Mnuchin Says Trump Embrace of China’s ZTE No Quid-Pro-Quo

WASHINGTON (CN) –President Donald Trump’s request that the Commerce Department reconsider sanctions against ZTE, the Chinese telecommunications company, was not born from a “quid-pro-quo” agreement with Chinese President Xi Jinping, Treasury Secretary Steve Mnuchin told senators Tuesday.

Mnuchin testified before the Senate Appropriations Committee to discuss the department’s 2019 budget, but lawmakers took a keen interest instead in a report released Tuesday morning by The Wall Street Journal.

According to the report, the U.S. and China are on the verge of completing a draft proposal that would remove a ban on U.S. companies which currently prohibits them from selling ZTE components and software. In exchange, ZTE may commit to changing its management structure. The company may also pay penalties for its previous infractions.

ZTE was slapped with sanctions in April for shipping U.S. technology to Iran.

Sen. Jerry Moran, R-Kansas, expressed concern that the president’s more lax attitude toward  ZTE failed to consider the threat to national security the company poses to U.S. intellectual property and technology.

The Commission on the Theft of American Intellectual Property estimates privacy theft and counterfeiting by China costs the U.S. economy $225 billion to $600 billion annually. The figure does not account for losses associated with the full military intelligence apparatus, Sen. Moran noted.

“I can assure you that whatever changes or decisions that are made in Commerce will deal with the national security issues,” Mnuchin told the committee.

Republican and democratic senators alike warned the secretary that Congress would push back against a policy shift with ZTE by possibly blocking the sale of their products and that of manufacturer Huawaei.

Despite Mnuchin’s assurances Tuesday, Sen. Tom Lankford, R-Oklahoma and Sen. Chris Coons, D-Delaware, agreed that if the deal moves forward, full and periodical reports on any quid pro quo offers between the Chinese and the U.S. government would be required.

“If the U.S. ever went to war with China, which I hope never occurs …  it’s not too farfetched to think China could disable American cell phones or disable our [service] networks. I can’t imagine we would allow China to come into our markets but we can’t get into theirs,” Sen. Steve Daines, R-Montana, told Mnuchin.

“That’s why the president has taken such an aggressive position on using sanctions around the world. Whatever changes are made [in the deal between ZTE and U.S.], the Commerce Department will deal with them,” Mnuchin said.

The Trump administration’s proposed steel and aluminum tariffs on China are still being enforced, he added, noting they would go “untouched” no matter the outcome with ZTE.

For 2019, Treasury has requested $12.3 billion with an additional $17.2 million in requested funding for the Office of Terrorism and Financial intelligence, a branch of the treasury department which monitors the financial networks of terrorism groups throughout the world.

With pressure on the department to help the White House enforce sanctions on Iran, monitor China and track any sudden trade or national security developments in North Korea; plus the Treasury and Internal Revenue Service’s mutual priorities to overhaul U.S. tax regulation framework after the passage of last year’s tax bill, the department’s priorities list grows ever longer, Mnuchin acknowledged.

Sen. Coons added to that list Tuesday, telling Mnuchin he was also “deeply concerned” with the role the Treasury may have played in problems around lost financial activity reports connected to the president’s personal attorney Michael Cohen.

Suspicious activity reports on Cohen’s accounts were conducted by the Treasury Department’s Financial Crimes Enforcement Network but those records were later withheld from law enforcement, according to a report by the New Yorker last week. T

“Did the Treasury move, distort or destroy any reports related to Mr. Cohen?” Coons asked Mnuchin.

The department’s inspector general was reviewing the matter, Mnuchin said first, since they believed the records could have been leaked from within a database inside of the Treasury.

“ I appreciate you asking me this question because there’s been misinformation in the press… I have not personally been involved in procedures or anything associated with this. We do have procedures, we do have the ability to suppress important information [at the request of law enforcement agencies],” Mnuchin said. “This is often done.”

But he would not comment about whether or not this sort of procedure took place with Cohen’s records.

“Our inspector general is reviewing the leaks. There is the appearance that some of the information may have gone out. There is no excuse whatsoever for anybody who has access to these important systems to release information on an unauthorized basis,” he said.

Security breaches are also a major concern for the IRS, said David Kautter, acting commissioner for the Internal Revenue Service.

Last month’s systems freeze – which fell on Tax Day and set a 12 hour filing delay into motion –  confirmed to Kautter that the IRS would need a major influx of funding to deliver a “comprehensive” overhaul to the organization’s software systems.

“While we have modern hardware, the software is our Achilles heel,” Kautter said, noting that the “modern language” of the IRS’s internal software systems was stuck in the 1960s.

Trump’s promises to deliver a new tax system and – forms so simple they fit onto a post card – may be overly optimistic given the current technological restrictions, Kautter said but nonetheless, the IRS is on the right track.

“The tax regime is on schedule for 2018. Forms are drafted. Instructions will done in next two weeks. Related forms will be released over the summer for public comment, amendments are on track. The most time consuming and expensive part of tax reform implementation is technology,” he said, noting that of the IRS’s $397 million request, 73 percent was earmarked for new technology.

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