Arrest of Huawei CFO Highlights Chinese Tech Company’s Threat to US National Security

December 9, 2018 Updated: December 9, 2018

News Analysis

The Chinese tech company Huawei has been in the media spotlight since Dec. 1, when Chief Financial Officer Meng Wanzhou was arrested in Canada at the request of U.S. authorities.

Huawei, which is privately owned yet has close links to the Chinese military and the Chinese Communist Party (CCP), is suspected of involvement in underhanded deals with Iran, in violation of U.S. sanctions.

U.S. prosecutors are now seeking to extradite Meng to the United States to face charges of fraud in relation to skirting Iran sanctions, according to evidence presented at a court hearing in Vancouver, Canada, on Dec. 7.

If the charges are true, they would put Huawei into the same bind as the Chinese regime’s other major telecom company, ZTE, which was found in April 2018 to have violated promises it made in court to rectify its behavior, after pleading guilty to having breached U.S. sanctions on Iran in 2017. ZTE was slapped with an export ban, and only allowed to resume procurements from U.S. suppliers after it agreed to pay a $1 billion fine and be subject to regular inspections.

Meng is alleged to have misrepresented the relationship between Huawei and Skycom, a Hong Kong-based company reportedly doing business with Iran. Prosecutors also allege Huawei controls Skycom.

Rumors began to surface in April that New York prosecutors were investigating whether Huawei violated U.S. sanctions against Iran, and that, since at least 2016, they were investigating alleged Huawei shipments to Iran.

In May, The Epoch Times received an intelligence memo showing that Pentagon technologies were transferred to Iran between May 2009 and December 2009, and that Huawei may have played a role.

The transfer was tied to Sumitomo Electric Lightwave, a Japanese-owned company based in North Carolina. The Pentagon contracted the company to develop next-generation fiber-optic cable for the U.S. military, and through its offices in Beijing, Sumitomo sold the technology to ZTE and Huawei.

A U.S. military intelligence officer, under condition of anonymity, told The Epoch Times that soon after Sumitomo sold the technologies to ZTE and Huawei, the technologies were obtained by the Chinese military.

“It wasn’t stolen. It was for civilian, or nonmilitary, purposes,” he said. “In China, it is being used for naval and for aircraft, like the J-10 jet, the high-end destroyers, cruisers, as well as for these evolving carriers.

It’s unclear whether Huawei played a role in the transfer of Sumitomo technologies to Iran, but the intelligence memo alleged that “a substantial quantity of FTTx Service Drop cable and about 30 (or many more) of the Type 39 Alignment Splicer” were transferred to Isfahan Optics Industries, as part of Iran’s “state-owned defense operation.”

It notes the products were first sent to Malaysia, then Dubai before being transferred to Iran. It included unconfirmed analysis that four additional companies were involved in the transfers to Iran.

The Recent Arrest

Meng’s arrest in Canada adds another chapter of scandal to Huawei’s growing portfolio.

Meng, 46, faces a maximum sentence of 30 years for each charge in the United States. After arguments from prosecutors and Meng’s lawyer, a bail hearing on Dec. 7 ended without a definitive conclusion. The hearing is scheduled to continue on Dec. 10.

Meng was initially granted a publication ban by the British Columbia Supreme Court, which would have restricted the media’s ability to report on what happens in court. The ban was lifted Dec. 7, just before the court hearing.

In the United States, the U.S. District Attorney’s Office in the Eastern District of New York is handling the case. John Marzulli, spokesperson for the Eastern District office, refused to comment about the case.

There’s been much speculation about whether the arrest would have implications for the ongoing trade dispute between China and the United States. In fact, both the U.S. administration and Chinese authorities have made statements expressing that they are committed to negotiations and sorting out a deal within the 90-day period agreed upon between U.S. President Donald Trump and Chinese leader Xi Jinping at the recent G-20 meeting.

What needs closer scrutiny are the repercussions—if the allegations about Huawei hold true—for U.S. national security.

Meng’s Background

Meng dropped out of high school but took a job at a bank in China’s southern metropolis of Shenzhen. She joined Huawei in 1993, and was named CFO in 2011. But the fact that she is the daughter of Huawei Chairman Ren Zhengfei wasn’t publicly revealed until 2013—which drew speculation that she would succeed her father to take Huawei’s helm.

Notably, Meng and Ren don’t share the same surname. That is because of the prominent social status of Meng’s mother and Ren’s ex-wife, Meng Jun. Chinese culture traditionally follows a patrilineal family system, whereby women marry into their husbands’ families. Some men, however, do marry into their wives’ families, due to the higher economic or social status of the latter.

Meng Jun’s father was Meng Dongbo, deputy secretary of a political committee with the East China Field Army—a CCP army unit during China’s civil war. Meng Dongbo later enjoyed a long political career in Sichuan Province. Ren, on the other hand, came from a poor area of Guizhou Province, and his family was persecuted during the Cultural Revolution.

Because of the political prominence of the Meng family, Ren moved in with the Meng family following his marriage. As a result, their first child, Meng Wanzhou, born in 1972, took her mother’s surname.

Technology Transfers

Huawei has been historically controversial because of its opaque operations, accusations of espionage, its part in the Chinese Communist Party’s (CCP) programs for economic theft and technological “sovereignty,” and its role in the regime’s exported programs for high-tech tyranny.

Among the key accusations against Huawei is that it shares sensitive data with Chinese authorities—an allegation that it denies. There is also an ongoing concern about its ties to the CCP’s People’s Liberation Army (PLA).

Ren was an officer in the PLA and was a delegate to the 12th National Congress in 1982, a once-in-five-years political conclave when the CCP’s leadership transitions.

The debate about Huawei’s alleged ties to the CCP and whether it shares data with Chinese authorities often misses a key point, however. Under CCP law, there are no true private industries, and any company dealing with data is required to allow access by the CCP.

In 2015, the CCP created a “national security law” that allowed it to selectively ban foreign imports to the benefit of its own companies. Bundled into that law was a requirement that all key network infrastructure and information systems held to Chinese law need to be “secure and controllable.”

The U.S.–China Economic and Security Review Commission released a report at the time, noting the new rule “would require any company operating in China to turn over to the government its computer code and encryption keys, as well as to provide a backdoor entry into commercial computer networks.”

The rule expanded on a previous CCP program from 2006, the National Medium to Long-Term Plan for the Development of Science and Technology, which required foreign companies selling in China to hand over their technology to Chinese companies.

The requirement that the CCP needs to control all data passing through companies means that whether or not Huawei engaged in these programs directly, under Chinese law, it is required to grant this access.

In a November report, The Australian news outlet cited secret Australian intelligence reports that confirmed Huawei had turned over passwords and access details to China’s intelligence services, to allow them access to a “foreign network” (though not an Australian one, a source said).

5G and ‘Five Eyes’

With Huawei beholden to Chinese law, which requires data monitoring by authorities, there has likewise been concern about whether countries that use Huawei systems expose sensitive communications to the Chinese regime.

This has been of particular concern for the “Five Eyes” intelligence-sharing programs between the United States, United Kingdom, Canada, Australia, and New Zealand.

So far, Huawei is banned from 5G networks in the United States, Australia, and New Zealand; yet, it is still allowed in Canada and the United Kingdom—although BT Group, a major UK telecoms operator, recently announced it would not use Huawei’s 5G equipment, and would remove Huawei equipment from its 3G and 4G networks.

The Chinese company has committed close to $50 million to Canadian universities to help develop 5G technology.

Last month, the U.S.–China Economic and Security Review Commission issued a report also warning that the CCP was heavily investing in 5G, and that the CCP had dedicated a significant amount of state funding for 5G as part of a program for global technological dominance.

The report noted that Huawei and ZTE play key roles in the CCP push, and warned that U.S. personal and corporate data might be exposed through the CCP’s role in 5G and internet-connected devices.

The concerns around Huawei’s interest in technology theft aren’t unwarranted. Among the most recent cases was one in October, when a civil lawsuit filed in California revealed that Huawei had been flagged by U.S. intelligence as a security threat to steal trade secrets from U.S. companies. A former Huawei employee, Jesse Hong, said he was fired by Huawei after he refused to pose as a staff member of a fake company in order to gain entry to a technology summit hosted by Facebook.

Similar concerns around Huawei’s interest in 5G surfaced in Australia in July. An unidentified government source told Reuters: “[Huawei] is a Chinese company, and under communist law, they have to work for their intelligence agencies if requested. There aren’t many other companies around the world that have their own political committees.”

Epoch Times staff members Frank Fang, Allen Zhong, and Margaret Wollensak contributed to this report.

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