Great ResignationDiversity and InclusionCompensationCEO DailyCFO DailyModern Board

Senate Moves to Block Trump’s Settlement With China’s ZTE, a ‘Personal Favor’ to President Xi Jinping

June 12, 2018, 11:09 AM UTC

The Senate has adopted a measure to block a deal between the Trump administration and Chinese telecommunications company ZTE.

The motion was adopted late Monday night, only hours after the deal became public and less than a week after it was signed. The announced settlement would allow the company to resume buying parts and selling products in the U.S. after having been banned by the U.S. Commerce Department in April for breaking the U.S. embargo against Iran.

The Senate added the block to the National Defense Authorization Act, a must-pass piece of legislation. It would block the deal by retroactively reinstating financial penalties and upholding the ban on ZTE selling products to the U.S. government. The Senate’s action is based on national security fears over ZTE’s products. The intelligence community suspects the company’s devices are mechanisms for espionage that can be remotely tracked and used to steal intellectual property.

While the settlement announced Monday by the U.S. Commerce Department would allow ZTE to resume buying parts and selling products in the U.S., there was a catch. Several, actually. The ban wouldn’t be lifted until ZTE pays a $1 billion fine and places $400 million more in escrow in a U.S.-approved bank for 10 years to cover any future violations. The deal would cost a total of $1.7 billion ($361 million was already paid as part of a settlement in March).

In addition, it requires ZTE to replace the boards of directors for two corporate entities and terminate every employee above the senior vice president level along with any executive or officer tied to the violation. According to U.S. Commerce Secretary Wilbur Ross, the U.S. will also install its “own compliance people” to ensure the company doesn’t cheat again.

White House trade adviser Peter Navarro said Trump made the deal as a “personal favor” to Chinese president Xi Jinping in order to drum up good will before the U.S. summit with North Korea, but emphasized that any future violation would result in the company being shut down.

ZTE was forced to stop major operations when a seven-year ban on export privileges kicked in earlier this year in response to the company breaking sanctions and violating an earlier agreement by giving bonuses to executives who were involved in sales in Iran.

The teeth in the settlement clearly weren’t enough for many lawmakers, however. The Senate could vote as early as this week to block the deal amid accusations of presidential over-reach.