Products could contain backdoors

ZTE and its compatriot, Huawei, are also banned from bidding on government contracts in the US, over fears their products could contain backdoors allowing an element of surveillance and even control from agencies in China.

Despite ZTE's long list of misdemeanours and ongoing security concerns, the West Australian government and Telstra continue to deal with the Shenzhen-based company.

Fairfax Media has been told ZTE is one of two companies shortlisted for a $120 million contract to roll out a communications system for Perth's metropolitan rail system.

The system will control signalling and operations and is designed to ultimately run the city's driverless train network.

The other short-listed bidder for the contract is Huawei, which was banned on national security grounds by the federal government in 2012 from bidding on contracts for the national broadband network and is facing similar criminal charges to ZTE for breaching sanctions.

Potential influence over critical infrastructure assets


The awarding of the WA contract to either ZTE or Huawei – both companies with strong links to the Chinese government – is at odds with efforts by the Turnbull government to roll back Beijing's potential influence over critical infrastructure assets in Australia.

A spokesman for the Public Transport Authority of WA would not comment on the short-listed bidders, before adding advice had been sought from federal and state government agencies and that a private security contractor specialising in high-level cyber security had been engaged.

"Based on this advice we have built more than 80 functional requirements for cyber security into the project contract, and will employ robust strategies to ensure the security of PTA systems," the spokesman said.

Telstra has confirmed ZTE is one of five short-listed bidders for Telstra's 5G mobile phone network, along with Huawei.

On Thursday, Telstra said it was ceasing sales of ZTE phones and mobile broadband devices, due to the US ban. ZTE is appealing the US ban, which is seen as particularly detrimental to its handset business. The Wall Street Journal has reported ZTE claims its failure to comply with a US settlement agreement after its sanction breach was due to poor internal controls, not systemic deception.

Systematic in its approval and documentation of bribery

The internal documents cited by Fairfax Media show ZTE was systematic in its approval and documentation of bribery, as it sought to expand outside its home market of China in the early 2000s.

The files from a company insider show $US12.8 million in bribes was paid to secure contracts for two mobile phone networks in the West African country of Benin.


The payments to officials in Benin happened in 2005 and 2006 and, according to the documents, were part of an elaborate bribery system set up inside the company, which has never been investigated or disclosed.

According to an internal reconciliation of the payments, 29 officials, from the late Benin president Mathieu Kerekou down, received the money, mostly in cash.

The source said these bribes had to be approved by multiple managers within ZTE, including senior executives at its Shenzhen headquarters and senior staff in the company's African division.

Four separate payments

In a statement to Fairfax Media, ZTE refused to comment on the specific allegations but said it would look into the matter.

"We will investigate on [sic] this as per the company's compliance policy and procedure," a spokesman for ZTE said in an email.

An excel spreadsheet documenting the graft shows $US2.06 million was paid to former president Mr Kerekou in four separate payments. He died in October 2015.

The eldest son, daughter and second son of the one-time Marxist dictator-turned-democracy advocate are also alleged to have received $US800,000 between them from ZTE.


A further $US4 million was paid, in two payments, to the "contract committee", while the other funds were disbursed to ministers, telecommunications executives and bureaucrats.

A total of 39 payments to 29 people were recorded in ZTE company files and, according to the source, were made to "get contracts signed and kick out competitors".

Money mostly delivered in cash

The source said the company won the contracts in Benin ahead of the Finish giant Nokia.

The documents show ZTE paid bribes of $US6.8 million to win a $US29 million GSM mobile network contract for the state-owned Libercom.

In addition it paid $US6 million in bribes to secure a $US36 million CDMA contract for the telco. This suggests about 22 per cent of the value of each contract was paid out in inducements.

The person said the money was mostly delivered in cash, via transactions conducted with the Benin branch of French bank Societe Generale.

One payment for $2 million was routed via a BNP Paribas account in Monaco from an account controlled by ZTE in Hong Kong.


Some of the bribes were disguised by creating false or inflated invoices issued to a company, MR International, which was ostensibly contracted to build telecommunications infrastructure.

Appear to breach tough US Foreign Corrupt Practices Act

The revelations could create further problems for ZTE as they appear to breach the tough US Foreign Corrupt Practices Act and could be used by regulators in Washington to further sanction the company.

They are also likely to cause problems for the company as it seeks to expand in Australia. The federal government said it was considering what, if any, sanctions to place on ZTE, after the US ban.

The WA rail contract is to upgrade the analogue "radio system" to digital and is due to be awarded in the next few months after the short-list of five bidders was reduced to two in recent weeks.

According a timeline published by the West Australian government, the new system will be operational by late 2020.

ZTE and Huawei beat Ericsson Australia, Optus and Ansaldo STS, a subsidiary of Japanese firm Hitachi, to be the final two short-listed candidates.

The WA rail contract is likely to face scrutiny from the newly established Critical Infrastructure Centre, which sits under the powerful Home Affairs Department, and lists transport among the eight sectors it supervises.


'Increasingly complex national security risks'

Home Affairs declined to comment.

"The Critical Infrastructure Centre safeguards Australia from the increasingly complex national security risks of sabotage, espionage or coercion," the centre says on its website.

The office was established last year, amid growing concerns within the federal government that Chinese companies, with links to Beijing, had gradually taken control of critical infrastructure assets in Australia.

This realisation followed the sale of the Port of Darwin to a Chinese company and ultimately resulted in two Chinese bids for NSW electricity network, Ausgrid, being rejected by the federal government.

More recently, anxiety over control of critical infrastructure has focused on the 5G mobile phone network, which will be rolled out from next year.

The issue of Huawei or ZTE building Australia's 5G networks was raised by national security agencies in Washington during Prime Minister Malcolm Turnbull's visit in February.