DOJ Charges Huawei With Violating RICO Act, Conspiracy To Steal Trade Secrets

The new superseding indictment builds on the previous one with new allegations about Huawei and its co-defendants' alleged theft of trade secrets and using that information to build the company.

The U.S. Department of Justice Thursday unveiled a superseding indictment against China-based Huawei Technologies and a number of its U.S. subsidiaries, charging it with violating the RICO (Racketeer Influenced and Corrupt Organization) Act.

The superseding indictment also charges Huawei and its subsidiaries with conspiracy to steal trade secrets.

A superseding indictment replaces a previous indictment, typically when new evidence in a case comes to light that necessitates the filing of new charges.

[Related: Huawei CEO: ‘There's No Way The U.S. Can Crush Us’]

Huawei, responding to a CRN request for more information, replied via email that the new charges are unfounded. "This new indictment is part of the Justice Department’s attempt to irrevocably damage Huawei’s reputation and its business for reasons related to competition rather than law enforcement. The 'racketeering enterprise' that the government charged today is nothing more than a contrived repackaging of a handful of civil allegations that are almost 20 years old and that have never been the basis of any significant monetary judgment against Huawei. The government will not prevail on these charges which we will prove to be both unfounded and unfair."

The new 16-count superseding indictment includes the charges included in the previous superseding indictment unsealed in January 2019 against multiple defendants, including Huawei Technologies, Huawei Device Co. Ltd., Huawei Device USA Inc., Futurewei Technologies Inc. and Skycom Tech Co. Ltd.

Also included in the list of defendants is Meng Wanzhou, the company's chief financial officer and daughter of Huawei founder Ren Zhengfei.

The U.S. DOJ in January 2019 unsealed a 10-count indictment 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, Wash.-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 smartphone durability.

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.

In the latest superseding indictment unsealed by the DOJ, new charges were added related to allegations that Huawei and several U.S.-based and China-based subsidiaries misappropriated intellectual property from six U.S.-based technology companies to grow Huawei's business.

That intellectual property included trade secret information and copyrighted works including source code and user manuals for internet routers, antenna technology and robot testing technology, the DOJ alleged.

This was allegedly done using several methods, including violating confidentiality agreements Huawei signed with intellectual property owners and then using technology obtained via those agreements for defendants' own commercial use, recruiting other companies' employees and directing them to bring their previous employers' intellectual property, and using proxies such as professors to obtain technology from research institutions.

Huawei and its co-defendants also allegedly offered financial rewards to employees who obtained confidential information from their competitors.

The DOJ also alleged that Huawei, Huawei USA and Futurewei reinvested proceeds from this alleged "racketeering activity" in Huawei’s worldwide business.

"Huawei’s efforts to steal trade secrets and other sophisticated U.S. technology were successful. Through the methods of deception described above, the defendants obtained nonpublic intellectual property relating to internet router source code, cellular antenna technology and robotics. As a consequence of its campaign to steal this technology and intellectual property, Huawei was able to drastically cut its research and development costs and associated delays, giving the company a significant and unfair competitive advantage," the DOJ alleged.

The DOJ also included new allegations about how Huawei and its subsidiaries concealed how they did business with companies in Iran and North Korea that were subject to U.S., European Union or U.N. sanctions, and then concealed those moves.

This includes allegations that Skycom, a company that provided sales and services to the government of Iran, was a subsidiary of Huawei despite Huawei claims it was not.

Huawei CFO Meng, who is also a deputy member of Huawei's board of directors, in December 2018 was arrested in Canada while transferring between flights in relation to Skycom. She is currently fighting extradition to the U.S.

Reuters in 2013 reported that Meng was linked to Skycom Tech, a Hong Kong-based company which in late 2010 offered to sell HP equipment worth at least $1.3 million euros to Iran-based Mobile Telecommunication Co. A proposal for the sale of the HP equipment to Iran contained at least 13 pages marked "Huawei confidential" and included the Huawei logo, Reuters said.

Huawei later said the HP equipment was ultimately not provided to Iran either by Huawei or Skycom, Reuters said.

Further investigation by Reuters found financial and other links over a decade between Huawei, Meng and Skycom. For example, a management company that was controlled by Huawei's parent company in 2007 held all of Skycom's shares, and Meng at the time was that management firm's company secretary, Reuters reported.

Skycom at the time was a major partner of Huawei.

Meng in that Reuter's story was also referred to by her English name, Cathy Meng. However, on Huawei's corporate website, she is also referred to a Sabrina Meng.

Two members of the U.S. Senate, Senate Select Committee on Intelligence Chairman Richard Burr (R-NC) and Vice Chairman Mark Warner (D-VA), on Thursday released a statement, calling the indictment an important step in responding to what they termed Huawei's "unlawful" business practices.

"Today's announcement by the Eastern District of New York is an important step in combatting Huawei's state-directed and criminal enterprise. The indictment paints a damning portrait of an illegitimate organization that lacks any regard for the law. Intellectual property theft, corporate sabotage, and market manipulation are part of Huawei's core ethos and reflected in every aspect of how it conducts business. It uses these tactics indiscriminately against competitors and collaborators alike. Huawei's unlawful business practices are a threat to fair and open markets, as well as to legitimate competition in a tech space that is critical for the global economy. We commend the men and women of the FBI who pursued this investigation, and the prosecutors in New York who brought this indictment."