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Justice Department charges Chinese telecom giant Huawei with fraud

Acting Attorney General Matthew Whitaker Holds News Conference To Announce A Law Enforcement Against China
Acting U.S. Atty. Gen. Matthew Whitaker, center, announces new criminal charges against Chinese telecommunications giant Huawei on Monday.
(Chip Somodevilla / Getty Images)

The Justice Department fired a legal broadside Monday at Chinese telecom giant Huawei, alleging in two criminal indictments that the company engaged in a long-running scheme to deceive banks and the U.S. government about its activities in Iran and tried to steal sensitive information from T-Mobile.

Federal prosecutors also charged Huawei’s chief financial officer, Meng Wanzhou, the daughter of the firm’s powerful founder, with bank and wire fraud. Meng was detained in Canada last month on a provisional arrest warrant, and the U.S. government is seeking her extradition.

For the record:
2:10 PM, Jan. 28, 2019 An earlier version of this article misidentified Huawei’s chief financial officer as Manzhou Meng. She is Meng Wanzhou.

The filing of criminal charges against Huawei marks a significant escalation in the Trump administration’s campaign to halt the telecommunications behemoth’s global expansion over concerns that its equipment and software could pose a national security threat to the U.S. and its allies.

Washington has pressed Canada, Britain, Australia and New Zealand not to use Huawei’s technology in the next generation of cellular networks, known as 5G. Australia banned government procurement of Huawei hardware this year, and Poland brought espionage charges this month against a Huawei employee and a former Polish intelligence official.

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The company has been mostly blocked from U.S. markets since 2012 when a congressional committee released a report saying the company, which has close ties to the Chinese government, posed serious security risks.

Huawei executives insist that they are independent of Beijing and would never compromise customer data, though U.S. officials point to Chinese laws requiring domestic companies to cooperate with government requests as evidence that the company poses a security threat.

The company did not respond to emails seeking comment. But in a Jan. 15 interview with international press, Huawei President Ren Zhengfei defended the company’s track record on security. “Huawei is an independent business organization,” he said. “When it comes to cybersecurity and privacy protection, we are committed to siding with our customers. We will never harm any nation or any individual.”

The indictments, filed in Brooklyn, N.Y., and Seattle, charged Huawei and two of its affiliates with offenses including bank and wire fraud, attempts to steal trade secrets, and obstruction of justice.

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The charges were announced by a platoon of top Trump administration officials, including the secretaries of Commerce and Homeland Security.

“These are very serious actions by a company that appears to be using corporate espionage and sanctions violations to not only enhance its bottom line but to compete in the world economy,” said acting Atty. Gen. Matthew Whitaker. “This is not something the United States will stand for.”

The case is likely to heighten a trade dispute between the U.S. and China that has panicked investors and shaken the world’s economy. High-level negotiations are set to resume Wednesday in Washington when Liu He, Chinese President Xi Jinping’s right-hand man on the economy, will lead a Chinese delegation hoping to resolve, or at least pause, the tariff war started last year by Trump.

Citing what it believes is Beijing’s long history of engaging in unfair trade practices, the Trump administration imposed tariffs on $200 billion of Chinese imported goods and has threatened higher duties beginning March 1 if an agreement is not reached. Beijing has counterpunched by imposing duties on $110 billion of U.S. goods.

The indictments describe separate fraud schemes that go back at least six years and include allegations the company was engaging in commercial spying that has long irked U.S. officials and business leaders.

Federal law enforcement officials and security experts have reported a sharp rise since early 2017 in China’s efforts to swipe U.S. trade secrets. Beijing is seeking to boost its domestic industries and its rise as a global power, and has relied on an army of domestic computer hackers, traditional spies and corrupt corporate insiders in the U.S. and elsewhere to pilfer sensitive information.

In the Brooklyn indictment, federal prosecutors alleged that from 2007 through 2017, Huawei and two of its affiliates, Huawei Devices USA and Skycom Tech, engaged in a scam to deceive banks and the U.S. government about the conglomerate’s activities in Iran.

Huawei’s employees lied to banks and the U.S. government about the firm’s relationship with Skycom, a company in Iran, by asserting it was not a Huawei affiliate, the indictment said. They also lied by telling banks and U.S. officials that Huawei had limited operations in Iran and was not violating U.S. sanctions, federal prosecutors alleged.

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To disguise its control of Skycom, prosecutors wrote, Huawei orchestrated in 2007 the sham sale of the Iranian firm to an affiliate it controlled.

The company took such steps to deceive banks and U.S. authorities because financial institutions were generally prohibited by U.S. laws and sanctions from processing transactions tied to Iran.

One bank, prosecutors said, cleared more than $100 million in Skycom-related transactions through the U.S. in a four-year period ending in 2014.

When Huawei employees learned that federal prosecutors and agents were investigating the company in 2017, they sought to obstruct the probe by moving potential witnesses from the U.S. to China and by concealing and destroying evidence, prosecutors said.

“These charges lay bare Huawei’s blatant disregard for the laws of our country and standard global business practices,” FBI Director Christopher A. Wray said. “Companies like Huawei pose a dual threat to both our economic and national security.”

The second indictment, unsealed Monday in Seattle, alleged that Huawei had launched a coordinated effort to try to steal information about a T-Mobile phone-testing robot nicknamed Tappy.

Huawei engineers violated confidentiality and nondisclosure agreements in 2012 by secretly taking photos of Tappy, and even stealing a piece of the robot in the hopes their company could replicate the device, according to the indictment. When T-Mobile learned about the theft and threatened to sue, Huawei reported that rogue actors had been responsible, federal prosecutors alleged.

Emails obtained by the Justice Department revealed that the engineers were working as part of a companywide effort to purloin Tappy’s secrets.

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