Testifiers tell House committee the Chinese telecom giant poses competition and espionage-related concerns.
Testifiers before the House Small Business Committee on Wednesday expressed concerns related to national security and unfair competition about ZTE and its association with U.S. companies.
As a telecommunications infrastructure company, ZTE has the ability to spy on U.S. entities and citizens and poses a threat to U.S. small businesses, Matthew Olsen, president of Kensington, Md.-based IronNet Cybersecurity, said during the committee hearing.
Committee Chairman Steve Chabot, R-Ohio, expressed concern about a deal between the Trump administration and Chinese government to remove ZTE from an export denial order in exchange for a fine and management measures agreed to by the company.
The Commerce Department announced on June 7 that ZTE 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 (BIS) lifts an order prohibiting U.S. entities from exporting to ZTE.
BIS will handpick a team of special compliance coordinators to be employed by ZTE who will monitor the company’s compliance with U.S. export control laws and report its findings back to the bureau for the next decade.
In addition, ZTE must 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.
“I’m very concerned that this decision could ultimately put Americans at risk,” Chabot said. “ZTE has consistently lied to this administration, and it’s reasonable to assume that it could do so again.”
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.
Andy Keiser, visiting fellow at the National Security Institute of George Mason University’s Antonin Scalia Law School, noted during the committee hearing that after the U.S. lifted its suspension on the export denial order in April, two China government-owned banks infused $11 billion into ZTE to keep it afloat.
“Name a Western company that might have that option,” Keiser said.
In written testimony, Keiser noted a recent occurrence in which ZTE and Huawei, another Chinese telecom company, had bid to build cellphone towers in the most rural parts of Michigan — at a price under the cost of materials to build the towers.
“Deploying equipment in rural Michigan and all around the world at or below cost is not being done to make shareholders money; it is being done to harness the ability to collect vast quantities of information and to create leverage against adversaries in a potential conflict,” Keiser wrote.
Olsen called Commerce’s additional fines against ZTE, as well as its previous sanctions, “exactly the right thing to do.”
The Senate version of the 2018 National Defense Authorization Act passed earlier this month includes language that would generally prohibit, for a period of one year, federal officials from modifying penalties, including those imposed pursuant to denial orders, with respect to Chinese telecommunications companies determined to have violated an export control or sanctions law of the United States.
During a June 20 Senate Finance Committee hearing, Commerce Secretary Wilbur Ross said if his department had foregone the export denial order against ZTE and had instead chosen the other option of requiring ZTE to make a $1.4 billion payment, subjecting the firm to a monitoring program and requiring the company to replace senior leadership and its entire board of directors — which it ultimately followed through with — “everybody would’ve applauded.”
Speaking during a June 21 Washington International Trade Association panel discussion, American Enterprise Institute resident fellow Derek Scissors said he agreed with Ross’ general view.
“I think no one would care at all about this issue if they had not imposed the denial order,” Scissors said. “The problem comes from the fact that the denial order was effectively reversed by presidential tweet. That’s not the way we want to make policy, either by process or by substance.”
Lawmaker: ZTE deal could ‘put Americans at risk’
