Huawei CFO Meng Wanzhou’s arrest is a reminder to global companies that the US means business on sanctions

Huawei chief financial officer Sabrina Meng Wanzhou wiped away tears on Tuesday as she was granted US$7.5 million bail by a Canadian judge. Yet the relief is only temporary: on February 6, the court will reconvene to decide whether she will be extradited to the US and face the possibility of decades in prison. 

Immediately after Meng’s detention on December 1, speculation turned to politics. Given the Trump administration’s adversarial approach to Beijing, it’s understandable that her arrest would be seen through the lens of an increasingly fraught US-China relationship.

Yet, often overlooked in the media frenzy is the alleged transgression believed to be behind Meng’s arrest: a violation of sanctions against Iran. She stands accused of hiding the relationship between Huawei and SkyCom, a company that did business in Iran. There is a widespread sense – fanned by sensationalist media reports – that, while the case is ostensibly about sanctions, the true issue is Huawei’s commercial clout and links to Chinese security services.

But what if, on this occasion at least, a cigar is just a cigar? Rather than a casualty of America’s trade war with China, could Huawei in fact be a bellwether of Washington’s new willingness to enforce sanctions regardless of the nationality and clout of potential violators? If so, the world would be wise to listen.

There are signs that the US Department of Justice has been looking into potential Chinese violations of Iran sanctions for months, if not years. In April, it got its first big scalp: ZTE, Huawei’s main rival in China. The US imposed an export ban on ZTE, blocking US companies from exporting goods to the company for seven years.

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The embargo grounded ZTE’s business globally and threatened to bankrupt the firm; it was only relaxed in July after a personal appeal from Chinese President Xi Jinping to his American counterpart. Under the settlement, ZTE agreed to penalties of US$1.4 billion, appointed a new board of managers and set up a compliance office overseen by US-approved staff. In July, the company resumed business.

Filled with advisers and allies pushing a hard line on China, the Trump administration will continue targeting Chinese companies and businesspeople. With massive foreign investments and the global reach of the Belt and Road Initiative, they are particularly exposed to US regulatory action – not just on Iran and North Korea, but also less prominent sanctioned jurisdictions, including Burundi, Zimbabwe and Venezuela.

However, the fact that China is currently in America’s political cross hairs should not lead other countries into complacency. Although it is not immune from political pressures, the Department of Justice has a long and established tradition of prosecutorial independence. Since Watergate, a robust bipartisan consensus has emerged to prevent White House interference in the justice system. Canadian Prime Minister Justin Trudeau has also insisted politics had nothing to do with the arrest.

So while the spat with China is likely to have emboldened the Huawei probe, there is little doubt that live investigations into sanctions breaches are not confined to Chinese companies. While most of the world’s attention was on the ZTE ban, the US also targeted two Thai and Malaysian companies for dealing with Iran.

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Alas, many Asian firms still view the US sanctions regime as a Western issue. As recently as last month, Meng reportedly told Huawei compliance employees that there are some circumstances under which the rewards of not complying with external regulations may outweigh the risks. She has been proven wrong in a spectacular way.

But Meng was unlikely to have been the only non-European business leader who thought that way. Another prominent Asian businessman recently boasted of his company’s drive to invest in North Korea even as he was courting a US-based firm. For all the noisy brouhaha of the US-China trade war, Meng’s arrest should focus the minds of executives from Ankara to Yerevan: when it comes to dealing with Tehran and other jurisdictions subject to US sanctions, no one is safe.

In addition to country-focused trade restrictions, foreign companies face another potential sanctions pitfall. It is well known that “US persons” are generally prohibited from dealing with “specially designated nationals” – the hundreds of individuals and entities perceived by the US government to pose threats to its national security.

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Yet less understood is that the legal definition of a “US person” goes beyond US nationals and companies to include not just firms with a US presence but even those which merely have US green card holders among their staff.

As the strategic competition between Washington and Beijing continues to heat up, other Chinese companies will share the fate of Huawei and ZTE. But their rivals in Asia and beyond who see the Department of Justice’s activist approach to sanctions through the narrow prism of a superpower trade war do so at their peril.

Richard Ip is a partner of Wallbrook, a global intelligence and compliance risk consultancy. He specialises in Asia with a focus on political and economic developments in the region. Vadim Nikitin is a partner at Wallbrook based in its London headquarters. He is an expert on the former Soviet Union with a particular focus on the global sanctions regime