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Saturday 23 Mar 2019 | 21:39 | SYDNEY
Saturday 23 Mar 2019 | 21:39 | SYDNEY

The Huawei indictments: allegations and politics

The logo of Chinese telecoms giant Huawei (Photo: Mohd Rasfan via Getty)

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5 March 2019 06:00

Huawei’s Chief Financial Officer Meng Wanzhou is reportedly suing the Canadian government, its border agency, and the national police force for false imprisonment in relation to her arrest as she transited through the country in December. Meng, who is also the daughter of Huawei’s founder and CEO Ren Zhengfei, is facing an extradition process from Canada to the US to face indictments from the Department of Justice (DoJ) relating to financial fraud, money laundering, and sanctions violations.

In a Seattle court on Thursday, Huawei plead not guilty to another DoJ indictment relating to intellectual property (IP) theft from T-Mobile.

How these cases play out will have significant implications for the fight over 5G and the broader tensions in the US-China relationship. So what do they actually say?

Here are three key things to know about the DoJ’s indictments against Huawei.

They’re old

The charges allege that Huawei broke US sanctions by using a shell company called Skycom to sell telecommunications equipment to Iran and to launder money.

Both indictments relate to events which took place around the period of 2012–2014. Substantial parts of them were already public knowledge. One has even been through the courts before. 

This first indictment relates to alleged theft of IP from T-Mobile. The DoJ has accused Huawei’s US-based employees of conspiring with their counterparts in Beijing to illicitly send photographs and technical specifications of Tappy the robot, a device used by T-Mobile for testing its phones. T-Mobile has already taken Huawei to court over a breach of contract and won a $4.8 million payout in 2017. That was a civil case, whereas the case that the DoJ wants to run, and that Huawei plead not guilty to last week, is criminal. 

The crimes alleged in the second indictment also took place around the same period. The charges allege that Huawei broke US sanctions by using a shell company called Skycom to sell telecommunications equipment to Iran and to launder money – moving it out of Iran and into the international banking system. The charges against Meng relate to her role in the scheme, including personally assuring HSBC and other financial institutions that Huawei did not own or operate Skycom. 

Significant parts of the alleged breaches were reported by international media including Reuters as early as 2013. More information for the DoJ’s case has reportedly come from a separate investigation into HSBC, which shared documents with the DoJ as part of its own deferred prosecution agreement for a variety of its own creative financial dealings. 

Given the age of the alleged offences, and the fact that one has already been through the courts, it would be difficult not to draw inferences between the timing of the DoJ’s decision to pursue these cases now and the broader context of the US campaign against alleged Huawei espionage.

There is no evidence of direction by, or direct benefit to, the Chinese government

Like all Chinese companies, Huawei is required to assist in “national intelligence work” under Chinese law. This regulation would appear one of the strongest points of the case against Huawei, and no doubt a sore point for its defenders – it would probably be a lot easier to make the case that they’re not a potential intelligence asset for the Chinese government without having a law on the books which directly and explicitly states that they are. 

Some have made the argument that China’s national intelligence law does not apply to Chinese companies working outside of China, but this is at the very least questionable. The situation isn’t helped by the fact that Huawei’s founder Ren Zhengfei is a former member of the People’s Liberation Army. The company may push back against suggestions of involvement in state espionage, but no one would deny that Huawei has extremely close ties to the ruling Chinese Communist Party. Like many companies operating in China, Huawei has an in-house Communist Party branch, a fact which Huawei Australia Chairman John Lord has said has “nothing to do with the management of the company.”  

In both cases covered by the indictments, Huawei and its employees were clearly acting in pursuit of the company’s commercial interests, and there is no suggestion within these indictments of any involvement by the Chinese government in directing or encouraging Huawei’s alleged crimes. 

What the indictments do imply is an internal culture of widespread and systematic disregard for (foreign) law where it stands in the way of Huawei’s commercial advantage. Huawei’s infamous “wolf culture” would appear to be on full display in the brazenness of the alleged Skycom episode, and in what the indictments claim about Huawei engineers’ dogged pursuit of Tappy’s technical data over a period of years despite being caught by T-Mobile staff on multiple occasions. 

The indictment also goes some way to explaining why Huawei’s employees were so dogged in their pursuit. In July 2013 Huawei allegedly “launched a formal policy instituting a bonus program to reward employees who stole confidential information from competitors.”

Whether or not this specific allegation is proven to be true, Huawei’s involvement in literally dozens of investigations for IP theft, corruption, fraud and bribery around the world should raise some significant red flags. The risk of IP theft might be reason enough for some decision-makers to decide to keep Huawei out of future 5G builds. 

Boiled down, the indictments allege that Huawei employees might be spying for Huawei but there’s nothing here to suggest they’re actively spying for the Chinese government. 

If these cases are representative of Huawei’s general level of sneakiness, Huawei would make terrible spies 

In both cases, the indictments present Huawei’s employees acting about as subtle as a brick.

The indictments claim while attempting to obtain Tappy the robot’s IP, Huawei engineers were repeatedly caught red-handed, or in one case, robot-handed. One day in 2013, whilst Huawei employees were using Tappy for testing, a robot arm mysteriously went missing. Under questioning from T-Mobile employees, the Huawei engineer denied knowing anything about it – and when it later turned up in his laptop bag, he claimed to have “forgotten” it was in there. 

The Skycom episode appeared even more blatant if the complaint in the indictment is upheld. Skycom’s Managing Directors were said to be identifiable Huawei employees, and Huawei employees were also the signatories on Skycom’s bank accounts. While alleged to be masquerading as Skycom employees to maintain the fiction that it was an unrelated company, many staff, according to the complaint, continued to use their huawei.com email addresses. Supposed Skycom employees in Iran are also alleged to have had Huawei badges and two sets of stationary: one with Skycom’s letterhead, and one with Huawei’s.  

It could well be the case that investigators picked up these alleged incidents precisely because they appear to be unusually clumsy.

And if that is the case, it does begin to raise the question of why, if Huawei is also spying for the Chinese government as the US alleges, no evidence has yet made its way into the public arena. 

Neither of these indictments emphatically prove that Huawei is being used for espionage by the Chinese government.

What they do achieve for the US politically, however, is to draw attention to Huawei’s alleged criminal behaviour in other areas. They also highlight an internal company culture which – if the cases are proven – seems to view violating other nations’ laws not as an insurmountable barrier, but as an opportunity for corporate team-building.

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