Cisco cuts ties to ZTE over sales to Iran

House Intelligence Committee chairman Rep. Mike Rogers (R-Mich.),

House Intelligence Committee chairman Rep. Mike Rogers (R-Mich.), left, and the committee's ranking Democrat, Rep. C.A. Ruppersberger, of Maryland, release a report Monday during a Capitol Hill news conference on a yearlong government investigation of China's two leading technology firms, Huawei Technologies and ZTE Corp. (Oct. 8, 2012) (Credit: AP)

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Cisco Systems Inc. has ended a long-standing sales partnership with ZTE Corp. after an internal investigation into allegations the Chinese telecommunications equipment maker sold Cisco networking gear to Iran.

Cisco's probe followed stories by Reuters last spring that documented how Shenzhen, China-based ZTE had sold banned computer equipment from Cisco and other U.S. companies to the largest telecom firm in Iran, where American-made tech products long have been subject to U.S. sanctions. ZTE also agreed last year to ship millions of dollars worth of additional U.S. tech products, including Cisco switches, to a unit of the consortium that controls the telecom firm.

The stories sparked internal probes by the companies involved and investigations by the U.S. Commerce Department, a congressional committee and the FBI.

ZTE's general counsel at its Texas-based subsidiary alleged that the parent company plotted a cover-up, including possibly shredding documents, after the first Reuters story broke. The FBI has launched a criminal probe into the allegations.

The U.S. House of Representatives' Intelligence Committee said in a report Monday ZTE and fellow Chinese telecom equipment maker Huawei Technologies Co. Ltd. should be shut out of the U.S. market because potential Chinese state influence on them poses a security threat. Both companies deny the allegation.

David Dai Shu, a ZTE spokesman, said of Cisco's decision to cut ties: "ZTE is highly concerned with the matter and is communicating with Cisco. At the same time, ZTE is actively cooperating with the U.S. government about the probe to Iran. We believe it will be properly addressed."

In a recent interview, John Chambers, Cisco's chief executive, declined to discuss the results of the company's investigation of ZTE's sales to Iran. But he said Cisco doesn't "tolerate any direct or indirect" sales of its equipment to embargoed countries such as Iran. "And when that occurs, we step up and deal with it very firmly. So I think you can assume that you will not see that happen again."

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