By Sascha Matuszak
In an unexpected twist, U.S. President Trump indicated via Twitter on Sunday that the enforcement actions against Chinese telecom company ZTE could be revisited. The tweet caught Commerce and Treasury officials off guard, as ZTE was hit in 2017 with fines of $1.9 billion and, this past March, a denial order was put in place, prohibiting U.S. companies from supplying ZTE with components for its microchips and cell phones. ZTE was found to have done business with both North Korea and Iran, in violation of U.S. sanctions. Following the enforcement actions, ZTE released a letter to investors stating that “major operating activities of the Company have ceased.” The letter went on to say that ZTE was reaching out to the U.S. government in order to ease or perhaps reverse the enforcement action:
“The Company and related parties are actively communicating with the relevant U.S. government departments in order to facilitate the modification or reversal of the Denial Order by the U.S. government and forge a positive outcome in the development of the matters.”
Those related parties seem to go as high as Chinese President Xi Jinping himself. Following discussions with President Xi, Trump tweeted that they were working to get ZTE back into business:
President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!
— Donald J. Trump (@realDonaldTrump) May 13, 2018
The President’s tweet comes amid an ongoing trade war between China and the U.S., involving tariffs on Chinese steel and aluminium as well as U.S. agricultural products, including soybeans. Analysts speculate the decision to revisit the debarment order against ZTE might be part of an overall trade deal that will ease tensions across the Pacific and ensure that the two largest economies in the world can continue to work together. In another unexpected and rare move, the White House issued a clarification not long after Trump’s tweet:
“The President’s tweet underscores the importance of a free, fair, balanced, and mutually beneficial economic, trade and investment relationship between the United States and China. The administration is in contact with China on this issue, among others in the bilateral relationship. President Trump expects Secretary Ross to exercise his independent judgment, consistent with applicable laws and regulations, to resolve the regulatory action involving ZTE based on its facts.”
What does this mean for compliance?
President Trump’s tweet adds to the confusion over sanctions against companies doing business with Iran. The possible reversal also calls into question the power of Commerce Department enforcement actions. An unnamed official was quoted in the Washington Post as saying that the move could undermine law enforcement actions:
“Now we’ve opened up every law enforcement action that the United States takes, where other countries will think, ‘Aha, I can impose this economic pain or this tariff or this market access restriction, and I can use this as a chit to trade off against more favorable treatment with the law enforcement case.’”
ZTE is a serial violator accused of bribery, obstruction of justice, fraud, and corruption at the highest level of the company—all this aside from doing business with sanctioned nations and entities. The President’s willingness to revisit, and perhaps reverse, Commerce Department enforcement actions further muddies the waters for European and other non-U.S. companies with significant ventures in Iran, such as Total, Airbus, and Siemens. European leaders have expressed their determination to continue with the Joint Comprehensive Plan of Action (JCPOA), which eased sanctions against Iran in exchange for unfettered access to and monitoring of Iran’s nuclear program, and to also seek waivers and special licenses from the U.S. government to avoid U.S. sanctions enforcement.
The shifting landscape means that not only is the sanctions regime against Iran misaligned—with the EU following the JCPOA and the U.S. sanctions snapping back in full—but executive actions could further alter the regulatory framework governing export controls and sanctioned entities in favor of one or another actor. For multinational companies operating across continents, the potential for missteps is great amidst all this ambiguity. If it weren’t for the many billions at stake, it might behoove big business to evacuate Iran altogether.