China's Huawei Technologies, the world's No. 2 smartphone maker, covertly planned to sell its smartphones in the United States disguised as non-Huawei devices, according to U.S. officials.
U.S. intelligence agencies learned of the plans last month and alerted senior policymakers.
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According to the officials, the Shenzhen, China-based company planned to ship a large number of its smartphones to Mexico where the smartphones would be re-labeled and shipped into the United States.
As non-Huawei devices, there would be no prohibition on selling them in the United States.
The phones, however, could be identified as Huawei devices by examining their electronic components that can be traced to the Chinese telecom.
No other details of the secret smartphone operation could be learned.
Huawei's U.S. affiliate did not return emails seeking comment.
The scheme to disguise Huawei smartphones appears to be the latest effort by the company to penetrate the U.S. market.
Huawei in 2008 was forced to give up a bid to buy the U.S. telecommunications company 3Com over national security concerns. Two years later, Huawei was pressured to abandon a bid to buy the U.S. server technology company 3Leaf.
In May, President Trump slapped sanctions on Huawei that are designed to prevent use of the company's products in the United States and to block American tech companies from selling computer chips to Huawei.
Using a presidential order, Trump banned U.S. telecommunications companies from purchasing equipment supplied by foreign adversaries.
In addition to the order, Huawei was added to the Commerce Department's entities list that blocks all exports to Huawei unless an export license is granted.
On Friday, Trump was asked about relaxing curbs on Huawei and said: "We're not going to do business with Huawei."
"And I really made the decision," he said. "It's much simpler not to do any business with Huawei, so we're not doing business with Huawei. That doesn't mean we won't agree to something if and when we make a trade deal, but we're not going to be doing business with Huawei."
Sen. Marco Rubio (R., Fla.) said in a recent interview that Chinese negotiators have raised lifting U.S sanctions on Huawei during meetings with U.S. negotiators.
Defense Secretary Mark Esper also said he is concerned about Chinese technology infiltrating U.S. and allied communications systems.
"So Huawei is the poster child right now for that," he told reporters.
Last week, the Pentagon, General Services Administration, and National Aeronautics and Space Administration announced plans to ban purchases of products from Huawei and another Chinese telecom, ZTE.
Chinese Foreign Ministry spokeswoman Hua Chunying denounced the proposed ban.
"China deplores and firmly opposes the U.S. practice of taking discriminatory and unfair measures on certain Chinese companies based on China-related negative content of its 2019 National Defense Authorization Act," she said.
"The U.S. has abused its state power and used every possible means to smear and oppress certain Chinese companies," Hua said. "This has seriously undermined its image as a country and its own interests."
Meanwhile, the Department of Homeland Security on Monday listed two Huawei smartphones as containing vulnerabilities that could be used in cyberattacks.
DHS' Cybersecurity and Infrastructure Security Agency, stated in a public notice that the Huawei Emily smartphone contains a security hole that could allow "an attacker can trick a user to click a URL to exploit this vulnerability."
A second Huawei phone, the Honor, includes an "an information leak vulnerability."
"An attacker may trick a user into installing a malicious application," the notice states, adding that hackers can use this to obtain information.
Another Huawei software used on laptops called PC Manager was also listed in the DHS warning as containing security vulnerabilities.
The PC Manager software, used to check if software is up to day, can allow hackers to obtain information from laptops.
White House National Security Adviser John Bolton said in June that the administration's targeting of Huawei was a recognition of the threat the company poses to telecommunications security worldwide.
"Huawei is a state actor. We've got to stop thinking of some of these Chinese firms as if they're traded on the New York Stock Exchange," Bolton told the Washington Free Beacon.
Bolton said companies like Huawei masquerade as private entities but most are controlled by the Chinese military or other state agents in Beijing.
"These are not capitalist companies. We're not abandoning our free market principles. We're saying you're not going to use a state-owned enterprise basically to undercut us, to treat us unfairly, in competitive terms. Or to get back doors into our telecoms," he said.
The U.S. government in 2018 pressured AT&T and Verizon to stop selling Huawei smartphones in the United States. Best Buy also stopped selling Huawei phones last year.
The Pentagon also banned sales of Huawei phones to military personnel over concerns about the security risks of using the phones.
After the recent ban, Google blocked Huawei from using its Android operating system.
Huawei was founded by Ren Zhengfei, a member of the Communist Party of China and former PLA electronic warfare expert.
Ren has denied the company collaborates with the military and intelligence services in China.
The House Permanent Select Committee on Intelligence concluded in a report in 2012 that the use of Huawei equipment in critical infrastructure "could undermine core U.S. national-security interests."
According to intelligence sources, Huawei in 2014 attempted to electronically penetrate National Security Agency computer networks through a U.S. defense contractor.
The incident was discussed in August 2014 during a meeting of an interagency security group called G-FIRST, for Government Forum of Incident Response and Security Teams.
The blacklisting of Huawei smartphones has hurt sales for the company abroad. The company's largest revenue came from smartphone sales, with more than $50 billion sold in 2018, according to the Wall Street Journal.
The company recently announced the introduction of a homemade operating system to replace Android.
Sales of Huawei phones inside China have increased, however.