How the US took more than a decade to build its case against Huawei
- The indictment alleged Huawei’s long-running scheme to deceive the US and numerous global banks about its business in Iran
The United States has been investigating Huawei Technologies for possible violations of trade sanctions since at least 2007, when FBI agents questioned its founder in New York about the Chinese telecommunication equipment manufacturer’s business activities in Iran.
The founder, whose name was redacted in the indictment filed on Monday in the US, was identified in the documents as “Individual-1”. He said at the time that Huawei was compliant with US export laws and did not deal directly with any Iranian company, according to the 13-count indictment unsealed in federal court in Brooklyn, New York.
Shenzhen-based Huawei was founded in 1987 by Ren Zhengfei, who built a small vendor of telephone switches into the world’s largest telecoms equipment maker and second-biggest smartphone supplier that is forecast to earn US$125 billion in revenue this year.
“During the interview, amongst other things, Individual-1 falsely stated, in substance and in part, that Huawei did not conduct any activity in violation of US export laws and that Huawei operated in compliance with all US export laws,” the indictment said.
The FBI’s questioning of Huawei’s founder in July 2007 showed that American law enforcement authorities had suspected the company of illegal activities in Iran since at least the administration of US President George W Bush.
That interview also took place at least five years before the US House Intelligence Committee released a report in 2012, alleging that Chinese telecoms equipment makers Huawei and ZTE Corp posed a threat to national security and that their products could be used by the Chinese government to spy and steal data. Huawei has repeatedly denied the allegations made in the congressional report.
Apart from Huawei, the other defendants named in the 25-page indictment include affiliates Huawei Device USA and Skycom Tech Co, as well as Huawei chief financial officer Sabrina Meng Wanzhou, the daughter of company founder Ren.
These defendants face 13 counts of financial fraud, money laundering, conspiracy to defraud the US government, obstruction of justice and violations of the International Emergency Economic Powers Act, which cover trade sanctions, among other charges.
US authorities aim to charge other individuals who have not yet been apprehended and whose names were not made public at this time.
Huawei has denied all the allegations in the indictment.
Following the FBI’s interview with the founder, Huawei employees repeatedly misrepresented the company’s relationship with Skycom, a Hong Kong-registered firm, which functioned as the telecoms gear maker’s Iran-based subsidiary, according to the indictment. That direct control was prohibited under the Iranian Transactions and Sanctions Regulations.
It said Huawei tried to conceal that relationship through a series of share transfers involving two undisclosed subsidiaries. That enabled Huawei to claim that Skycom was only a business partner in Iran.
Under the US trade sanctions, no goods, technology or services can be exported to Iran from the US or from a US person without a licence. The US contends that Skycom had hired at least one US citizen, identified as “Employee 1”, who provided telecommunication services to Iran between 2008 and 2014, without obtaining permission.
Since 2010, Huawei also misled various financial institutions and banks in the US by hiding its true relationship with Skycom, according to the indictment. As a result, one of the banks, known as “US Subsidiary 1” (a subsidiary of “Financial Institution 1”) in the indictment, cleared over US$100 million in transactions for Skycom.
In September 2012, a Huawei senior vice-president testified to the US Congress that the company’s business did not violate any sanctions, and a Huawei treasurer days later told a principal of a US bank that the firm and its global affiliates were not in violation of any laws.
But months later, Reuters published a report that said Huawei owned and operated Skycom, which was trying to sell embargoed goods of US origin to Iran, which violated sanctions.
In response to the story, Huawei called Skycom one of its “major local partners” and emphasised again that “Huawei’s business in Iran is in full compliance with all applicable laws and regulations including those of the UN, US and EU”.
“This commitment has been carried out and followed strictly by our company,” Huawei said at the time. “Further, we also require our partners to follow the same commitment and strictly abide by the relevant laws and regulations.”
The criminal indictment against Huawei and individual defendants including Meng, marks the culmination of at least a decade of investigation into the Chinese company. Last year, its cross-town rival ZTE was fined US$1 billion and banned from buying American parts and services for almost three months, for failing to discipline 35 employees involved in the illegal sale of telecoms equipment to Iran and North Korea.
That ban all but crippled the company, laying bare its dependence on US technology for survival. As part of the deal, ZTE now has a US-appointed special compliance coordinator with sweeping authority to monitor and assess compliance with US export control laws by the telecoms gear maker.
Back in 2012, reports at the time about Huawei’s alleged links to Iran came during a period of aggressive international expansion for the company, which included increasing investments in Europe, establishing a new research and development centre in Finland, and setting up local boards of directors and advisory boards in France and the UK, according to corporate milestones on Huawei’s website.
In January 2013, Reuters published a new report that linked Meng, who had been the CFO of Huawei since 2010, to Skycom. Once more, Huawei reaffirmed that it was in “full compliance” with all applicable laws.
Huawei listed Meng as CFO and one of the company’s executive directors in 2011, when it publicly disclosed its leadership. She is out on bail in Vancouver while awaiting the outcome of a hearing to decide whether she will be extradited to the US to face charges.
Months after the Reuters reports were first published in 2012, Meng requested an in-person meeting with an executive from “Financial Institution 1” – one of the victims involved in helping Skycom process millions of dollars in transactions.
In Meng’s meeting with the executive in August 2013, she used a PowerPoint presentation to explain that her participation on the board of Skycom between February 2008 and April 2009, was meant to help Huawei “better understand Skycom’s financial results and business performance, and to strengthen and monitor Skycom’s compliance”.
In early 2014, Meng made a trip to New York via John F Kennedy International Airport, where US authorities reviewed a file containing text from an electronic device belonging to her. The file, which may have been deleted, contained “talking points” about Iran and Skycom, according to the indictment. The airport was under the purview of the Eastern District of New York, which filed the criminal charges.
Around 2017, “Financial Institution 1” terminated its banking relationship with Huawei due to risk concerns, the US found. The financial institution emphasised to Huawei that the termination was its decision alone. Following that setback, Huawei attempted to strengthen its relationships with other banks, stating that it was the one who ended the relationship with “Financial Institution 1” because it was dissatisfied with its service.
Around the same time, the US alleged that Huawei became aware of the US criminal investigation against it, and purportedly moved witnesses with knowledge about its Iran business to mainland China, where they would be beyond the jurisdiction of the US. The company also sought to destroy and conceal evidence of its business.
