China crisis: US hits Huawei with barrage of criminal charges

29 Jan 2019

Huawei logo on glass. Image: alexeynovikov/Depositphotos

As a trade war ratchets up, the allegations by the US Department of Justice are the most serious Huawei has ever seen.

The United States has filed 23 charges against Chinese telecoms equipment giant Huawei and chief financial officer (CFO) Meng Wanzhou.

In a situation that will certainly worsen already fraught relations between China and the US, the charges against the world’s second largest smartphone maker and its CFO include bank fraud, obstruction of justice and theft of technology.

‘The charges unsealed today are the result of years of investigative work conducted by the FBI and our law enforcement partners’

Both Huawei and Meng deny the charges. Meng was arrested in Canada last month at the request of the US regarding the alleged breach of US-imposed bans on dealing with Iran. She is one of China’s most high-profile businesswomen and the daughter of Huawei founder Ren Zhengfei.

Real spy threats or trumped-up charges?

Over the past year, western governments, led by the US, have barred the use of the Chinese company’s networks due to concerns the technology could be used for spying. For its part, Huawei has denied the claims, declaring that network security has always been its priority.

In the UK, both Vodafone and BT have suspended installation of Huawei equipment in their core networks.

Among the indictments issued by the US Department of Justice (DoJ) were an accusation alleging Huawei stole trade secrets from T-Mobile, promises of bonuses to employees who collected confidential information on competitors, and claims the company worked to skirt US sanctions on Iran.

“For years, Chinese firms have broken our export laws and undermined sanctions, often using US financial systems to facilitate their illegal activities. This will end,” said US commerce secretary Wilbur Ross.

The indictment alleges Huawei misled the US and a global bank about its relationship with two subsidiaries, Huawei Device USA and SkyCom Tech, to conduct business with Iran.

The eastern district of New York charged Huawei, two of its affiliates and Meng with 13 counts surrounding the company’s alleged misrepresentations to the US government and four financial institutions regarding its business in Iran. The indictment claims that the company used financial institutions operating in the US to process transactions involving millions of dollars in furtherance of Huawei’s Iran-based business.

“The charges unsealed today are the result of years of investigative work conducted by the FBI and our law enforcement partners,” FBI director Christopher Wray said at a DoJ press conference announcing the indictments. “Both sets of charges expose Huawei’s brazen and persistent actions to exploit American companies and financial institutions, and to threaten the free and fair global marketplace.”

The US tech Huawei is alleged to have stolen was T-Mobile’s Tappy, which mimics human fingers to test phones.

Is this ultimately about the 5G future?

In a statement, Huawei rejected the charges, saying it didn’t commit “any of the asserted violations” and that it “is not aware of any wrongdoing by Ms Meng”.

Huawei has vehemently denied allegations of spying and believes that it is being used as a pawn in a global power game between the US and China. It said the allegations were already the subject of a settled civil suit, in which a jury found “neither damages nor wilful and malicious conduct on the trade secret claim”.

The charges come at a time when a trade war between the US and China is ratcheting up. They also come at a time when Asian innovation and technology is in the ascendance, particularly in areas such as 5G, and the pendulum of tech breakthroughs is swinging more in the direction of Shenzhen than Silicon Valley.

Huawei is one of the largest telecoms equipment makers in the world and, in terms of smartphones, it has surpassed Apple to become the second largest smartphone maker by volume.

In Rome on Friday (25 January), China’s foreign minister Wang Yi described the actions of western governments against Huawei as “unfair” and “immoral”. He continued: “Considering the obvious political intentions and manipulation behind it, it is even more unacceptable. I believe that all countries should be vigilant and resist this unreasonable practice, and such bullying.”

Paranoia about spying has been stoked by fears that the Chinese government could use Huawei’s global network to enhance its spying capability. This is largely driven by a culture clash whereby western governments are suspicious about the requirement of absolute loyalty from all Chinese enterprises to the state by China’s ruling Community Party. The FBI’s Wray said companies such as Huawei “pose a dual threat to both our economic in national security”.

Last July, UK authorities released a report detailing Huawei security risks and, in December, BT announced plans to strip Huawei equipment from its core 4G network.

In China, Huawei is considered one of the greatest business success stories and a “national champion” when it comes to technology. The 23 charges come just ahead of high-level trade talks in Washington and are by far the most serious to be hurled at the Chinese telecoms equipment giant.

While the US might insist it is not about a trade war, the Chinese people might not see it that way. The US will have to be sure that its evidence is rock-solid.

Huawei logo on glass. Image: alexeynovikov/Depositphotos

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years