In April, ZTE was barred from the U.S. market for seven years after it came to light that the company lied about taking disciplinary action against executives that facilitated illicit tech sales to Iran and North Korea. Soon afterward, President Donald Trump intervened, saying he was working with Chinese President Xi Jinping on a plan to get ZTE "back into business, fast."
The story moved swiftly from there, culminating with Thursday's announcement of a $1.4 billion fine and a directive for ZTE to replace its entire board of directors, all under the watchful eye of a U.S. government-selected compliance team that will monitor the company for the next decade.
Taking the lead on the ZTE matter was the U.S. Department of Commerce, and the penalties amount to the most severe in that agency's history. But it is causing unease in the sanctions bar, as Trump's personal involvement alongside broader trade talks with China raises eyebrows.
"The message that it sends to the regulated community is confusing at best," Goodwin Procter LLP partner Rich Matheny told Law360. "Now, everything is negotiable."
ZTE was hit with a $892 million penalty last year, with another $300 million suspended, for selling phones and other tech with U.S.-origin chips to Iran and North Korea. It backslid on that settlement by rewarding the executives it was supposed to punish and lying about it, prompting the Trump administration to issue a seven-year export ban that blocked it from the U.S. supply chain.
But that ban has now been lifted in favor of another fine and more compliance obligations. While the total $2.29 billion in fines against ZTE is a record for Commerce's export control enforcement arm, it is far preferable to the company than an all-out commercial embargo.
"If we look at where they were yesterday, with a seven-year denial order, that is significant enforcement," Matheny said. "This is, on balance coming from that position, a pretty good deal for ZTE."
The president has drawn fire from all across the political spectrum, with Democratic lawmakers like Senate Finance Committee Ranking Member Ron Wyden, D-Ore., focusing on the timing of the ZTE reversal with a Chinese government-backed $500 million loan for a Trump-linked development in Indonesia.
"The Trump administration is giving ZTE and China the green light to spy on Americans and sell our technology to North Korea and Iran, as long as it pays a fine that amounts to a tiny fraction of its revenue," Wyden said. "The president is making America less safe, creating jobs in China and securing nothing for American workers in return."
Another factor looming over the ZTE affair is that Trump opted to swoop in just days after a high-level delegation returned from a round of trade talks in Beijing. Those talks focused in large part on the administration's use of tariffs and investment restrictions to punish China for its forced technology transfer policies and other controversial intellectual property rules.
But the ZTE reversal fueled speculation that the Chinese government had pressed for the company to be let off the hook, blurring the line between sanctions enforcement and trade policy.
"The message seems to be that trade policy — something that has been removed from enforcement of export controls enforcement and sanctions — is not very much a factor that may influence a White House's decision-making," Venable LLP partner Ashley W. Craig told Law360.
The specific benefits extended to ZTE are just one part of the problem. Attorneys are also concerned with the type of precedent the affair sets for future enforcement and compliance efforts, an area in which the Trump administration is still making a name for itself.
If the administration never quite closes the door on potential relief for sanctions violators, it could create unintended chaos within the market, even for those who are fully complying with sanctions and export control laws, according to Craig.
"Does this mean that once a company is placed on the U.S. watchlists, U.S. companies that have done business with them should factor into consideration a possible 'reconsideration' by the administration — and what will that mean for commercial dealings, logistics, planning, etc?" he said.
Matheny agreed and said that when ZTE was handed its denial order, it is entirely possible that other companies raced to fill the gap and may now be caught in an untenable position with ZTE suddenly back in the market.
The first year-plus of the Trump presidency has been beset by scandals, controversies and allegations of corruption, and the ZTE saga may just be yet another manifestation of that dynamic.
"It bears an eerie similarity to this spate of pardons the president is going on," Matheny said. "It's almost like everything is for sale. It doesn't even matter so much if that is actually true, it creates the perception that everything is for sale, everything is a deal, everything is transactional, there are no principles."
--Editing by Brian Baresch and Alanna Weissman.
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