Court Records Reveal ZTE’s Corruption Scheme in Liberia

The ZTE logo is seen on a building in Beijing on May 14, 2018. Wang Zhao/AFP/Getty Images

Court documents newly unveiled from a civil lawsuit filed in Dallas, Texas, have revealed how Chinese telecoms giant ZTE bribed Liberian officials to win a contract to provide telecommunication services in the West African nation.

Meanwhile, American software developer Seven Networks has just filed a patent infringement lawsuit against ZTE, also in Texas.

The Dallas lawsuit was first reported on by the Australian Financial Review on May 31.

China’s second-largest telecoms firm is beleaguered by a U.S. ban forbidding American companies from selling tech parts or software to it. ZTE’s main operations have halted as a result. Since then, ZTE has become ensnared in U.S.–China trade negotiations, with the Chinese side pressuring the United States to ease ZTE sanctions in exchange for China buying more American exports.

Reuters reported on June 1 that the United States was seeking a $1.7 billion penalty for ZTE, in addition to “unfettered” inspection visits, before allowing the company to return to business.

The ban was enacted after U.S. authorities found that ZTE had violated terms of a 2017 agreement it signed after pleading guilty to selling tech parts to Iran and North Korea, against U.S. sanctions.

New details have now emerged from a lawsuit filed in June 2010, alleging that ZTE undermined an American company to win a bid by bribing Liberian government officials.

Visitors pass in front of the Chinese telecoms equipment firm ZTE, at the Mobile World Congress in Barcelona, Spain, on Feb. 26, 2018. Yves Herman/File Picture/Reuters

According to court documents, Universal Telephone Exchange, a Dallas-based telecoms company, had entered into negotiations with Liberia and other West African countries between 2003 and 2004 to provide upgrades to the country’s telecommunications system.

At the same time, Universal contacted ZTE’s American subsidiary company about the possibility of the latter providing switching equipment for Universal’s West Africa projects. The two companies signed a nondisclosure agreement.

But when Liberia’s state-owned telecoms company, Liberia Telecommunications Corp. (LTC), solicited bids for a project in 2005, ZTE submitted a bid in competition with Universal. Universal eventually won the bid.

That’s when ZTE began lobbying Liberian officials to cancel the contract with Universal and instead award it to ZTE.

Two LTC officials testified under oath that they were bribed, according to the documents.

ZTE offered Alfred D. Bargor, deputy managing director at LTC, a lifetime commission of 5 percent of ZTE’s revenues from sales to LTC should LTC give the contract to ZTE, in addition to $30,000 in cash stashed in a brown paper bag—which was handed to Bargor in a Liberia hotel.

ZTE staff member Liu Ruipeng also approached LTC managing director Amara M. Kromah, who was offered the same 5 percent commission, in addition to two cash payments in brown paper bags and an all-expenses-paid trip to China, where he was allowed an unlimited shopping spree.

The company also bribed then-Liberian President Gyude Bryant and court judges. Universal sued ZTE in Liberia in 2006. Though the Supreme Court ruled that the LTC contract should go to Universal, the court could not compel LTC to do business with it. That year, a criminal court also charged ZTE and several Liberian officials, including Kromah, with corruption in the same case.

A file picture dated November 24, 2003 shows former Liberian president Gyude Bryant arriving at Abidjan airport in the Ivory Coast for a brief visit. Issouf Sanogo/AFP/Getty Images

According to the latest court records, Universal and ZTE entered into arbitration in 2012, but are currently in a legal dispute over the arbitration award.

In an email response to the Australian Financial Review, ZTE denied the allegations and said it “maintains a high standard of ethics and integrity in its business activities throughout the world.”

ZTE has a long record of corruption and bad behavior. The court documents cite a 2015 report by an ethics council for the Norwegian government’s sovereign wealth fund—the world’s largest—which found that ZTE was involved in corruption allegations in 18 countries from 2007, when it was listed publicly on the Shenzhen Stock Exchange, to 2014. The council found ZTE’s “gross corruption” reason for discontinuing investments. The fund then sold its stake in ZTE and blacklisted the company.

New Lawsuit

On May 31, UK tech news website The Register reported that American firm Seven Networks filed a lawsuit at a federal court in northern Texas, alleging that ZTE infringed upon seven patents it has filed on smartphone data transfers, battery life, notifications, and other software.

A Blade smartphone manufactured by ZTE is seen on a store shelf in Miami, Florida on May 14, 2018. Joe Raedle/Getty Images

ZTE’s Blade smartphones contain software that Seven Networks developed, and is now seeking monetary compensation, according to The Register.