In June, a Reuters story revealed that Cisco, HP and Oracle gear was being sold to an Iranian mobile operator despite U.S. government sanction on such sales. Cisco conducted an internal investigation into ZTE's practices and as a result, recently ended a longstanding relationship with the Chinese company, according to a Reuters story published this week.
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The Cisco/ZTE situation comes amid a report due today from the U.S. House Intelligence Committee that states that equipment from ZTE and fellow Chinese telecom company Huawei pose a security threat to the U.S. The report, which follows a year-long investigation, recommends the U.S. block any attempts by ZTE and Huawei to make acquisitions or mergers in America, and encourages U.S. firms to procure equipment from other sources.
A ZTE spokesperson said of the Cisco action that the company is "highly concerned" and "communicating" with Cisco, according to Reuters. The spokesperson also said ZTE is cooperating with the U.S. government on its investigation into sales to Iran.
Cisco did not comment by the time this story was posted. But in June, Cisco said it "... complies with all U.S. export laws and requires our business partners to expressly acknowledge that they too must abide by these laws. Products such as these, which are not subject to individual export licenses, can be purchased from distributors and resold without Cisco's knowledge or control. We continue to investigate this matter, as any violation of U.S. export controls is a very serious matter."
According to this week's Reuters story, ZTE's general counsel at its Texas-based subsidiary alleged that the parent company plotted a cover-up of the sale of Cisco gear to Iran, including possibly shredding documents. The FBI has launched a criminal probe into the allegations, the news service reports.
ZTE has continued to do business in Iran while American-made technology has been subject to U.S. sanctions. A parts list dated July 2011 for an equipment contract between ZTE and an Iranian telecommunications company included several Cisco switches, Reuters reports. ZTE later agreed to sell five Cisco switches to another Iranian firm, according to the news service.
Cisco and ZTE partnered for the past seven years. Cisco viewed ZTE as a means to combat Huawei, which had been beating out Cisco in emerging markets by offering significantly cheaper products, according to Reuters.
But ZTE wanted to expand into the U.S. and Cisco did not want that, according to the Reuters report, which quoted "a former Cisco executive with knowledge of the matter."