As we reported in May, President Donald Trump decided to do China’s dictator for life, President Xi Jinping, a solid and saved China’s second-largest telecom equipment firm, the lying, cheating and serial-sanctions violator ZTE.
Under the new deal, which would remove the 7-year ban on U.S. companies selling components and software to ZTE, the Chinese company must pay an additional $1 billion fine, install new management and change its board within 30 days, embed a compliance team picked by the U.S., put an additional $400 million in escrow which will be forfeited if there are additional violations, and serve a probationary period — a new 10-year ban that is suspended unless there are future violations.
Reuters reports that in a memo sent to staff on Friday, apologized to employees, clients, shareholders and business partners and said the firm would look to learn from its errors and hold those responsible accountable:
“This issue reflects problems that exist with our firm’s compliance culture and at management level,” Yin wrote, according to the staffer, adding the incident was caused by the mistakes of a few ZTE leaders and employees.
“The activation of the denial order has caused huge losses for the company. The firm has paid a disastrous price.”
According to CBS News, Commerce Secretary Ross said this deal imposes the most strict we’ve ever had on any company:
Commerce Secretary Wilbur Ross says that the Trump administration has reached a “definitive agreement” with Chinese telecom giant ZTE that Ross claims “imposes the most strict compliance that we’ve ever had on any company, American or foreign.” In an interview on CNBC, Ross said penalties amounted to $1 billion and that ZTE agreed to install new management and a compliance team picked by the U.S. . . .
“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,” said Ross. He called the deal brokered a “strict settlement” calling it the “largest settlement fine that has ever been brought by the Commerce Department against any violator of export controls.”
Ross said the agreement will serve as a “very strong deterrent, not only for them, but for other potential bad actors.” Should ZTE fail to comply with the deal, in addition to the billion dollar penalty, the agreement also includes $400 million in escrow to cover any future violations, including “sanctions or anything else,” according to Ross.
“We’d still retain the power to shut them down again,” he added.
The Associated Press reminds us that the $1 billion fine is “on top of $892 million ZTE has already paid for breaking U.S. sanctions by selling equipment to North Korea and Iran.”
The New York Times says, “it is not clear what the United States received in return.”
I take that as the Times somehow questioning Treasury Secretary Mnuchin’s statement while testifying before the Senate Appropriations Committee on the agency’s budget request that the framework for a deal to save ZTE was “not a quid pro quo or anything else. This was merely President Xi [Jinping] asking President Trump to look into this, which he’s done. Any changes to this will fully support the mandate of making sure our sanctions and our technology are protected.”
The new deal isn’t good enough to satisfy Florida’s Sen. Marco Rubio, who tweeted:
This “deal” with #ZTE may keep them from selling to Iran and North Korea. That’s good. 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
Gordon Chang also remains opposed to this deal. He tweeted:
U.S. Commerce Department announces it has relaxed sanctions on #ZTE. The Chinese issued a demand to President Trump, and he complied. In this contest of political will, #China won.
Trump’s deal with ZTE is more harsh than I anticipated. I disagree with Chang’s analysis and I’m hopeful that China understands their aggressiveness will no longer be ignored.