to the Committee’s June 12, 2012, document request, ZTE provided one document: a
summary of its cyber-security measures. Huawei provided no documents other than materials already on
the company’s website or otherwise publicly released. After the September 13, 2012 hearing, Huawei
provided a document labeled “Internal Compliance Program (ICP),” dated March 2012. That document
summarizes Huawei’s internal policy with respect to trade control policies. Huawei provided no material
that would allow the Committee to evaluate their compliance with or enforcement of that policy. Huawei
also provided a copy of the publicly released paper entitled “Cyber Security Perspectives” prepared by John
Suffolk, and Huawei’s public statement regarding its Commercial Operations in Iran.
31
House Permanent Select Committee on Intelligence, Hearing on Investigation of the Security Threat
Posed by Chinese Telecommunications Companies Huawei and ZTE, 112th Congress, 2nd session
(September 13, 2012).
32
Given the sensitivities involved, and to protect these witnesses from retaliation or dismissal, the
Committee decided to keep the identities of these individuals confidential.
33
As the U.S.-China Commission has highlighted, even the largely circumstantial evidence that known
incidents appear state sponsored is compelling -- as the actors’ targeting often focuses on key defense and
foreign-policy sources of information, which are of most concern to the state and not commercial entities.
Washington DC: 59.)
35
Washington DC: 59-60.)
36
ZTE, Submission to HPSCI, July 3, 2012, 3.
37
Discussion with PLA Piper, June 2012. Huawei, in its responses to Questions for the Record after the
September 13, 2012, hearing, denied that there is any state-secret concern with their documentation. The
Committee is left wondering, then, why Huawei has refused to provide internal documentation that could
substantiate its claims. Moreover, Huawei’s failure to provide the list of individuals on Huawei’s Chinese
Communist Party Committee is an example in which the Committee believes the state’s concerns with state
secrets is particularly relevant. Huawei’s continuous failure to provide such information cannot be
explained otherwise.
38
Huawei Investment & Holding Co., Ltd., 2011 Annual Report, 7.
39
40
That report suggests that Huawei “was founded in 1988 by Ren Zhengfei, a former director of the PLA
General Staff Department’s Information Engineering Academy, which is responsible for telecom research
for the Chinese military. Huawei maintains deep ties with the Chinese military, which serves a multi-
faceted role as an important customer, as well as Huawei’s political patron and research and development
partner. Both the government and the military tout Huawei as a national champion, and the company is
currently China’s largest, fastest-growing, and most impressive telecommunications-equipment
manufacturer. Evan Medeiros et al., A New Direction for China’s Defense Industry, Rand Corporation:
218-219. http://www.rand.org/pubs/monographs/2005/RAND_MG334.pdf.
41
Ibid, 217-219
42
The Economist, “Huawei: The Company that Spooked the World,” Economist, August, 4, 2012.
http://www.economist.com/node/21559929 (accessed September 30, 2012).
43
Juha Saarinen, “Analysis: Who Really Owns Huawei?,” ITNews, May 28, 2012.
44
45
Richard McGregor, The Party: The Secret World of China’s Communist Rulers, 2010: 204.
46
Huawei, Submission to HPSCI, July 3, 2012.
48

47
48
Huawei Investment & Holding Co., Ltd., 2011 Annual Report, 2.
49
Huawei, September 25, 2012 Response to Questions for the Record, at __.
50
Huawei, September 25, 2012 Responses to Questions for the Record, 6-7.
51
Interviews with Huawei officials, February 23, 2012.
52
53
54
Mike Rogers and Dutch Ruppersburg, letter to Huawei, June 12, 2012; Huawei, letter to HPSCI,
“Response to June 12, 2012 Letter,” July 3, 2012.
55
Huawei, Documents Provided in Advance of February 23, 2012 entitled Shareholder Agreements.
56
John Lee, “The Other Side of Huawei,” Business Spectator, March 30, 2012.
57
Washington DC: 59)
58
Ibid.
59
60
Huawei, Submission to House Permanent Select Committee on Intelligence, July 3, 2012, 1.
61
Ibid.
62
Ibid.
63
Huawei, July 2, 2012 Submission, 7-15
64
Highlighting that as China moved from a pure control economy in the 1990s, Chinese companies
experienced particular difficulties raising capital in foreign capital markets, including the “most sensitive of
all, how would they explain the role of the internal party bodies, which for years had run companies, free of
any of the inconvenient structuring of corporate reporting and governance rules.” Richard McGregor, The
Party: The Secret World of China’s Communist Rulers, 2010: 47; See John Lee, “The Other Side of
Huawei,” Business Spectator, March 30, 2012
65
66
Ibid.
67
See John Lee, “The Other Side of Huawei,” Business Spectator, March 30, 2012; Richard McGregor, The
Party: The Secret World of China’s Communist Rulers, 2010.
68
Richard McGregor, The Party: The Secret World of China’s Communist Rulers, 2010: 72.
69
Meeting with Mr. Ren, May 23, 2012.
70
Huawei, Submission to House Permanent Select Committee on Intelligence, July 3, 2012.
71
Huawei officials stated that China had cancelled ranking system at the time. HPSCI Interviews with
Huawei officials, February 23, 2012.
72
Huawei officials suggested that the rumors that Mr. Ren is a former PLA General is the result of
confusion with Julong, another Chinese telecommunications company and state-owned enterprise whose
President is a Major General in the PLA. HPSCI Interviews with Huawei officials, February 13, 2012.
73
Huawei, September 25, 2012 Responses to HPSCI Questions for the Record, 8.
74
Huawei, September 25, 2012 Responses to HPSCI Questions for the Record, 8.
75
Huawei asserted that Chen Jinyang, who invested 3,500 RMB, was a 26-year-old manager at the Chinese
Trade Department.
76
77
78
Interview with Ken Hu, February 23, 2012.
79
Scholars of the Chinese political economy suggest that national champions are those chosen by China to
be supported both financially and otherwise by the state because of the strategic importance of the sector
and the company to China’s national interests. See John Lee, “The Other Side of Huawei,” Business
Spectator, March 30, 2012
49

80
81
Ibid.
82
Interviews with Huawei officials, February 23, 2012; Huawei presentation, February 23, 2012.
83
Interviews with Huawei officials, February 23, 2012
84
Huawei, Submission to House Permanent Select Committee on Intelligence, July 3, 2012, 19-20.
85
Mike Rogers and Dutch Ruppersburg, letter to Huawei, June 12, 2012, 6.
86
87
Phone conversations with Huawei representatives, June 2012.
88
89
90
The Economist, Huawei: The Company that Spooked the World,” Economist, August, 4, 2012.
http://www.economist.com/node/21559929 (accessed September 30, 2012);
91
92
Huawei, Slide Presentation dated November 2011, 8.
93
Huawei, Responses to HPSCI Questions for the Record, September 25, 2012, 1.
94
Ibid.
95
Ibid.
96
Inteviews with Huawei officials, February 23, 2012
97
Huawei, Corporate Presentation, February 23, 2012, 26.
98
99
Huawei, Corporate Presentation, February 23, 2012, 27.
100
Huawei, Responses to HPSCI Questions for the Record, September 25, 2012, 2.
101
Inteviews with Huawei officials, February 23, 2012.
102
103
104
105
Ren Zhengfei, speech at Huawei BT Division & Huawei UK, June 30, 2007, quoted in Huawei
magazine Improvement, Issue 58.
106
The Commerce Department, working with the Defense Department, has sought information from the
private sector to better understand the entire scope of cyber-risks facing the country’s critical
telecommunication infrastructure. The Commerce issued a survey under the Defense Production Act to
dozens of U.S. based companies to gather better information on the security of their networks. The review
of that information is still ongoing.
107
The Committee has offered on numerous occasions to provide Huawei an opportunity to provide the
information the Committee needs to evaluate the security of U.S. networks in a closed forum or under an
agreement to provide such information confidentially. Huawei has continuously refused to accept any such
offer, option instead to simply assert that such details are confidential. The Committee intends to continue
evaluating these issues and plans to approach Huawei in the future for more details on these contracts to
fulfill the Committee’s duty to evaluate the risk posed by these firms.
108
House Committee on Foreign Affairs, Hearing on Unfair Trade Practices against the US, 112th
Congress, 2nd session (July 19, 2012).
109
Interview with Huawei officials, February 23, 2012.
110
Interview with Employees.
111
112
Interview with Huawei officials, February 23, 2012.
113
Huawei, Submission to House Permanent Select Committee on Intelligence, July 3, 2012.
114
Interview with Huawei Employees.
115
Interview with Huawei Employees.
50

116
Interview with industry experts.
117
Huawei representatives admitted to Committee staff that using this presentation was in violation of
McKinsey’s copyright protections, and that McKinsey and Huawei have no business relationship thus
undermining any claim that Huawei had a right to use the slide. Huawei, Slide Presentation dated
November 2011, 8 (using McKinsey & Co. material).
118
Interview with Huawei Officials, February 13, 2012.
119
Ibid.
120
Marguerite Reardon, “Huawei Admits Copying,” Light Reading, March 25, 2003.
http://www.lightreading.com/document.asp?doc_id=30269 (accessed on August 13, 2012)
121
Ibid.
122
123
124
Ibid.
125
Ibid, 5-6.
126
Ibid, 3-4.
127
Ibid, 3.
128
129
Huawei, September 25, 2012 Responses to Questions for the Record, 12.
130
Ibid.
131
Internal Huawei email, dated July 1, 2011.
132
Ibid.
133
Interviews with former Huawei employees.
134
Interviews with former Huawei employees.
135
Huawei, Slide Presentation dated November 2011, 8.
136
ZTE August 3, 2012 submission, at 12-17.
137
ZTE, Submissions to HPSCI, August 3, 2012, 23.
138
ZTE, 2011 Annual Report, 68-69.
139
“The national ‘12th Five Year Plan’ has provided driving force for the further development of the
domestic telecommunications industry.” ZTE, 2011 Annual Report, 69.
140
Meeting with ZTE officials, April 12, 2012, Shenzhen, China.
141
ZTE, Submissions to HPSCI, July 3, 2012.
142
Ibid, 4.
143
Ibid.
144
As a report commissioned by the U.S. China-Commission stated: “The IT sector in China can be
considered a hybrid defense industry, able to operate with success in commercial markets while meeting
the demands of its military customers. The Chinese telecommunications market is heavily influenced by its
largest domestic members—such as hardware and networking giants Huawei Shenzhen Technology
Company, Zhongxing Telecom (ZTE), and Datang Telecom Technology Co., Limited. These companies
and some smaller players are not always directly linked to the PLA or C4ISR modernization because of
their strong domestic and international commercial orientation. The digital triangle model, however,
allows them to benefit directly from a background network of state research institutes and government
funding in programs that do have affiliation or sponsorship of the PLA.” Northrop Grumman Corp,
Occupying the Information High Ground: Chinese Capabilities for Computer Network Operations and
Cyber Espionage, prepared for U.S.-China Economic and Security Review Commission, March 7, 2012,
69.
145
ZTE, Submissions to HPSCI, July 3, 2012, 2.
146
Ibid, 9
147
Ibid.
148
Ibid, 4.
51

149
House Permanent Select Committee on Intelligence,Hearing on Investigation of the Security Threat
150
John Merrigan, letter to Katie Wheelbarger, September 28, 2012.
151
Affidavit of Timothy Steinert, at para. 6.
152
ZTE, Submissions to HPSCI, August 3, 2012, 5.
153
Meeting with ZTE officials, April 12, 2012, Shenzen, China.
154
Ibid.
155
156
Ellen Nakashima,“Chinese telecom firm ZTE probed for alleged sale of U.S. surveillance equipment to
Iran,” Washington Post, July 13, 2012. http://www.washingtonpost.com/world/national-security/chinese-
telecom-firm-zte-probed-for-alleged-sale-of-us-surveillance-equipment-to-
iran/2012/07/13/gJQA6mKUiW_story.html.
157
158
ZTE, Submissions to HPSCI, April 2012, 4.
159
Ibid.
160
Ibid.
161
ZTE, Submissions to HPSCI, July 3, 2012, 17.
52

In The News
CHINESE COMPANY, SUBJECT OF CONGRESSIONAL SCRUTINY,

ACCUSED OF INTRODUCING FATALLY FLAWED
EQUIPMENT INTO U.S. MARKET IN LAWSUIT
JACKSONVILLE, FLORIDA -- Chinese telecommunications

equipment provider ZTE, the subject of a Congressional inquiry
regarding its ties to the Chinese government, has been named in a
lawsuit alleging that the company's equipment was so flawed that it
had to be removed from the marketplace.
PTA-FLA, a Florida wireless telecommunications company, alleges

that it purchased $3.8 million worth of equipment from ZTE that
turned out to be so faulty that it could not establish a fully functioning
cellular network in the Jacksonville, Florida area, as intended.
It became apparent through the use of the cellular network by PTA-

FLA's customers that the Products were defective... The problems
with the Products included, inter alia, their inability to comply with
general market standards, non-functioning MMS ("picture mail") and
problems complying with U.S. government mandates including
assistance to law enforcement (CALEA) and emergency assistance
(E911), inability to access the internet, high pitched signals being sent
through the handsets, and frequent network outages," states the
complaint, which was filed in the Circuit Court of the Fourth Judicial
Circuit, Duval County Florida.
"After every conceivable attempt to resolve this matter short of

litigation, including ZTE flatly refusing for over a year to hold the
required high level meetings that were part of the contract for the
purpose of avoiding litigation, we regretfully have asked the help of
our court system to provide some recovery. Our experience with ZTE
has been characterized by extremely late deliveries, broken
promises, software updates that caused havoc on the service we
provide, and faulty equipment," says Leslie Williams, Business
Manager and Corporate Secretary of PTA-FLA.
ZTE has made very plain to us that the Chinese government is the
largest owner of their company. However, we simply do not believe
that this gives ZTE the right to act as if unbound by the laws of this
country," says Williams.
A bipartisan group of Congressional leaders that has been looking

into the security of our nation's telecommunications networks in light
of the increased involvement of Chinese companies, has named ZTE
as a subject of concern.
Senators Jon Kyl, Joseph Lieberman, Susan Collins, and

Representative Sue Myrick wrote to the Federal Communications
Commission (FCC) in October 2010 expressing concern about ZTE
and another Chinese company's security impact on the U.S.
marketplace.
We are very concerned that these companies are being financed by

the Chinese government and greatly influenced by the Chinese
military, which may create an opportunity for the Chinese military to
manipulate... American telecommunications network[s]... so that
communications can be intercepted, tampered with or purposely
misrouted," they wrote in their letter to the FCC dated October 19,
2010.
The letter stated that these companies are "aggressively seeking to

supply sensitive equipment for U.S. telecommunications
infrastructure... and increase their role in the U.S. telecommunications
sector through acquisition and merger."
In addition, the letter asked the FCC to "describe in detail whether the
effective implementation for the Communications Assistance for Law
Enforcement Act (CALEA) is impacted by outsourcing to foreign
companies..."
The PTA-FLA complaint alleges that fully functioning CALEA was one
of the capabilities the ZTE equipment failed to provide.

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The Free Library > Communications > News, opinion and commentary > The Frontier Star (Northwest Frontier Province, Pakistan) > August 27, 2012
The Free Library > General Interest/Informational > General interest > The Frontier Star (Northwest Frontier Province, Pakistan) > August 27, 2012
The Free Library > Date > 2012 > August > 27 > The Frontier Star (Northwest Frontier Province, Pakistan)
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ZTE on duty evasion.
Publication: The Frontier Star (Northwest
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Islamabad -- Despite the fact that NAB has disclosed the details of the financial Tariffs
scam of different telecom operators but forgot to mention a similar scam by Zhongxing Telecommunications equipment
industry
Telecom Pakistan (Pvt) Ltd.
Despite making million in profits in Pakistan, some foreign companies try to use back
door channels with the help of corrupt officials of Federal Board of Revenue (FBR) to
get rebate in taxable profits. The corrupt officials at the FBR seemed more loyal to the
Telecom Companies.
It was reported that Rs. 149,205,836/- are recoverable in the form of custom duties
from M/S Zhongxing Telecom Pakistan (it is called as "ZTE Pakistan" in the market) up
till 31st May, 2012 despite the orders of Islamabad High Court on 3rd May, 2012 for the
recovery of such amount. It all started when ZTE enters into a contract with PTCL for
the installation of the telephone exchanges in 2001 for which ZTE had imported certain
components but it was later found out by the customs officials that the entire
exchanges were imported and the proper customs duties were not paid by the ZTE.
Though ZTE filed a petition against the court orders and the stay has been granted to
the same in a span of 3 days only raising doubts of the involvement of high ranked
officials in the government. NAB and the FBR have reached an agreement of giving no
such waiver and the evaded tax is to be recovered. When asked from the NAB official
of not taking any such action, the official responded that the case is now with the
Supreme Court and they would only take action against them once the detailed
judgment is announced.
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When our correspondent asked for the business implications of the said judgment from
PTCL, they said that the said dispute may affect their business relation with M/S ZTE
Pakistan once the final verdict comes from the SC or the custom officials themselves.
Upon asking from the Customs Authority, the official said that Customs has imposed
an import ban on the ZTE Pakistan in the mid of July, 2012 and will stay until the
dispute is settled between the authorities and ZTE.
He also said that the Custom Office wants to settle the dispute through negotiations
but there is lack of co-operation from M/s ZTE Pakistan for the past 2 years and there
is still huge sum of money pending with ZTE Pakistan is the form of duties. In this
case, it seems the imposed ban on ZTE may take some months to a year at least till
the settlement of the complete disputes, since the gap between the parties are wide
and the court proceedings are dragging in the Supreme Court. The official warned that
this would have serious consequences for ZTE Pakistan and even some third party
those who are in business relations with ZTE Pakistan such as cellular companies may
also be affected by the imposed ban on importation on ZTE Pakistan.

When our correspondent speaks to concerned officials at different cellular operators
about their business relations with ZTE Pakistan they said their relation is based on
mutual interests and legality compliance therefore any verdict against the ZTE
Pakistan may jeopardize their business relations.
Multi-National Companies like ZTE Pakistan should be more of an industry standard

when it comes to business principles/ethics to follow by other companies and any
involvement in malpractices will only put a negative trend in the industry. Tax /
Customs duties collected are further distributed on social areas like health & education
and to sustain a solid growth, Government should not give away unnecessary waivers
to companies for few officials' vested interests and not doing so will keep the country
dependent of the donors.
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ZTE to compensate Nepal Telecom
HIMALAYAN NEWS SERVICE
2011-06-08 11:27 PM
KATHMANDU: ZTE – global telecommunications equipments and network solutions provider – has agreed to compensate Nepal
Telecom as it provided faulty equipments.
It is providing CDMA equipments worth $5,08,332 as compensation to Nepal Telecom, according to the Ministry of Information and
Communication source.
At least 15 various equipments — including Base Transceiver Station (BTS) related equipments — imported from ZTE in 2004 were
under question due to its poor quality, according to a letter of Nepal Telecom.
The Quality of Service of CDMA mobile service has hit due to the low quality equipments supplied by ZTE that has agreed to
compensate them by replacing the equipments free of cost.
“Consumers have been facing connection problems due to low quality of equipments,” the Nepal Telecom letter to the ministry
stated.
“It is very unfortunate that the consumers have been compelled to use low Quality of Service for nearly seven years due to
inefficiency of Nepal Telecom,” according to the ministry sources.
ZTE — in 2004 — had won the biggest CDMA contract — in the history of Nepal Telecom — under which ZTE had to supply
equipments for CDMA technology to build a network to cover the country’s major populated areas.
However, Nepal Telecom official said that the problem was minor. “The problem has not affected the Quality of Service of CDMA
service,” the Telecom source defended, but agreed that ZTE had missed to provide some equipments according to the agreement
between Nepal Telecom and ZTE.
However, Nepal Telecom never thought of complaining since last six years making the consumers suffer.
CIAA decree
KATHMANDU: Commission for Investigation of Abuse of Authority (CIAA) directed Prime Minister Office, Finance Ministry, Ministry
of Information and Communication and Nepal Telecom board and its management not to distribute bonus to its staffers breaching
the Company Act. “Nepal Telecom’s staffers are also shareholders of the company since they own 4.93 per cent of the share,” the
directive said, adding that bonus in cash and other forms cannot be distributed to shareholders without approval from the company’s
annual general meeting.
Probe on ISPs
KATHMANDU: Suspecting deliberate involvement in illegal Voice over Internet Protocol (VoIP), the Central Bureau of Investigation
has put the Global Internet Service — an Internet Service Provider (ISP) under scanner. “The bureau will take action under the
existing law, if found guilty,” said the bureau chief Rajendra Singh Bhandari. The Central Investigation Bureau of Nepal Police on
May 24 had raided an illegal business firm dealing in VoIP equipment and arrested its operator Prakash Kumar Pawan from
Kupondole. The police had also recovered a huge cache of VoIP equipment worth over Rs 10 million.
© 2014 The Himalayan Times Publication. All rights reserverd


ZTE Misconduct

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ZTE Misconduct

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ZTE’s Record of Worldwide

I. Corruption and Bribery……………………………….…………………………………. 1

• According to TRACE International, an anti-bribery organization, in February 2006, Liberian

• According to ABS-CBN News (Philippines), Norway's national telecom operator, Telenor

United States and Iran

• U.S. telecommunications equipment provider PTA-FLA accused ZTE of supplying

2. Wikipedia - Philippine National Broadband Network controversy

3. philSTAR - Enough proof of fraud to jail ZTE contractors

4. The Washington Post - Chinese company ensnared in kickback scandal in Philippines

6. itnews - ZTE banned from Algeria

7. InformationAge - ZTE execs convicted of bribery in Algeria

9. Steptoe - More Trouble for ZTE

12. WSJ - China Tech Giant Under Fire

14. CRN - Chambers Shreds, Cisco Cuts Ties With ZTE

15. Reuters - ZTE confirms security hole in U.S phone

17. Ghana Web - Are Ghanaian MPs worth mobile phones?

18. ZDNet - ZTE in Mongolia corruption probe

19. The Standard - Top ZTE staff held in bribery probe

20. China's ZTE denies getting illegal subsidy

23. WSJ - Telecom Deal by China's ZTE in Ethiopia Faces Criticism

25. Lightreading - Telenor Bans ZTE From New Deals

Chinese Telecommunications Company ZTE

28. iRunway Analysis for Vringo: Complaints Against ZTE

Equipment Into U.S. Market In Lawsuit

30. Customs Authorities to take action against ZTE on duty evasion

31. ZTE to compensate Nepal Telecom

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Philippine National Broadband Network

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Lozada's kidnapping and testimony

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Article Sources and Contributors

Image Sources, Licenses and Contributors

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Enough proof of fraud to jail ZTE contractors

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Ex-election official charged

“They are both bullies,” he said.

LifeLock® Official Site

Map Your Flood Risk

Buy a link here

© The Washington Post Company

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India's #1 Language Portal Apply for Indian Railway Jobs 2014

Home Elections India Money International Business Sports Feature

Oneindia » News » India

ZTE denies CBI charges on

The CBI has on Aug 8 registered a case of alleged

The CBI has found that Maken's purported letter

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For latest updates and breaking news, follow us on Forest dept

Huawei, ZTE banned from Algeria

Bukhari and Luxembourg-based businessman Chami Medjdoub each received 18

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Huawei and ZTE’s combined market share of EU wireless equipment – at 30 percent –

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