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Meng Wanzhou

Huawei arrest is a warning shot for foreign business executives, as US makes targeting individuals a ‘top priority’ amid trade war

  • Foreign business executives face greater risks as US decides to target individuals in corporate misconduct cases
  • Donald Trump says he may intervene in the case, feeding into a popular belief in China that Sabrina Meng Wanzhou’s arrest was a ‘political kidnapping’ for trade war leverage
PUBLISHED : Thursday, 13 December, 2018, 5:01am
UPDATED : Friday, 14 December, 2018, 2:10pm

The arrest of Huawei chief financial officer Sabrina Meng Wanzhou is an early indication of the risks now facing foreign business executives, as American law enforcers start targeting individuals at companies that breach sanctions.

The controversy is increasingly being perceived as a “political kidnapping” in China, after US President Donald Trump suggested that he would intervene in the case as a means of gaining leverage in the trade war. For foreign corporate executives that facilitate trade with blacklisted countries, it may be a sign of things to come.

Against a backdrop of growing rivalry between Beijing and Washington, the case has infuriated the Chinese government and frayed China’s ties with Canada. It came as a result of a shift in focus by the US Department of Justice, which is centring corporate investigations on individual executives working at companies that break US laws.

Why Huawei and its CFO are caught up in the US-China trade war

Meng was arrested on fraud charges in Canada on December 1 upon the request of a district New York court, in relation to Huawei’s alleged violation of US sanctions on Iran. She has been granted US$7.5 million bail.

US Deputy Attorney General Rod Rosenstein said in a speech on November 29 that under the revised Foreign Corrupt Practices Act, “pursuing individuals responsible for wrongdoing will be a top priority in every corporate investigation”.

“The most effective deterrent to corporate criminal misconduct is identifying and punishing the people who committed the crimes. So we revised our policy to make clear that … a corporate resolution should not protect individuals from criminal liability,” read the transcript of Rosenstein’s speech.

If Huawei’s CFO isn’t safe from the US, then neither is Hong Kong trade

Rosenstein said that the US Department of Justice has charged more than 30 individuals and convicted 19 in the past year, after a review of policy concerning individual accountability in corporate cases.

Previously, the US targeted the companies that breached sanctions, doling out mammoth fines to a series of international banks. However, the US targeting foreign nationals in its “long arm” law enforcement could bring fresh risks, analysts said.

Jeffrey Sachs, a professor at Columbia University and the author of A New Foreign Policy: Beyond American Exceptionalism, wrote in an opinion piece for Project Syndicate on Tuesday that, while executives should be held accountable for corporate misconduct, “to start this practice with a leading Chinese business-person, rather than the dozens of culpable US CEOs and CFOs, is a stunning provocation to the Chinese government, business community, and public”.

Sachs wrote that many banks, including US banks such as JP Morgan Chase, have violated US sanctions on Iran, but none of the CEOs or CFOs were put behind bars.

“One can say, without exaggeration, that this [arrest of Meng] is part of an economic war on China, and a reckless one at that”, he wrote.

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Trump said in an exclusive interview with Reuters on Tuesday that he is open to using the case to help close a trade deal with Beijing, or for leverage in other American national security interests.

“If I think it’s good for the country, if I think it’s good for what will be certainly the largest trade deal ever made – which is a very important thing – what’s good for national security – I would certainly intervene if I thought it was necessary,” Trump told Reuters in the Oval Office.

Trump added that Chinese President Xi Jinping had not called him about the case, but said the White House had been in touch with both the Justice Department and Chinese officials over the arrest of Meng, a daughter of Huawei founder Ren Zhengfei.

Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation, a state-owned think tank affiliated with the Ministry of Commerce, said that Trump’s comments could be read as an “indirect confession” of kidnapping Meng.

“Isn’t this a self confession that he [Trump] had directed the kidnapping and now is blackmailing a ransom [from China]?” Mei wrote in a brief note.

Meng’s arrest in Canada has infuriated Beijing. She was apprehended while changing planes en route to Mexico from Hong Kong, after an arrest warrant was issued by the US for the alleged sanctions violations.

Cheers in court as judge frees Huawei’s Meng Wanzhou on US$7.5m bail

The Chinese foreign ministry has summoned the Canadian and US ambassadors to lodge a “strong protest” against the arrest and has demanded that Canada release Meng or face “grave consequences”.

China’s state media and researchers have widely depicted the case as a conspiracy by Washington to undermine the development of Huawei’s 5G technology, and to broadly thwart China’s rise.

“Washington should not attempt to use its domestic laws as strategic support for its commercial and diplomatic competition around the world. There is no doubt that the US actions are political, as the thin veneer of justice cannot conceal the political motives,” Chinese state-backed tabloid Global Times argued in an editorial on Tuesday.

When Meng was released on bail on Tuesday, she was ordered to wear a GPS ankle bracelet, submit to the 24-hour supervision of a private security firm, and surrender her Hong Kong and Chinese passports.

She will live in a Vancouver home she owns with her husband. Meng has been told to return to court on February 6 to set a date for her extradition hearing.

Sabrina Meng: ‘I am proud of Huawei, I am proud of my country’

The US is seeking her extradition on fraud charges related to alleged breaches of US and EU sanctions on Iran. Huawei has denied the charges.

“Huawei complies with all applicable laws and regulations in the countries and regions where we operate, including export control and sanction laws of the UN, US, and EU,” the company said in a statement after Meng was released.