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A Tale of Two Sanctions

Words: Sarah Jolley and Hannah Poteete
Pictures: Luke Stackpoole

On May 13, just days after Trump announced the US would leave the Iran deal, Trump administration officials made the Sunday talk show rounds with one clear message: if European companies continue to do business with Iran, the US will slap them with sanctions. Perhaps coincidentally, that same day Trump promised to remove sanctions on a company that had violated sanctions against Iran and North Korea literally hundreds of times. That day Trump tweeted “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!”

Why is the Trump administration looking to punish our allies, and reward one of the greatest sanctions violators? Part of the reason is undoubtedly that Trump wants to use ZTE as a bargaining chip in trade negotiations with China, as others have suggested. But, there’s another explanation for Trump’s bipolar approach to sanctions — an aggressive Chinese influence operation.

The problems for ZTE — the Zhongxing Telecommunication Equipment (ZTE) Corporation, which is one of China’s leading multinational telecommunications companies — began last March when the Department of Justice alleged that ZTE had violated the Export Administration Regulations by illegally exporting US material to Iran and North Korea 380 times. As a result, they were fined by the US Bureau of Industry and Security (BIS) and placed on ‘probation’ in a settlement. Then in April, BIS found that ZTE was in violation of the settlement and placed a Denial Order to halt the sale of any US goods to the corporation, effectively crippling ZTE’s ability to do business.

ZTE then did what many distressed foreign interests do when frustrated with the US government — they hired a lobbying firm. Specifically, on April 18, just three days after the Denial Order was issued, ZTE hired Hogan Lovells to address “national security concerns and issues relating to April 15, 2018 denial order.”

Curiously, Hogan Lovells chose to report their representation of ZTE under the Lobbying Disclosure Act (LDA) rather than under the much more stringent reporting requirements of the Foreign Agents Registration Act (FARA). The latter includes an exemption for firms that register under the less stringent LDA reporting requirements if they are representing private foreign corporations that are not connected to foreign governments or political parties. Which is all well and good, except that it’s well known that ZTE isn’t a truly private company. In fact, Congress has explicitly stated that ZTE and another Chinese telecommunications company, Huawei, “are not private companies.”

Hogan Lovells’ choice to register under the LDA and not FARA was made even more suspect when a firm they hired to help represent ZTE, Mercury Public Affairs, registered its work for ZTE under FARA, on May 24, more than a week before Hogan Lovells reported that it was representing ZTE. Had Hogan Lovells registered under FARA, concerned citizens would have known nearly a month earlier that the firm was working to avoid punishment for an admitted sanctions violator.

While transparency may be lacking in this influence operation, lobbying firepower isn’t. Hogan Lovells reported that former Senator Norm Coleman was working on the ZTE contract. Coleman is fresh off a victory lap following Trump’s withdrawal from the Iran deal, a move cheered by his client, the Embassy of Saudi Arabia.

Mercury Public Affairs brings firepower of its own in the form of Bryan Lanza, a former Trump advisor. Though Lanza has yet to personally register as a lobbyist for ZTA, he’s known for anticipating the Trump administration’s moves and is currently lobbying to remove sanctions against Russia.

While we don’t know exactly how much money ZTE spent on this lobbying operation (only Mercury has reported its fee of $75,000 per month), one thing is clear — it worked. On June 7 Reuters reported that a deal had been reached to lift the Denial Order and get ZTE back in business, albeit with steep financial penalties and historic oversight requirements.

Despite the White House’s best efforts, though, Congress intervened. This week, Senators struck a deal to reintroduce penalties against ZTE in their version of the National Defense Authorization Act. And so, the saga continues. The Trump Administration is working now to persuade Members of Congress to kill the provision when they meet to reconcile their versions of the must-pass bill. But a bipartisan contingent maintains that keeping these provisions is necessary to send a clear signal to China that it can’t violate US sanctions and an even clearer signal to President Trump that he can’t alienate US allies while emboldening US adversaries’ misdeeds.

Sarah Jolley is a Research Fellow with the Foreign Influence Transparency Initiative at the Center for International Policy

Hannah Poteete is a Research Fellow with the Foreign Influence Transparency Initiative at the Center for International Policy

Sarah Jolley and Hannah Poteete

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