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DOJ charges Chinese telecom Huawei with fraud, sanctions, money laundering, stealing trade secrets

Thursday, January 31, 2019   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
January 31, 2019

Federal prosecutors have charged a Chinese company, the world’s largest telecommunications equipment maker, a top official and two affiliates with fraud, money laundering, pilfering trade secrets, obstruction of justice and sanctions violations for hiding its dealings with Iran from partner banks.

The U.S. Department of Justice Monday levied the bevy of charges against Huawei Company and Huawei Company USA, Huawei Chief Financial Officer (CFO) Wanzhou Meng and Iranian subsidiary Skycom for several schemes designed to fool banks into engaging in transactions and purloin trade secrets from competitor, Washington-based T-Mobile USA.

Court documents detail nearly three dozen charges, stating that Huawei, its CFO and other employees from roughly 2007 until last year repeatedly lied about the parent company’s relationship to Skycom, stating it had been sold to a third party that same year – vociferously stating it was not an affiliate.

To read the indictments, click here and here.

The timing of this indictment could not come at a tenser time in U.S. and Chinese relations, with both countries in the midst of a mushrooming trade war. However, it’s unlikely that the administration planned the release of the Huawei indictment to coincide with an upcoming summit between the two saber rattling world powers.

Even with the softening of U.S. sanctions on Iran under a joint nuclear accord orchestrated by the Obama Administration – one that the current administration recently nullified – the Islamic theocracy is essentially blacklisted from the U.S. financial system, including any international banks with strong American ties.

Many large domestic and foreign banks are still smarting from a U.S. AML campaign over the last decade to investigate and penalize institutions engaging in illegal transactions with Iran.

Federal and state prosecutors and regulators handed down historic fines for lax financial crime compliance and sanctions programs, in 2015 hitting a record $9 billion penalty against BNP Paribas.

Not surprisingly, these banks and others have broadly retooled AML and sanctions compliance departments, implementing new sanctions screening systems and hiring many of the biggest names at the government and regulatory agencies previously scrutinizing them.

Trepidatious bank started avalanche

Any banks who have, or had, relationships with Huawei are likely now engaging in proactive lookbacks to determine if they were duped into doing business with Iran – with them potentially dropping any ties to the company.

According to the indictment, it was actually an unnamed bank that started the firestorm Huawei finds itself in currently because the institution chose to drop the firm due to its risk profile – no doubt also cognizant of the worsening trade war between the U.S. and China.

After one of the company’s top banks decided to drop Huawei in 2017, the company allegedly lied to several of its remaining banking partners, stating that it dropped the relationship with the prior bank – not the other way around.

“Through these misrepresentations, Huawei was able to continue its banking relationships with its other banks,” according to court documents.

Similarly, in the bank penalties related to Iran, the institutions systematically removed any reference to the rogue regime by “stripping” details out of wire instructions and other transactions.

In 2017, when Huawei became aware of the government’s investigation, the parent and U.S. sub allegedly “tried to obstruct the investigation by making efforts to move witnesses with knowledge about Huawei’s Iran-based business to the PRC, and beyond the jurisdiction of the U.S. government, and by concealing and destroying evidence of Huawei’s Iran-based business that was located in the United States.”

In December 2018, Canadian authorities apprehended Meng in Vancouver pursuant to a provisional arrest warrant issued under Canadian law.  The U.S. government is seeking Meng’s extradition to the United States.

A ‘Tappy’ on the shoulder

Meng’s fate is just one of the many legal tussles Huawei will have to fight.

In the indictment related to stealing trade secrets, prosecutors state that from 2012 to 2014, Huawei attempted to nab details related to T-Mobile’s phone-testing robot, “Tappy,” and includes an “internal Huawei announcement that the company was offering bonuses to employees who succeeded in stealing confidential information from other companies,” according to court documents.

But that was just part of the plan.

“In an effort to build their own robot to test phones before they were shipped to T-Mobile and other wireless carriers, Huawei engineers violated confidentiality and non-disclosure agreements with T-Mobile by secretly taking photos of ‘Tappy,’ taking measurements of parts of the robot, and in one instance, stealing a piece of the robot so that the Huawei engineers in China could try to replicate it.” 

After T-Mobile uncovered the scheme and then threatened legal action, Huawei crafted a doctored report “claiming that the theft was the work of rogue actors within the company and not a concerted effort by Huawei corporate entities in the United States and China.” 

That ruse evaporated, however, as company emails revealed the plan to steal secrets from T-Mobile was a “company-wide effort involving many engineers and employees within the two charged companies.” 

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