The United States has granted Chinese telecommunications equipment manufacturer ZTE Corp. a reprieve from potentially crippling sanctions, while also imposing what Secretary of Commerce Wilbur Ross says are the “strictest compliance requirements ever.”
The Commerce Department said Thursday ZTE has agreed to pay a $1 billion fine and place an additional $400 million in suspended penalty money in escrow before the department’s Bureau of Industry and Security lifts an order prohibiting U.S. entities from exporting to ZTE. ZTE sources roughly 60 percent of the materials and components for its smartphones from U.S. suppliers.
Commerce on April 15 lifted the suspension of a denial of export privileges after U.S. officials found ZTE employees made false statements to BIS in 2016 and 2017. The suspension stemmed from a March 2017 settlement in which ZTE agreed to a combined civil and criminal penalty and forfeiture of $1.19 billion for illegally shipping telecommunications equipment to Iran and North Korea, making false statements and obstructing justice.
Under the latest agreement, BIS will handpick a team of special compliance coordinators to be employed by ZTE that will monitor the company’s compliance with U.S. export control laws and report its findings back to the bureau for the next decade. Commerce noted the new monetary penalties are in addition to $892 million ZTE already has paid to the U.S government under the March 2017 settlement.
In addition, ZTE will be required to replace its entire board of directors and other senior leadership and will again be subject to a suspended denial of export privileges that BIS can activate if it discovers any additional violations during the 10-year probationary period.
“This is the first time BIS has achieved such stringent compliance measures in any case,” Commerce said in a statement. “These collectively are the most severe penalty BIS has ever imposed on a company.”
With the new settlement, the department said it aims to “modify ZTE’s behavior while setting a new precedent for monitoring to assure compliance with U.S. law. Embedding compliance officers into the company vastly improves the speed with which the Department of Commerce can detect and deal with any violations.”
Secretary Ross said, “BIS is imposing the largest penalty it has ever levied and requiring that ZTE adopt unprecedented compliance measures. We will closely monitor ZTE’s behavior. If they commit any further violations, we would again be able to deny them access to U.S. technology as well as collect the additional $400 million in escrow.”
He said the 2017 settlement with ZTE set a record for civil and criminal penalties in an export control case and the new agreement sets another record, bringing the total penalties assessed on ZTE to $2.29 billion.
“We are literally embedding a compliance department of our choosing into the company to monitor it going forward. They will pay for those people, but the people will report to the new chairman,” Ross said in an interview on the CNBC program “Squawk Box,” adding that the settlement “should serve as a very good deterrent, not only for them, but for other potential bad actors.”
Despite the hard sell from Ross, however, the ZTE settlement deal is drawing renewed criticism from federal lawmakers on both sides of the aisle.
Sen. Mark Warner, D-Va., dismissed the idea of setting up a BIS oversight team at ZTE as nothing more than “a nice talking point,” warning that “unless the Trump administration plans to open an FBI counter-intel field office inside the company, Beijing is about to get one heck of a deal on a back door into U.S. telecom networks.”
Sen. Sherrod Brown, D-Ohio, said in a statement, “We cannot allow a Chinese company to violate U.S. laws time and again, lie about it repeatedly and get away with it. By turning a blind eye to ZTE’s blatant violations, the administration is putting Chinese jobs ahead of American jobs and Chinese interests over America’s national security.”
Rep. Adam Schiff, D-Calif., one of President Donald Trump’s most outspoken critics, echoed those remarks, tweeting, “The president just caved on a deal with ZTE, a Chinese company that our intelligence professionals say poses a national security threat. Is the president so desperate for a deal — any deal — that he is willing to put Chinese jobs ahead of our national security?”
In May, Trump tweeted that he and Chinese President Xi Jinping were “working together” to give ZTE “a way to get back into business, fast” because the firm had already lost too many jobs. This prompted members of Congress and the trade enforcement community to accuse Trump of essentially using an enforcement case as a bargaining chip in ongoing trade talks with Beijing despite the company posing a clear threat to national security.
The House Appropriations Committee and Senate Banking Committee responded by proposing separate but similar measures that would prevent Commerce from renegotiating sanctions on ZTE.
Following the announcement of the new settlement agreement Sens. Marco Rubio, R-Fla., Tom Cotton, R-Ark., Chris Van Hollen, D-Md., and Chuck Schumer, D-N.Y., on Thursday introduced another amendment, this time to the National Defense Authorization Act, that would prohibit all U.S. government agencies from purchasing or leasing telecommunications equipment and/or services from ZTE and fellow Chinese telecom firm Huawei, ban the U.S. government from using grants and loans to subsidize either company and restore the penalties on ZTE for violating export controls.
“ZTE has flagrantly and repeatedly violated U.S. laws, and any deal to let them off the hook should not move forward,” Van Hollen said in a statement. “This amendment will ensure that, regardless of action the administration takes right now, Congress will protect American interests and national security.”
Schumer and Rubio also took to Twitter to blast the ZTE settlement deal.
Schumer said Trump “should be aiming his trade fire at China, but instead he inexplicably aims it at allies like Canada, Mexico and Europe,” referring to recently imposed tariffs on imports of steel and aluminum and resulting retaliatory duties from some of the United States’ closest trade partners and allies. “When it comes to China, despite his tough talk, this deal with ZTE proves the president just shoots blanks.”
Rubio tweeted, “#China on the verge of winning again. They mock us by appointing someone from another sanctioned company as the supposed ‘watchdog’ over #ZTE & we respond by helping ZTE stay in business. Great deal for China.
“This ‘deal’ with #ZTE may keep them from selling to Iran and North Korea. That’s good,” he added. “But it will do nothing to keep us safe from corporate & national security espionage. That is dangerous. Now Congress will need to act to keep America safe from #China.”
Given the current Republican majority in both chambers, however, it is highly unlikely any such legislation would pass without the support of the White House, let alone garner the two-thirds majority required to overrule a presidential veto.
House Reps. Jerrold Nadler, D-N.Y., and Eliot L. Engel, D-N.Y., went one step further, calling the easing of sanctions on ZTE a “senseless giveaway to a bad actor and a national security risk” and openly questioning whether the president might be acting out of personal, financial self-interest.
“For months, President Trump’s own administration has warned Congress about ZTE, saying that the company is associated with Chinese intelligence services,” the congressmen said in a joint statement. “Now the White House is opening the door to this threat.
“We pressed Secretary Ross about whether the Trump organization leveraged the office of the president and the U.S. diplomatic relationship with China to advance its private interests. The response from the administration so far has been silence, and we remain deeply concerned over the motives behind these decisions.
“Nor has the administration demonstrated to Congress that ZTE’s new commitments — paying more fines and additional restructuring — will address concerns about our national security,” they added. “The president should cease any further engagement on ZTE until Congress is satisfied that this ‘deal’ is not enriching the president personally or putting our national interest at risk.”