Chinese Tech Executive Lied To Evade Sanctions On Iran, US Charges

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 ownership of a company suspected of trying to skirt U.S. sanctions on Iran.

The fraud case disclosed in a court in Vancouver, British Columbia, 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 uncertainty 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.

The United States claims Huawei uses Skycom to do business in Iran to work around US sanctions

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 was arrested at Vancouver's airport as she traveled from Hong Kong to Mexico on Dec. 1, the same day that President Donald 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.

Meng Wanzhou, 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. Seen here in a courtroom sketch (Reuters)

"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 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.

Friday's hearing suggested that U.S. authorities will allege that Meng Wanzhou played a direct role in a fraud by telling banks that there was no link between Huawei and Skycom (AFP)

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 Huawai 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."

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Fifield reported from Beijing. The Washington Post's Yang Liu and Lyric Li contributed to this report.