Caving to pressure from President Trump, the Commerce Department announced Thursday that it will scrap massive sanctions against Chinese company ZTE and instead allow the telecommunications giant to get off with a $1 billion fine and stricter oversight.
Administration officials said it is one of the strictest compliance agreements ever reached and will include a U.S.-picked oversight team that will be embedded in the company’s operations to prevent further problems.
But outraged Republicans and Democrats on Capitol Hill said the penalties were far too weak for a company found to have been doing business with North Korea and Iran, in violation of U.S. sanctions, then lied about its own cleanup efforts.
They cheered weeks ago when Commerce Secretary Wilbur Ross announced a full ban on ZTE business with American entities, which analysts said would essentially put the company out of business.
But Mr. Trump stepped in and said he was worried about hurting China’s economy too deeply. After talks with Chinese President Xi Jinping, he told Mr. Ross to rework the penalties.
He worked out a deal that lets ZTE stay in business but pay a fine and sock another $400 million in escrow to be extracted should the company stray again. ZTE also must swap out its board and senior leadership, and a U.S.-picked compliance team will be in place at the company for the next decade to monitor its operations, Mr. Ross said.
“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.
As tough as those penalties are, they are less than the virtual death sentence the Commerce Department imposed earlier this year when it banned U.S. companies from selling parts to the Chinese company.
ZTE was fined $661 million in March after the U.S. concluded that it had built and operated telecommunications networks in North Korea and Iran, breaking sanctions. The company promised to punish the employees responsible.
But U.S. officials concluded that ZTE didn’t carry out the punishments and instead awarded bonuses.
After Mr. Ross announced the initial penalties, Chinese leaders complained to Mr. Trump and found a sympathetic ear. The U.S. president said he was worried about putting Chinese people out of work and that ZTE bought a lot of components from U.S. companies.
Both Democrats and Republicans on Capitol Hill said the business side was only part of the problem. They said America’s intelligence community deems ZTE a national security threat and fear the company opens the door to Chinese espionage.
The House Permanent Select Committee on Intelligence in 2012 released a report suggesting that the high level of Chinese government involvement with ZTE created the opportunity for Chinese intelligence to implant malicious hardware or software in American communications networks through ZTE components.
ZTE refused to answer the committee’s questions at the time.
“It’s not only that ZTE was busted for evading sanctions on Iran and North Korea and then lied about it; it’s that ZTE is a state-controlled telecommunications company that poses significant espionage risks, which this agreement appears to do little to address,” Sen. Mark R. Warner, Virginia Democrat and vice chairman of the Senate intelligence committee, said Thursday.
Other Democrats questioned whether Mr. Trump had personal business interests tied up in ZTE that might have skewed his approach to the company.
Sen. Marco Rubio, Florida Republican, contrasted Mr. Trump’s leniency toward ZTE with his decision this year to slap major tariffs on steel and aluminum from around the globe, including chief allies in Canada and the European Union, citing national security concerns.
“I assure you with 100 percent confidence that #ZTE is a much greater national security threat than steel from Argentina or Europe,” said Mr. Rubio, a member of the intelligence committee.
Fearing this move, senators on the Banking Committee passed legislation last month that would have prohibited Mr. Trump from weakening the sanctions on ZTE.
Senate Minority Leader Charles E. Schumer, New York Democrat, said it appeared Mr. Trump rushed the ZTE decision to head off efforts in Congress.
Mr. Schumer said a bipartisan amendment to the annual defense policy bill would revoke the Commerce Department’s decision.
“There is absolutely no good reason that ZTE should get a second chance, and this decision marks a 180-degree turn away from the president’s promise to be tough on China. It’s up to Congress now to act to reverse the deal,” Mr. Schumer said.
• Alex Swoyer can be reached at aswoyer@washingtontimes.com.
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