Huawei Executive Took Part in Sanctions Fraud, Prosecutors Say
Posted December 7, 2018 6:58 p.m. EST
Updated December 7, 2018 7:00 p.m. EST
VANCOUVER, British Columbia — The reasons the United States asked Canadian authorities to arrest a top executive of the Chinese technology company Huawei last week had been shrouded in mystery.
On Friday, the details of the arrest and what led up to it came out in a Canadian courtroom.
At a bail hearing in Vancouver for Meng Wanzhou, the chief financial officer of Huawei and a daughter of the company’s founder, Canadian prosecutors said she was accused of fraud. The heart of the charges related to how Meng may have participated in a scheme to trick financial institutions into making transactions that violated U.S. sanctions against Iran, they said.
Meng had “direct involvement” with Huawei’s representations to banks, said John Gibb-Carsley, an attorney with Canada’s Justice Department.
The hearing shed light on an incident that has rattled the relationship between the United States and China as they prepare to enter negotiations to cease a brutal trade war. While changing planes in Vancouver on Dec. 1, Meng was arrested at the behest of the United States, which has for years looked into potential ties between Huawei and the Chinese government or Communist Party.
Because of Meng’s stature in China as a top executive and part of its elite, news of her arrest has rippled through the country. A Huawei spokesman didn’t immediately have a comment.
With Meng, 46, seated inside a glass box at British Columbia’s Supreme Court, Gibb-Carsley laid out what had led to her arrest. He said that between 2009 and 2014, Huawei used a Hong Kong company, Skycom Tech, to make transactions in Iran and do business with telecom companies there, in violation of U.S. sanctions. Banks in the United States cleared financial transactions for Huawei, inadvertently doing business with Skycom, he said.
The banks were “victim institutions” of fraud by Meng, Gibb-Carsley said.
In 2013, articles by Reuters alleged that Huawei used Skycom to do business in Iran, and had tried to import American-made computer equipment into the country in violation of sanctions. Several financial institutions asked Huawei if the allegations were true, Gibb-Carsley said.
At the time, Meng arranged a meeting with an executive from one of the financial institutions, he said. During the meeting, she spoke through an English interpreter and presented PowerPoint slides in Chinese, saying that Huawei operated in Iran in strict compliance with U.S. sanctions. Meng explained that Huawei’s engagement with Skycom was part of normal business operations and that Huawei had sold the shares it once held in Skycom.
But there was no distinction between Skycom and Huawei, Gibb-Carsley said. Huawei operated Skycom as an unofficial subsidiary, making efforts to keep the connection between the companies secret.
Skycom employees used Huawei email addresses and had badges and a letterhead featuring the Huawei logo, he said. Skycom documents showed that an entity to which the company was sold in 2009 was also controlled by Huawei until at least 2014, according to an affidavit read in court.
Meng’s presentation to the financial institution constituted fraud, Gibb-Carsley said. Her attorney, David Martin, said the bank was HSBC.
A global bank based in London with operations in the United States, HSBC has repeatedly landed in trouble with U.S. authorities for violating anti-money-laundering rules. As a result, HSBC had officials from a consulting firm, Exiger, stationed inside the bank to monitor its compliance. Exiger officials noticed suspicious Iranian-linked transactions involving Huawei and flagged them to the U.S. Justice Department, according to two people familiar with the matter who weren’t authorized to speak publicly.
Martin said Meng’s PowerPoint presentation to HSBC had been prepared by Huawei’s legal team and disclosed the sale of Skycom. He added that the U.S. government had provided only a “skeletal description” of the accusations.
Stuart Levey, the chief legal officer at HSBC, said, “The U.S. Department of Justice has confirmed that HSBC is not under investigation in this case.”
Marc Raimondi, a spokesman for the Justice Department, declined to comment on the charges revealed in court on Friday.
The accusations against Meng and Huawei are similar to ones that the U.S. government made in 2016 against ZTE, another large Chinese technology company. In that case, American officials released internal ZTE documents in which executives had described creating “cutoff companies” that would do business with Iran, North Korea and other nations placed under sanctions by the U.S. government.
A warrant for Meng’s arrest was issued in the Eastern District of New York on Aug. 22, Gibb-Carsley said. A Canadian justice then issued a warrant for Meng on Nov. 30 after it became known that she would change planes in Vancouver on her way from Hong Kong to Mexico. Meng had traveled to the United States regularly in 2014, 2015 and 2016, Gibb-Carsley said. Her last trip was in February and March 2017. In April 2017, Huawei found out about the U.S. investigation into the company when its subsidiaries were served with a grand jury subpoena, he said.
Meng and other executives then stopped visiting the United States, even though she has a 16-year-old son — one of three sons from a previous marriage — at a school in Boston, Gibb-Carsley said. Meng, who remarried, also has a daughter, according to an affidavit.
Martin pushed back on the idea that Meng had avoided the United States because she feared prosecution. After AT&T canceled a deal to distribute Huawei smartphones in the United States in January and the federal government banned the use of Huawei products in government contracts, Huawei essentially abandoned the market, Martin said.
“An entity would have to be tone deaf to not understand that the United States had become a hostile place for Huawei to do business,” he said.
Gibb-Carsley argued against bail for Meng. He said she had vast financial resources and no strong ties in Canada, and that China had no extradition treaty with the United States or Canada.
Martin offered two properties in Vancouver and a cash deposit to secure Meng’s bail. Meng would not breach a court order, he said, adding that doing so would “humiliate and embarrass her father, who she loves,” and embarrass Huawei’s thousands of employees. Meng’s father is Ren Zhengfei, Huawei’s founder.
“She would not embarrass China itself,” Martin said.
The judge in the case is slated to rule on the bail request later on Friday.
Any extradition process can take weeks or months, depending on the rules of the country that arrests the suspect and whether the suspect chooses to fight the extradition request. The U.S. Justice Department must now present evidence to the Canadian court that supports its request and has 60 days from the arrest to make a full request for extradition.