ZTE, the huge Chinese telecom equipment manufacturer, has found themselves in a kind of perfect storm. A storm largely of their own making.
First, ZTE and its larger Chinese rival, Huawei, have been the subjects of great national security concern for years. As I discussed last month the US intelligence community is worried that, if allowed to install equipment here, the two companies will surreptitiously permit Chinese government wiretaps inside the United States. But proof of this suspicion has been hard to find. And the firms, backed by Chinese government-subsidized loans, have been able to offer enormous discounts to carriers, devastating the global telecom equipment market and leaving carriers eager to buy their products. Whether the US government would continue to act on its suspicions in the face of commercial pressure was an open question.
While that drama was unfolding, another morality tale was taking shape among the NGOs and journalists covering unrest in the Muslim world. Story after story points a damning finger at Western technology companies accused of providing wiretaps and surveillance gear to authoritarian Muslim regimes. Some of the sales are alleged to have violated US export controls.
Of course, these two stories eventually intersected. In March, Reuters reported that ZTE was supplying the Iranian mullahs with telecommunications gear that could spy on Iran’s restive population. ZTE, the news agency reported,
“has sold Iran’s largest telecom firm a powerful surveillance system capable of monitoring landline, mobile and Internet communications, interviews and contract documents show.”
That was bad. But it got worse. Reuters further revealed that the ZTE system sold to Iran included equipment from US companies, like HP, Dell, Cisco and Juniper. Such sales violate US export control law. So ZTE soon faced an investigation by the US Commerce Department.
And, to judge from a recent report in The Smoking Gun, that’s when ZTE took a bad situation and turned it into a perfect storm:
“Concerned that they could no longer “hide anything” in the wake of the Reuters report, ZTE lawyers discussed shredding documents, altering records, and lying to U.S. government officials, according to an insider’s account provided to FBI agents by a Texas lawyer who last year began serving as general counsel of ZTE’s wholly owned U.S. subsidiary.”
That brought the FBI in. Indeed, most of the recent allegations about ZTE are drawn from an FBI affidavit in support of a search warrant, which is full of interesting details like ZTE meetings with US lawyers in which damning documents were displayed on screens but never provided to the lawyers. In fact, the search affidavit strongly suggests that ZTE’s general counsel was cut out of internal communications after he refused to go along with a cover-up.
In the end, rather than actively lying to the US government, the company simply refused to comply with the Commerce Department subpoena. In so doing, the company got the backing of its principal owner, the Chinese government, which claimed that compliance with the subpoena would violate Chinese law.
Ironically, this debacle climaxed just as ZTE was trying to deal with a House Intelligence Committee investigation that Huawei had practically demanded last year, thinking that it could put the intelligence community’s suspicions to rest at last. The committee was moving to the last stages of that investigation. It had already served ZTE with detailed questions and conducted interviews of its executives in China as the export control mess began to spread.
Now, though, the mess is everywhere, and the House intelligence investigation will surely be heavily influenced by the new evidence that ZTE at least is quite capable of carrying out sophisticated telecommunications surveillance, of violating US law, and perhaps even lying about it later.
Which, come to think of it, is pretty much what US intelligence agencies have been saying all along.