The Weaponization of Sanctions and Compliance Laws: Legal and Policy Implications
Introduction
President Trump’s recent announcement regarding Chinese telecommunications giant ZTE—stating that he and President Xi Jinping were “working together to give massive Chinese phone company, ZTE, a way to get back into business, fast” due to “too many jobs in China lost”—represents a significant departure from established enforcement norms. This development warrants careful examination, not merely as an isolated incident, but as indicative of a concerning trend in the administration’s approach to international economic relations.
The ZTE Case in Context
ZTE (Zhongxing Telecommunications Equipment Corporation) stands as China’s largest listed telecommunications company and ranks as the world’s fourth-largest smartphone manufacturer. The Commerce Department’s April 2018 export ban effectively paralyzed ZTE’s operations by restricting its access to critical U.S.-made components, including essential semiconductors from suppliers such as Qualcomm.
The severity of this enforcement action reflected the gravity of ZTE’s transgressions. In March 2017, the company faced unprecedented civil and criminal penalties totaling $1.19 billion for violations of U.S. sanctions on Iran and North Korea. ZTE’s subsequent false statements to U.S. authorities, in direct contravention of its settlement agreement, triggered the activation of the export “denial order” that effectively crippled the company’s operations.
A Strategic Shift in Enforcement Philosophy
Commerce Secretary Wilbur Ross’s March 2017 announcement of the initial ZTE enforcement action provided early insight into the administration’s strategic reorientation: “With this action, we are putting the world on notice. Improper trade games are over… Under President Trump’s leadership, we will be aggressively enforcing strong trade policies with the dual purpose of protecting American national security and protecting American workers.”
The December 2017 National Security Strategy (NSS) document subsequently codified this approach, explicitly characterizing U.S. “sanctions, anti-money laundering and anti-corruption measures, and enforcement actions” as “economic tools” and “tools of economic diplomacy” that “can be important parts of broader strategies to deter, coerce, and constrain adversaries.”
Legal Framework and Institutional Architecture
The administration’s assessment of these laws’ coercive potential is undoubtedly accurate. However, their deliberate weaponization to advance economic trade objectives raises substantial legal and policy concerns that merit rigorous analysis.
U.S. sanctions derive their exceptional global reach and impact from the strength of the American economy and financial system. Yet their primary statutory purpose, as articulated by the Office of Foreign Assets Control, is to further “US foreign policy and national security goals,” particularly against specific threat actors such as “targeted foreign countries and regimes, terrorists, international narcotics traffickers” and proliferators of weapons of mass destruction.
This orientation is reflected in their legislative foundations—the International Emergency Economic Powers Act (codified under Title 50, “War and National Defense”) and the United Nations Participation Act of 1945 (codified under Title 22, “Foreign Relations and Intercourse”)—which are intrinsically tied to national security rather than trade policy.
Similarly, anti-corruption and anti-money laundering regimes serve distinct purposes from conventional trade regulations. The Foreign Corrupt Practices Act (FCPA) prohibits the bribery of foreign officials for business advantage, while anti-money laundering statutes protect the integrity of the U.S. financial system against exploitation by illicit actors. Unlike customs regulations and market access provisions, these frameworks were not designed to systematically influence bilateral or multilateral trade balances.
Institutional Alignment and Functional Separation
The institutional architecture of the U.S. government reflects these functional distinctions. The Office of the U.S. Trade Representative’s catalog of “U.S. Trade Laws” encompasses customs duties and export promotion provisions, but notably excludes sanctions, anti-corruption, and anti-money laundering statutes. The Department of Justice houses FCPA and anti-money laundering enforcement within its Criminal Division, while the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) focuses primarily on financial crime rather than international trade optimization.
These institutional arrangements reflect a deliberate separation between trade policy and law enforcement functions—a distinction that appears increasingly blurred under current administrative practice.
Policy Implications and Integrity Concerns
The repurposing of these legal frameworks as instruments of trade policy—or as negotiating leverage—threatens to undermine their integrity, enforcement credibility, and the policy objectives they were designed to serve. Former Treasury Secretary Jack Lew presciently warned in 2016 that “we must be conscious of the risk that overuse of sanctions could undermine our leadership position within the global economy, and the effectiveness of our sanctions themselves.” This cautionary perspective applies with equal force to the strategic manipulation of sanctions, anti-corruption, and anti-money laundering regimes to compel foreign economic competitors to accede to U.S. trade demands.
It bears noting that while administration officials may strategically conflate legal and policy boundaries to pressure economic rivals, career government attorneys and law enforcement professionals—who operate within established legal frameworks and factual constraints—may resist efforts to distort enforcement priorities to serve tangential policy objectives.
Conclusion and Implications
Notwithstanding potential institutional resistance, the administration’s explicit intention to instrumentalize these legal regimes for trade advantage demands serious attention. Foreign governments, multinational corporations, and their advisors should carefully assess their exposure to this evolving enforcement landscape.
The ZTE case illuminates a potentially transformative shift in how the United States deploys its legal and regulatory authority in the international economic arena—a development with profound implications for global commerce, compliance practices, and the rule of law.
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This article is adapted from Hdeel Abdelhady’s 2019 article, U.S. Law as Trade War Weapon, originally published in Law360. Hdeel Abdelhady is MassPoint’s Principal.