Legal View

US Huawei probe includes bank fraud accusations

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US president Donald Trump reportedly did not know about plans to arrest the Huawei CFO in Canada.
US president Donald Trump reportedly did not know about plans to arrest the Huawei CFO in Canada.

Chinese telecoms giant Huawei Technologies' CFO was arrested as part of a US investigation into an alleged scheme to use the global banking system to evade US sanctions against Iran, according to people familiar with the probe.

Since at least 2016, the US has been looking into whether Huawei shipped US-origin products to Iran and other countries in violation of US export and sanctions laws, Reuters reported in April.

More recently, the probe has included whether the company used HSBC Holdings to conduct illegal transactions involving Iran, the people said.

Companies are barred from using the US financial system to funnel goods and services to sanctioned entities. If the mobile phone and telecoms equipment maker conducted such transactions and then misled HSBC about their true nature, it could be guilty of bank fraud, experts say.

Huawei declined to comment, but said in a statement after the arrest that it complies with all applicable export control, sanctions laws and other regulations.

An HSBC spokesperson declined to comment. HSBC is not under investigation, according to a person familiar with the matter.

A spokesman for the US attorney's office in Brooklyn, which Reuters has reported is the office investigating Huawei, also declined to comment.

Huawei CFO Meng Wanzhou, daughter of Huawei's founder, Ren Zhengfei, was arrested in Canada on 1 December and will appear in court on Friday, facing extradition to the US. The news broke on Wednesday, roiling global stock markets over fears the move could escalate the Sino-US trade dispute.

Huawei said it has been provided little information of the charges and it was "not aware of any wrongdoing by Ms Meng".

In 2012, HSBC paid $1.92 billion and entered a deferred prosecution agreement with the same US prosecutor's office for violating US sanctions and money-laundering laws.

As part of that deal, HSBC was required to be monitored for five years to review its efforts to prevent money-laundering and sanctions violations.

HSBC's US-listed shares fell as much as 6% on Thursday after Reuters reported the bank's link to the Huawei case. They ended 3.6%down.

Trump, Trudeau distance themselves

Meanwhile, US president Donald Trump did not know about plans to arrest Meng in Canada, two US officials said on Thursday, in an apparent attempt to stop the incident from impeding crucial trade talks with Beijing.

Meng was detained in Canada on the same day Trump and Chinese president Xi Jinping dined together at the G20 Summit in Buenos Aires.

A White House official told Reuters that Trump did not know about a US request for her extradition from Canada before he met Xi and agreed to a 90-day truce in the brewing trade war.

Another US official told Reuters that, while it was a Justice Department matter and not orchestrated in advance by the White House, the case could send a message that Washington is serious about what it sees as Beijing's violations of international trade norms.

The official, speaking on condition of anonymity, acknowledged that the arrest could complicate efforts to reach a broader US-China trade deal, but would not necessarily damage the process.

Meng's detention also raised concerns about potential retaliation from Beijing in Canada, where PM Justin Trudeau sought to distance himself from the arrest.

"The appropriate authorities took the decisions in this case without any political involvement or interference... we were advised by them with a few days' notice that this was in the works," Trudeau told reporters in Montreal in televised remarks.

Shades of ZTE

The probe of Huawei is similar to one that threatened the survival of China's ZTE Corporation, which pleaded guilty in 2017 to violating US laws that restrict the sale of American-made technology to Iran. ZTE paid an $892 million penalty.

Earlier this year, the US said ZTE made false statements about disciplining some executives responsible for the violations, and banned US firms from selling parts and software to the company. After ceasing major operations as a result, ZTE paid another $1 billion as part of a deal to get the ban lifted.

In an incident similar to Meng's case, ZTE's CFO was stopped at Boston's Logan Airport during the US investigation of that company, according to sources familiar with the case. US authorities seized a laptop that contained a "treasure trove" of evidence of ZTE's illegal business in Iran, one of the sources said.

In 2016, the Commerce Department made documents public that showed ZTE's misconduct and also revealed how a second company, identified only as F7, had successfully evaded US export controls.

In a 2016 letter to the Commerce Department, 10 US lawmakers said F7 was believed to be Huawei, citing media reports. In April 2017, lawmakers sent another letter to commerce secretary Wilbur Ross asking for F7 to be publicly identified and fully investigated.

US authorities also subpoenaed Huawei in 2016 seeking information related to possible export and sanctions violations, sources have said.

In January 2013, Reuters reported that Hong Kong-based Skycom Tech, which attempted to sell embargoed Hewlett-Packard computer equipment to Iran's largest mobile phone operator, had much closer ties to Huawei than previously known.

Meng, who also uses the English names Cathy and Sabrina, served on the board of Skycom between February 2008 and April 2009, according to Skycom records. Several other past and present Skycom directors also appear to have connections to Huawei.

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