US charges China's Huawei, CFO over Iran sanctions, stealing trade secrets

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Acting Attorney-General Matthew Whitaker at a news conference about charges against China's Huawei Technologies, its chief financial officer and two affiliates, as FBI director Christopher Wray (right) looks on at the Justice Department in Washington, US, on Jan 28, 2019. PHOTO: REUTERS

WASHINGTON - The United States has charged Chinese telecommunications giant Huawei and its chief financial officer Meng Wanzhou with stealing trade secrets from an American competitor and defrauding banks to evade sanctions on Iran, possibly throwing a wrench into trade talks scheduled later this week.

The charges are part of a broader crackdown on Huawei over fears that its technology is being used to spy on the US and others, and larger unhappiness that Beijing is competing unfairly in the global economy by stealing trade secrets from Western companies.

But over in China, the charges are viewed and painted as American attempts to suppress its technological rise.

US officials stressed that the Huawei charges were separate from the upcoming trade talks with China, after the charges were unsealed on Monday (Jan 28).

"Those two things are not linked. They're a totally separate process. The negotiations on the trade front will continue to be ongoing," White House press secretary Sarah Sanders told reporters at a briefing.

Ms Meng sparked a diplomatic row when she was arrested on Dec 1 at Vancouver International Airport for extradition to the US, and is now out on bail after being charged with fraud in the Canadian courts. Prosecutors at a press conference on Monday said they will file their formal extradition request by Jan 30.

Three charges of bank fraud were filed against her, Huawei and two Huawei affiliate companies. Unsealed on Monday, they detailed a long-running scheme by Huawei and Ms Meng to lie about the company's business activities in Iran to several banks and the US government.

Huawei and Ms Meng repeatedly lied that it no longer controlled its affiliate in Iran, Skycom, even though it did. This led US banks, who are generally prohibited from processing transactions related to Iran, to unknowingly break the law by continuing to provide banking services to Huawei, with one bank clearing more than US$100 million worth of Skycom-related transactions through the US between 2010 and 2014.

"The alleged fraudulent financial schemes used by Huawei and its chief financial officer were not just illegal but detrimental to the security of the US. They wilfully conducted millions of dollars in transactions that were in direct violation of the Iranian Transactions and Sanctions Regulations, and we will not tolerate efforts to circumvent US sanctions," said Secretary of Homeland Security Kirstjen Nielsen at a press conference.

Another tranche of charges centred on Huawei's efforts in 2012 to steal information about a phone-testing robot nicknamed "Tappy" owned by T-Mobile USA, one of America's four main telcos.

Huawei even offered bonuses to employees who successfully stole confidential information from other companies, with the size of the bonus based on the value of the information they stole, said prosecutors.

Prosecutors said they possess evidence, including numerous e-mails over months, that showed a determined and unrelenting effort to obtain US technology.

The charges detailed how Huawei coveted T-Mobile's robotic testing system Tappy, which touches phones in ways that simulate how people use their phones to test the responsiveness, performance and stability of a phone's user interface. Tappy's use led to higher phone quality and fewer customers returning the wireless phones sold by T-Mobile, said prosecutors.

Huawei was also building its own phone testing robot, known as xDeviceRobot, and wanted Tappy's technology to improve it.

T-Mobile, however, claimed Tappy as its intellectual property and did not want to sell it to phone manufacturers like Huawei, because Huawei also supplied phones to their telco competitors.

After being rebuffed, Huawei executives schemed over e-mails - which the FBI obtained - to send a company engineer in May 2013 to T-Mobile's headquarters in Seattle to sneak into the lab where Tappy was located.

The engineer was twice let into the lab by Huawei's US employees who had limited access to it, but was discovered by T-Mobile employees and told to leave both times. He later stole one of the Tappy robot arms but returned the arm after being discovered.

Huawei later obstructed justice by trying to cover up its corporate espionage and attempted theft, allege prosecutors.

The Justice Department stressed, however, in its press release that the charges in the indictment were merely allegations, and that the defendants were presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

Acting Attorney-General Matthew Whitaker also downplayed the idea that Ms Meng could be used as a bargaining chip in the trade talks, which President Donald Trump suggested last month.

Said Mr Whitaker: "The US Justice Department does its investigation and charging decisions independent of the White House. We pursue this when the evidence and the facts cause us to seek an indictment from the grand jury, and the grand jury returned an indictment."

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