US Charges China’s Huawei on Trade-Secret Conspiracy

The Huawei logo displayed at the main office of Chinese tech giant Huawei in Warsaw, Poland, on Jan. 11, 2019. (AP Photo/Czarek Sokolowski)

BROOKLYN, N.Y. (CN) – Leveling indictments from coast to coast late Monday, U.S. federal prosecutors charged China’s Huawei, two subsidiaries and its CFO Meng Wanzhou in money-laundering and trade-secrets conspiracies that have roiled international relations in three countries.

On top of the widely publicized accusations that the Chinese telecom giant trampled upon anti-Iranian sanctions, prosecutors alleged that Huawei swiped a robot from T-Mobile to improve its own lesser-quality phones.

The indictment filed in Brooklyn focuses on allegations that Huawei lied to U.S. banks about Skycom, an Iranian subsidiary that it purported to have sold but still in fact controlled through a separate corporate entity.

Prosecutors note that Huawei’s founder specifically denied any sanctions-busting efforts in a July 2007 interview with FBI agents, only to have details emerge in news reports years later.

In late 2012 and early 2013, according to the 13-count indictment, Reuters and other outlets began describing a scheme wherein Skycom was attempting to sell U.S. goods to the Islamic Republic.

Prosecutors say Huawei CFO Meng flew into New York’s John F. Kennedy Airport a year later carrying “Suggesting Talking Points” about the matter on her electronic device.

“The core of the suggested talking points regarding Iran/Skycom: Huawei’s operation in Iran comports with the laws, regulations and sanctions as required by the United Nations, the United States and the European Union,” the file allegedly said. “The relationship with Skycom is that of normal business cooperation. Through regulated trade organizations and procedures, Huawei requires that Skycom promises to abide by relevant laws and regulations and export controls.”

Authorities purportedly discovered this file in the device’s unallocated space, suggesting it may have been deleted.

Prosecutors say Huawei’s deceptions caused one bank to unwittingly facilitate more than $100 million in transactions related to Skycom through the United States.

“When a bank’s customers lie to it about their sanctions-related business, that exposes banks to the risk of violating the law, especially when they continue to provide those bad actors access to our U.S. financial system,” Acting Attorney General Matthew Whitaker said at a press conference today.

Canadian authorities arrested Huawei CFO Meng in December, and Whitaker said the United States will file an extradition request with Canada by Jan. 30. China’s retaliation was quick and severe: A Chinese court sentenced Canadian citizen Robert Lloyd Schellenberg to death for drug smuggling earlier this month, and the condemned man applied for an appeal today.

China also detained a Canadian diplomat in December.

One of largest telecom company in the world, Huawei is also accused in the Seattle indictment of stealing details about a robot nicknamed “Tappy” that T-Mobile uses to test its phones. 

Prosecutors say T-Mobile had given Huawei limited access to Tappy so Huawei could test its phones, subject to strict confidentiality agreements, but Huawei decided to instead build its own Tappy.

The company first instructed its employees to take pictures of the robot and transmit other details in violation of the agreement with T-Mobile, according to the indictment. When that didn’t work, prosecutors say a Huawei employee stole Tappy’s robotic arm by smuggling it from a secure T-Mobile lab in a laptop bag.

Huawei allegedly prepared a false report when confronted by T-Mobile, claiming that the theft was the work of rogue employees rather than a company-wide effort.

“Huawei China was attempting to design its own robotic testing system for multiple reasons,” the Seattle indictment states.

“First, the phones that Huawei Chine supplied to T-Mobile generally were not of high quality, and the phones were failing Tappy’s testing at a disproportionate rate compared to other suppliers’ phones. Huawei China hoped that it could improve the quality of phones that it supplied to T-Mobile by utilizing its own robot testing earlier in the process, while the phones were still under development in China,” the 28-page indictment continues. “Second, Huawei China hoped that robotic testing would improve the quality of its phones generally, including phones that it supplied to competing wireless carriers, including China Mobile and AT&T.”

Huawei could face as much as $5.5 million in fines if convicted of the charges in the Washington indictment.

Today’s charges against Huawei hammer home a message that the Department of Justice sent last month: that China is trying to cheat its way to superpower status.

“China’s goal, simply put, is to replace the U.S. as the world’s leading superpower and they’re using illegal methods to get there,” FBI Director Christopher Wray said at a Dec. 20 press conference announcing charges related to a for-profit cyberattack scheme that sparked global censure.

The White House recently announced an official delegation from China will travel to the United States later this week for a round of trade negotiations. Speaking at the press conference announcing the indictments Monday, Secretary of Commerce Wilbur Ross said the indictments will have no impact on trade talks with China.

“To be clear, these indictments are law enforcement actions and are wholly separate from our trade negotiations with China,” Ross said Monday. ” Commerce will continue to work with our inter-agency partners to protect U.S. national security interests. We will ensure our sanctions and export control laws are enforced and violators brought to justice.”

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