Juniper Networks of Sunnyvale became the latest tech company this summer to receive inquiries from the U.S. Securities and Exchange Commission regarding possible sale of its products to so-called “terrorist” states such as Syria, Sudan and Iran.
The matter was eventually closed without any formal action by the SEC. But it’s an indication that the SEC continues to use its authority to apply pressure on companies, particularly tech companies, to make sure they avoid even the slightest appearance of business dealings with these blacklisted states.
Earlier this year, I wrote about an exchange of letters between Nokia and the SEC:
The U.S. Securities and Exchange Commission has been scrutinizing ties between big businesses and countries labeled “terrorist states” by the State Department. These primarily include Syria, Sudan, Iran and Cuba. As I mentioned, there’s been a lot of concern that technology in these countries is being used against citizens, activists and insurgents. Over recent months, the SEC has been sending a series of letters to a wide variety of companies asking for broader disclosure of activities in these countries.
An SEC spokesman declined to confirm whether the recent flurry of letters represents a new initiative, other than to note that the agency created the Office of Global Security Risk in 2005 at the direction of Congress. And it’s that office that has been sending the letters.
This past summer, Juniper received a letter from the SEC dated July 12 that asked detailed questions about:
“…recent news reports stating that certain of your products have been sold by ZTE Corporation in China to Iran, and that products of several U.S. companies, including you, sold by ZTE Corporation to Iran include systems that enable Iranian security authorities to conduct surveillance and tracking activities in that country.”
The previous month, a story had broken that the FBI was probing ZTE:
“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.”
In Juniper’s response, dated August 7, the company defended its integrity, and noted that it had not done any direct business with Iran. But the company also said:
“The Juniper list price of the specific products identified to us by the author of the May 2012 news report that were reportedly sold into Iran is less than $14,000 in total. Following publication of the May 2012 news report, representatives of Juniper met in person with representatives of ZTE. Juniper has informed ZTE that any future sales of Juniper products to or through ZTE, directly or indirectly, will require assurances satisfactory to Juniper regarding the identity and location of the end users to ensure that such end-users are not located in Sanctioned Countries. Our China sales team has had contact with ZTE in connection with the prospect of ZTE’s acting as a reseller located in China in order to promote the sale of Juniper’s products into the Chinese market. In terms of magnitude, the records provided to us by our channel partners reflect that in 2011, ZTE purchased approximately $2,670,116 of Juniper products from our channel partners, representing approximately .06% of our total revenue in 2011.”
Juniper said it voluntarily contacted the Commerce Department after news broke and submitted a written disclosure. The company also explained that it had never done business in Syria or Sudan. At one point, Juniper did obtain an exemption to sell products in Syria, but never exercised it.
With the SEC closing the inquiry, Juniper seems unlikely to face any further questions on the matter. But in closing its letter, Juniper did point out that the inability to absolutely guarantee its products don’t wind up in the wrong hands is a challenge all tech companies face:
“Because Juniper sells its products through distributors, resellers and other channel partners, there is always a risk of unauthorized diversion of the Company’s products to unauthorized end-users, end-uses and destinations by third parties.”