Cisco has ended its seven-year partnership with the Chinese hardware manufacturer ZTE following an internal investigation into whether ZTE sold Cisco networking gear to Iran, according to a report released on Monday.
The report -- from Reuters -- arrived on the same day that the U.S. House of Representatives' Intelligence Committee released a draft report saying that ZTE and another Chinese manufacturer, Huawei, should be frozen out of the U.S. market because they may pose a security threat due to ties with the Chinese government.
Asked to comment on the Reuters report, a Cisco spokesman said: "Cisco has no current relationship with ZTE.”
According to Reuters, Cisco conducted its own probe into ZTE's activities after the news service reported in March that the FBI was investigating whether ZTE sold U.S. gear to Iran despite a U.S. embargo in the country.
The equipment was allegedly part of a surveillance system sold by ZTE to Telecommunication Co of Iran (TCI), a near-monopoly owned by the Iranian government and a consortium of companies. According to Reuters, the system has the ability to monitor landline, mobile, and internet communications.
Reuters reports that Cisco entered a partnership to license its technology to ZTE seven years ago and that the relationship was seen as a way of combating Huawei, which has grown into one of the world's largest manufacturers of telecom equipment. Citing a former Cisco executive, Reuters says that ZTE would manufacturer Cisco technology in China so that it would be "cost-competitive" with gear from Huawei.
But according to Reuters, the relationship turned sour when ZTE tried to enter the U.S. market. Reportedly, the licensing contract ended by 2010, but ZTE remained a licensed distributor of distributor and reseller of Cisco products.
Then Reuters revealed the FBI's investigation into ZTE. And in May of this year, according to The Smoking Gun, the FBI filed an affidavit accusing ZTE of covering up sales to Iran. According to the affidavit, published by The Smoking Gun, ZTE's general counsel for its U.S. subsidiary in Dallas told the FBI that the company had begun to shred documents in an attempt to cover up its dealings with Iran after the Reuters story broke.
He also said that the TCI contract described how ZTE would evade the embargo, and aired suspicions that the company set up new companies specifically to sell U.S.-made equipment to Iran, the affidavit says.
It's illegal in the U.S. to make non-humanitarian sales to Iran. China has no such restrictions, but according to Reuters, U.S. companies generally prohibit Chinese companies from reselling their goods in Iran as part of their
agreements.
Cisco is no stranger to criticism over its sales to China. In 2008, an internal memo was leaked detailing the company's efforts in 2002 to market its products to be used in the Chinese government's "Golden Shield" system, better known in the West as the "Great Firewall of China." Terry Alberstein, a senior director of corporate communications at Cisco, told Wired at the time that the company sold $100,000 worth of routers to be used as part of Golden Shield.
Although a surveillance system is at the heart of the ZTE issue, the U.S. is trying to expand its own domestic surveillance techniques. According to The New York Times, the Obama Administration plans to submit a bill that if enacted would require companies to ensure that their products are "technically capable" of complying with wiretap orders. This would include making it possible for authorities to decrypt BlackBerry messages, or eavesdrop on Skype's peer-to-peer connections.
