A U.S. indictment against Huawei Technologies Co. Ltd., which was released in a New York federal court this week, takes aim at the Chinese telecom’s alleged U.S. sanctions-violating activities in North Korea and Iran.
According to the 56-page indictment, Huawei violated the International Emergency Economic Powers Act (IEEPA) by exporting products containing U.S. components to North Korea and Iran without U.S. government licenses.
The Chinese allegedly attempted to conceal these export activities. The Justice Department said documents obtained during the investigation revealed that the company’s employees used internal codes such as “A2” for Iran and “A9” for North Korea to hide the activity.
The company conducted the exports to Iran through Futand Skycom Tech Co. Ltd. U.S. investigators said Skycom is Huawei’s “unofficial subsidiary” in Iran and helped the Iranian government perform domestic surveillance of protests in Iran during 2009.
In addition to Huawei and Skycom, other entities named in the 16-count indictment are Huawei Device Co. Ltd., Huawei Device USA Inc. and Futurewei Technologies Inc., along with Huawei Chief Financial Officer Wanzhou Meng, daughter of the company’s founder.
Meng, who is in Canadian custody in Vancouver, is awaiting possible extradition to New York to face charges.
Other charges in the superseding indictment detail how Huawei’s U.S. and Chinese subsidiaries violated the Racketeer Influenced and Corrupt Organizations (RICO) Act by allegedly stealing trade secrets and copyrighted works from six U.S. companies, which were not named in the indictment. Stolen items included source code and user manuals for internet routers, antenna technology, and robot testing technology. To encourage the activity, Huawei allegedly paid bonuses to employees who successfully obtained important information about these U.S. technologies.
“Huawei, Huawei USA and Futurewei agreed to reinvest the proceeds of this alleged racketeering activity in Huawei’s worldwide business, including in the United States,” the Justice Department said in a statement.
The indictment further alleges that Huawei and its subsidiaries “made repeated misstatements” to both the FBI and House Permanent Select Committee on Intelligence members when questioned about their efforts to obtain trade secrets, and “engaged in obstructive conduct to minimize litigation risk and the potential for criminal investigations,” the Justice Department said.
The court’s action is expected to pressure the Defense Department to reverse a recent decision preventing the Commerce Department from reducing the amount of U.S.-made content or “de minimis” for U.S. reexports to be licensed as a way to further curtail Huawei’s access to U.S. semiconductor technology.
Currently, for exports to Huawei in China, a foreign-made product is not subject to the Export Administration Regulations (EAR) if it contains 25% or less U.S.-origin “controlled content,” a policy that has been in place in the U.S. for the past 30 years. The amount of U.S.-controlled content determines whether an export requires an export license from the Commerce Department.
The Commerce Department had proposed reducing the 25% threshold, including technology and software, for triggering a license to 10%. The Defense Department reportedly cited detrimental effects of the action to the U.S. semiconductor industry.
According to Reuters, the White House on Feb. 28 is expected to hold a Cabinet-level meeting to further discuss the Department of Defense’s denial of the Commerce proposal regarding Huawei.
The Commerce Department first added Huawei and 68 of its overseas affiliates and subsidies to the Entity List on May 16, 2019, citing national security concerns with the company’s technology and its close ties to the Chinese government. An additional 46 Huawei overseas affiliates were added to the list on Aug. 19, 2019.
The Entity List imposes significant restrictions on U.S. goods and technology exports to Huawei and requires a U.S. company or organization to obtain an export license from the Commerce Department’s Bureau of Industry and Security.
On Friday, the Commerce Department will publish a Federal Register notice extending a temporary general license for Huawei and the 114 non-U.S. affiliates on the Entity List, which was due to expire on Feb. 16, to April 1.
The temporary general license, which was implemented on May 20, 2019, and subsequently extended every 90 days since, allows U.S. exporters who meet certain regulatory conditions to continue conducting business with those Huawei firms placed on the Entity List.
The U.S. case against Huawei closely mirrors the 2017 indictment and $1 billion fine a year later against another Chinese telecom, ZTE Corp., for its violations of U.S. export control regulations by shipping technology containing U.S.-made semiconductor components to Iran.
Initially, ZTE was placed on the Entity List but shortly thereafter received a “general license” status that permitted continued trade for items that were classified as “EAR 99” or were eligible for a license exception to China. Then it was discovered that ZTE had failed to abide by the enforcement settlement, and U.S. export restrictions were quickly reimposed by placing the company on the more restrictive Denied Parties List.
After ZTE met various compliance conditions, agreed to third-party monitoring and paid additional fines, the Commerce Department in July 2018 lifted the export denial order against ZTE.