Huawei's efforts to derail US prosecutions facing steep odds

Huawei has aggressively fought US claims it can't be trusted by business or government, while lobbying countries around the world to ignore American warnings against its products.
Huawei has aggressively fought US claims it can't be trusted by business or government, while lobbying countries around the world to ignore American warnings against its products.PHOTO: AFP

MANHATTAN (BLOOMBERG) - Huawei Technologies, China's biggest smartphone maker, is using its financial and political clout to fight United States allegations that the company was involved in bank fraud, technology theft and spying.

The effort probably won't work, American legal experts say.

"I don't see the US backing away from these cases," said Professor Peter Henning of Wayne State University Law School in Detroit, who is a former federal prosecutor.

Huawei has aggressively fought US claims that it can't be trusted by business or government, allegations at the core of two indictments. The company has lobbied countries around the world to ignore American warnings against its products.

On Wednesday, Huawei filed a lawsuit saying the US broke the law by barring government agencies from using Huawei equipment in contracts. It is based on an argument that the company has been singled out for punishment by Congress in violation of the US Constitution without a fair chance to defend itself.

And given that all of this is playing out amid prolonged negotiations between China and the US to resolve a trade war, there is intense speculation over how much the cases could be used as a bargaining chip for President Donald Trump.

The company's aggressive response to the criminal charges may reflect a desire to both circumvent the US justice system and combat claims that threaten billions of dollars in sales outside of China, said Mr Alexander Capri, a visiting senior fellow at the National University of Singapore Business School.

 
 
 

"Huawei is in a public relations blitzkrieg," he said. "Spying allegations have done damage to the company's image and, if a significant number of US allies were to block or restrict Huawei's access to either western tech or markets, the company would be in serious trouble."

China has become addicted to western technology components, and Huawei can't afford to get cut off from US suppliers, especially as it seeks to build the world's next generation of wireless modems, he said.

Last year, the Trump administration banned Chinese company ZTE Corp from purchasing critical US technology for violating export sanctions against Iran and North Korea. ZTE eventually paid more than US$1 billion (S$1.35 billion) in fines.

Bombshell Arrest

But the Huawei prosecutions aren't likely to get sidetracked, US legal experts say. That is in part due to the high-profile way in which they are been handled, with a bombshell arrest in Vancouver on Dec 1 of Meng Wanzhou, Huawei's chief financial officer and daughter of the company's founder, and a highly publicised press conference in Washington the following month when the indictments were unsealed.

In addition, the allegations at the heart of the two cases - that Huawei stole trade secrets from an American company and that it violated US sanctions on Iran - are issues that the Trump administration has made top priorities.

While prosecutors can always drop cases, it is highly unlikely in this case - even if it would help trade talks. A settlement, on the other hand, might be a more reasonable goal for Huawei.

"I guess Trump could order the Justice Dept to dismiss the indictment, but that would be unprecedented," Prof Henning said.

To be sure, Mr Trump is an unusual president, and international trade professor Alan Sykes of Stanford Law School said the cases could be used as leverage in the negotiations.

"There's many ways for prosecutors to pull back on what they're seeking", and US attorneys are subject to the commands of the Attorney General, who works for the President, said Prof Sykes.

"There's a question of whether that's appropriate - if it compromises the independence of the Justice Department. But it's a logical possibility."

The prosecutions also may not interfere with trade negotiations, like when the European Union imposed billions of dollars of fines on Google or levied tax penalties on Apple, Prof Sykes said.

"Multinational companies have legal issues in foreign markets all the time," he said. "It doesn't mean the country that the company is based in and the country in which they're operating can't negotiate constructively."

The US, citing security concerns, has urged allies to bar Huawei and other Chinese technology providers from building infrastructure for fifth-generation, or 5G, mobile cellular networks.

China has dismissed the allegations against Huawei, saying US actions are based on fear of facing a formidable industrial competitor.

In addition, it may be difficult for the US to backpedal on the Huawei prosecutions after the Trump administration announced a get-tough initiative on China's business practices. In November, then-Attorney General Jeff Sessions said the crackdown was intended to counter what he saw as a looming threat of China's economic espionage.

 
 
 

Trade Secrets

Among the enforcement actions being targeted were efforts by China to gain access to proprietary US technology and trade secrets, through techniques such as computer hacking or theft by insiders. Brooklyn US Attorney Richard Donoghue, whose office is prosecuting Meng's case, is on a list of the nation's top prosecutors on the Justice Department's Working Group for China.

And while Meng fights extradition from Canada - she too has filed a retaliatory suit, claiming the Canadians violated her constitutional rights during her arrest - the bank fraud and trade sanctions case that she's named in is moving forward all the same.

Huawei is due to be arraigned in Brooklyn federal court on March 14. Both Meng and her company have denied any wrongdoing.

Given Meng's wealth and connections, she could drag out the extradition fight for years. But few have ever been successful in persuading a Canadian court not to extradite to the US, said Mr Brad Simon, a former federal prosecutor in Brooklyn, New York, who is now a partner at Phillips Nizer LLP.

So, for Meng, too, the most likely positive outcome would be for a relatively lenient plea deal, given that under federal law, the charges she faces in Brooklyn carry as much as 30 years in prison.