DOJ Outlines Alleged Fraud, Intellectual Property Theft Charges Against China's Huawei

The U.S. Department of Justice on Monday filed formal criminal charges against China's Huawei, the world's largest telecom company.

The DOJ said that a 10-count indictment was unsealed Monday in the western district of Washington State charging Huawei Device Co. Ltd. and Huawei Device Co. USA with theft of trade secrets conspiracy, attempted theft of trade secrets, seven counts of wire fraud, and one count of obstruction of justice.

That indictment was related to allegations that Huawei attempted to steal trade secrets from Bellevue, Washington-based T-Mobile USA and then obstruct justice when T-Mobile threatened to sue Huawei in relation to alleged theft of technology related to a T-Mobile-designed robotic device for testing smart phone durability.

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The DOJ also said that a 13-count indictment unsealed in the federal court in Brooklyn charges four defendants with bank fraud, wire fraud, conspiracy to commit wire fraud, violations of the International Emergency Economic Powers Act (IEEPA), conspiracy to violate IEEPA, and conspiracy to commit money laundering, the DOJ said Monday. This was in relation to alleged exports of Hewlett-Packard equipment over 10 years ago to Iran in violation of U.S. law.

The four defendants include Meng Wanzhou, Huawei's chief financial officer and the daughter of Huawei Founder Ren Zhengfei, along with Huawei itself and two Huawei affiliates, Huawei Device USA Inc. and Skycom Tech Co. Ltd.

In a Monday afternoon press conference, Acting Attorney General Matthew Whitaker outlined both indictments.

In the first indictment, Whitaker said, Huawei in 2012 started attempts to steal robotic technology from T-Mobile used in testing mobile phones.

"In an effort to build their own robot, Huawei's engineers allegedly violated confidentiality and non-disclosure agreements with T-Mobile by secretly taking photos of the robot, measuring it, and even stealing a piece of it."

In the second indictment, alleged criminal conduct starting over 10 years ago went all the way to the "top of the company," Whitaker said.

"As early as 2007, Huawei employees allegedly began to misrepresent the company and the company's relationship with its Iranian affiliate, which is called Skycom," he said. "Huawei employees allegedly told banking partners that Huawei had sold its ownership interest in Skycom. But these [claims] were false. In reality, Huawei had sold Skycom to itself. By claiming that Skycom was a separate company and not an affiliate of Huawei, which it actually controlled, Huawei allegedly asserted that all of its Iranian business was in compliance with the American sanctions."

Those alleged false claims allowed banks to do business with Skycom and therefore unknowingly violate U.S. laws, with one bank facilitating over $100 million in Skycom transactions through the U.S. in four years, Whitaker said.

In another example, when one bank told Huawei it was distancing itself from the company because of concerns about the business, Huawei allegedly told other banks that it was Huawei distancing itself from that bank in order to maintain and expand its relationships with the other banks, he said.

Huawei is also alleged to have lied to the federal government, of attempting to obstruct justice by concealing and destroying evidence, and of moving potential government witnesses to China, he said.

Meng was arrested by Canadian authorities in December as she was transferring between flights in Vancouver in relation to her time as head of a Huawei-affiliated company that allegedly sold Hewlett-Packard equipment to Iran in violation of U.S. regulations. Meng was granted bail in Vancouver, but is under 24-hour surveillance and wears an electronic ankle tag.

Whitaker said that the U.S. is currently negotiating to extradite Meng from Canada to the U.S.

Whitaker emphasized that the charges unveiled Monday are for now only allegations. "The defendants are presumed innocent until proven guilty," he said.

Department of Homeland Security Secretary Kristjen Nielsen said that her organization started investigating possible fraud activities by Huawei and its subsidiaries 18 months ago.

"The alleged fraudulent financial schemes used by Huawei and its chief financial officer were not just illegal, but a detriment to the security of the United States," Nielsen said. "They willfully conducted millions of dollars in transactions that were in direct violation of the Iranian transactions and sanctions regulations. And we will not as a country tolerate efforts to circumvent U.S. sanctions to support an odious regime that sponsors terror and threatens the United States and our allies."

Secretary of Commerce Wilbur Ross said that one of his first actions upon assuming his role was to punish another Chinese company, telecom equipment maker ZTE Corp., for violations, and the U.S. continues to monitor it more strictly than any other company in U.S. history.

"For years, Chinese firms have broken our export laws and undermined sanctions, often using U.S. financial systems to facilitate their illegal activities, Ross said. "This will end."

Too many companies pursue profits by whatever means necessary, Ross said. "Lying, cheating, and stealing are not suitable corporate growth strategies," he said. "To be clear, these indictments are law enforcement actions, and are wholly separate from our trade negotiations with China."

Huawei told CRN that it sought an opportunity to discuss the arrest of Meng with the Eastern District court of New York, but said the request "was rejected without explanation."

The company also said the trade secret indictment in the Western District court of Washington were already the subject of a civil suit that was settled between the parties, presumably Huawei and T-Mobile, after a Seattle jury found "neither damages nor willful and malicious conduct" on Huawei's part.

The Seattle Times in May of 2017 reported that a lawsuit filed by T-Mobile in 2014 accusing two employees of Huawei Device USA of spying on T-Mobile's "Tappy" smart phone-testing robot was settled after Huawei admitted that the two employees acted imappropriately and had been fired. The jury in that case found Huawei guilty of misappropriating T-Mobile secrets and awarded T-Mobile $4.8 million, but said the misappropriation was not willful and malicious, the Times wrote.

T-Mobile did not respond to a request for information from CRN by publication time.