Chi­nese tech ex­ec­u­tive lied to evade sanc­tions on Iran, U.S. charges

The Washington Post - - FRONT PAGE - BY EMILY RAUHALA AND ANNA FIFIELD

Nearly a week af­ter her ar­rest at a Cana­dian air­port, the U.S. charges against Chi­nese tech ex­ec­u­tive Meng Wanzhou fi­nally took shape Fri­day as a prose­cu­tor out­lined al­leged ef­forts to con­ceal the own- of a com­pany sus­pected of try­ing to skirt U.S. sanc­tions on Iran.

The fraud case dis­closed in a court in Van­cou­ver, B.C., has rel­a­tively nar­row lines. At its heart are U.S. claims that the heir ap­par­ent to Huawei Tech­nolo­gies — one of China’s big­gest tech em­pires — mis­led banks about Huawei’s sus­pected fi­nan­cial links to a Hong Kong-based com­pany called Sky­com. Meng could face up to 30 years in prison if con­victed.

But the fall­out from Meng’s ar­rest and pos­si­ble ex­tra­di­tion spills far be­yond the charges at hand.

The case has in­creased un­cer­ership tainty in global fi­nan­cial mar­kets, bring­ing an­other day of sharp losses from Asia to Wall Street be­fore a week­end breather. There also are wor­ries about pos­si­ble Chi­nese re­tal­i­a­tion for tar­get­ing Meng, the daugh­ter of Huawei’s founder and a ris­ing star among China’s busi­ness elite.

For the mo­ment, China in­sists the pros­e­cu­tion will not de­rail ef­forts to end the tar­iff-sling­ing trade bat­tles with the Trump ad­min­is­tra­tion.

Yet there is much to still play out.

Meng, wear­ing a green sweater,

lis­tened in court as Crown Prose­cu­tor John Gibb-Cars­ley ar­gued that she poses a flight risk and should be de­nied bail as the ex­tra­di­tion process be­gins. That will give her at­tor­neys an­other chance to fight her trans­fer to the United States.

Meng, Huawei’s chief fi­nan­cial of­fi­cer, was ar­rested at Van­cou­ver’s air­port as she trav­eled from Hong Kong to Mex­ico on Dec. 1, the same day that Pres­i­dent Trump met Chi­nese Pres­i­dent Xi Jin­ping on the side­lines of the Group of 20 sum­mit in Ar­gentina.

There had been spec­u­la­tion that the charges were, in some way, linked to al­leged vi­o­la­tions of sanc­tions on Iran. Then, in a packed Van­cou­ver court­room, a prose­cu­tor for Canada’s Jus­tice Depart­ment of­fered up the first de­tails of the U.S. charges.

Meng is ac­cused of com­mit­ting fraud in 2013 by telling U.S. fi­nan­cial in­sti­tu­tions that Huawei had no con­nec­tion to Sky­com, which was re­port­edly sell­ing goods man­u­fac­tured in the United States to Iran in vi­o­la­tion of Amer­i­can sanc­tions on Tehran. Meng has con­tended Huawei sold Sky­com in 2009.

The United States claims Huawei uses Sky­com to do busi­ness in Iran to work around U.S. sanc­tions.

“Ms. Meng per­son­ally rep­re­sented to those banks that Sky­com and Huawei were sep­a­rate, when in fact they were not sep­a­rate,” Gibb-Cars­ley told the court. “Sky­com was Huawei.”

The Jus­tice Depart­ment had no im­me­di­ate com­ment on Fri­day’s court pro­ceed­ings.

Among the ques­tions is how long U.S. au­thor­i­ties had been track­ing Meng’s move­ments, wait­ing for a chance to take her into cus­tody.

The Cana­dian prose­cu­tor said the U.S. war­rant was is­sued Aug. 22 in the East­ern Dis­trict of New York. A Cana­dian jus­tice then is­sued a war­rant when au­thor­i­ties be­came aware of Meng’s travel plans.

Fri­day’s hear­ing — which closed with­out a de­ci­sion on bail and will con­tinue on Mon­day — sug­gested that U.S. au­thor­i­ties will al­lege that Meng played a di­rect role in a fraud by telling banks that there was no link be­tween Huawei and Sky­com.

These banks then cleared fi­nan­cial trans­ac­tions for Huawei, Gibb-Cars­ley said, in­ad­ver­tently do­ing busi­ness with Sky­com and be­com­ing “vic­tim in­sti­tu­tions” of fraud.

Meng’s at­tor­neys de­nied the al­le­ga­tion of fraud, telling the court that Huawei had di­vested of Sky­com and left its board.

The case marks just the lat­est high-pro­file tan­gle with Huawei — and, by ex­ten­sion, with Bei­jing.

The com­pany is part of the A-list in China’s am­bi­tions to ex­pand its global tech­nol­ogy reach, in­clud­ing chal­leng­ing U.S. and South Korean smart­phone mak­ers for dom­i­nance in the next gen­er­a­tion of mo­bile phones, known as 5G.

Huawei’s brag­ging rights al­ready in­clude de­thron­ing Ap­ple as the world’s No. 2 smart­phone brand, be­hind Sam­sung.

But the United States, the Euro­pean Union and al­lies also look at Huawei as a dig­i­tal Tro­jan horse, fear­ing that phones made by Huawei and Chi­nese com­peti­tor ZTE Corp. could be em­bed­ded with spy­ware that could be tapped by China.

Two mem­bers of the “Five Eyes” in­tel­li­gence-shar­ing net­work — Aus­tralia and New Zealand — have ef­fec­tively blocked Huawei from their net­works on se­cu­rity grounds. Canada and Bri­tain have not com­pletely banned Huawei, but that may change. (The United States is the other mem­ber of the “Five Eyes.”)

In 2012, the House In­tel­li­gence Com­mit­tee is­sued a re­port on Huawei and ZTE that warned the com­pa­nies “pro­vide a wealth of op­por­tu­ni­ties for Chi­nese in­tel­li­gence agen­cies” to spy on U.S. com­pa­nies or agen­cies that use their equip­ment.

A pre­vi­ous case against ZTE — ac­cused of vi­o­lat­ing U.S. ex­port sanc­tions on Iran — brought it to the brink of bank­ruptcy last year. ZTE was ini­tially black­listed in the United States, but af­ter Trump’s in­ter­ven­tion that was down­graded to an $890 mil­lion fine.

On Fri­day, Huawei de­fended its sys­tems. A com­pany state­ment said it has never been asked by any gov­ern­ment to build “back doors” or “in­ter­rupt any net­works.”

“The Huawei case will cer­tainly have a neg­a­tive im­pact on po­lit­i­cal trust be­tween the United States and China,” said Wang Yong, a pro­fes­sor at Pek­ing Univer­sity’s school of in­ter­na­tional stud­ies.

But an­a­lysts do not ex­pect Bei­jing to let the in­ci­dent de­rail at­tempts to ease the trade dis­putes.

“China has more in­cen­tive than the U.S. to stop the es­ca­la­tion,” said Yan­mei Xie, an an­a­lyst at the Gavekal Drago­nomics con­sul­tancy in Bei­jing. “The Chi­nese pri­or­ity is to stop the U.S. from launch­ing crip­pling sanc­tions against Huawei. If the U.S. does what it did to ZTE, there’s very lit­tle China can do to pre­vent Huawei from col­laps­ing, and that’s not in China’s in­ter­est.”

For that rea­son, China would try not to “pro­voke” the United States, she said.

Chi­nese For­eign Min­istry spokesman Geng Shuang said Fri­day that China would not. “China al­ways pro­tects the le­git­i­mate rights and in­ter­ests of for­eign­ers in China in ac­cor­dance with the law, but I be­lieve cer­tainly they should also abide by Chi­nese laws and reg­u­la­tions,” Geng said.

The ar­rest of Meng feeds into a broader feel­ing in China that the trade war is not just about im­ports and ex­ports but is also about the Trump ad­min­is­tra­tion’s ef­forts to con­tain China and stop its rise.

“The U.S. is try­ing to do what­ever it can to con­tain Huawei’s ex­pan­sion in the world sim­ply be­cause the com­pany is the point man for China’s com­pet­i­tive tech­nol­ogy com­pa­nies,” the state-run China Daily said in an edi­to­rial Fri­day.

For the sake of the world — and the Amer­i­can — econ­omy, the United States should “change its men­tal­ity to­ward China,” the pa­per said.

The Peo­ple’s Daily, the mouth­piece of the Com­mu­nist Party, painted the tra­vails of Huawei as part of an epic bat­tle.

“All the slings and ar­rows didn’t stop it from grow­ing or hin­der it from ris­ing into a global tele­coms equip­ment gi­ant,” the pa­per said, adding that Chi­nese com­pa­nies are in­stead gain­ing strength. “No one will be able to stop ‘Made in China’ from bring­ing ben­e­fits to the whole world.”

Meng

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