Equipo Nizkor - How a National Security Investigation of Huawei Set Off an International Incident.

It was a message that federal authorities had grown accustomed to hearing: The global bank HSBC belatedly realized it had been processing financial transactions that might have run afoul of American law.

HSBC had repeatedly been penalized for helping clients launder money. Now, though, there was a different problem. From 2009 to 2014, HSBC helped the Chinese telecommunications giant Huawei move money in Iran, in breach of United States sanctions. This time, the bank said, it had a good excuse: Huawei, and one of its top executives, tricked HSBC into handling the business.

This month, the matter exploded into an international incident that shook global financial markets and threatened to deepen tensions between the American and Chinese governments. Meng Wanzhou, Huawei’s chief financial officer and a daughter of the company’s founder, was arrested in Vancouver by Canadian authorities who were acting at the behest of American prosecutors.

The details of the criminal charges against Ms. Meng, filed under seal, remain murky. But court filings in Canada and interviews with people familiar with the Huawei investigation show that the events leading to her arrest were set in motion years ago.

They grew out of an Obama administration national security investigation into Chinese companies — including Huawei — that act as extensions of the country’s government, according to the people familiar with the investigation. The focus only recently shifted to whether Huawei, and specifically Ms. Meng, deceived HSBC and other banks to get them to keep facilitating business in Iran. Former federal prosecutors said pursuing Ms. Meng, 46, for alleged bank fraud proved to be a better line of attack than trying to build a case on national security grounds.

American national security experts believe China has bolstered its economy — now the world’s second largest — by stealing corporate, academic and military secrets. Among the concerns is that Chinese telecommunications equipment could be used to spy on American citizens. The top United States intelligence agencies told senators this year that Americans should not buy Huawei products.

Counterintelligence agents and federal prosecutors began exploring possible cases against Huawei’s leadership in 2010, according to a former federal law enforcement official. The effort was led by United States attorney’s offices in places where Huawei has facilities, including Massachusetts, Alabama, California, New York and Texas.

As they investigated Huawei, F.B.I. agents grew concerned that company officers were working on behalf of the Chinese government, according to current and former federal officials.

But criminally charging Huawei or its executives for espionage or other security crimes was not likely to be simple. Former federal prosecutors said doing so often risked exposing the sources of confidential information. As a result, they said, prosecutors often look to bring more conventional cases involving crimes such as bank fraud. Think of it as the Al Capone strategy: Prosecutors went after the notorious gangster by charging him with tax evasion.

That is where HSBC came in.

Since at least 2009, Huawei had been a client of the bank. In 2013, a report by Reuters revealed that Huawei, through a subsidiary called Skycom, had been secretly doing business in Iran — a country subject to stringent international sanctions.

HSBC asked Huawei if the Reuters report was true. It was a big concern for the bank, because the previous year federal prosecutors had accused it of willfully failing to stop money laundering by customers, including in countries like Iran. To settle that investigation, HSBC had paid a $1.9 billion fine, entered into a deferred prosecution agreement and agreed to have a court-supervised monitor installed inside the bank.

While American companies are legally restricted from doing business with people and institutions in countries under United States sanctions, nothing stops Huawei from doing so. But if an international bank like HSBC moves money through the United States on its way to or from Iran, that potentially violates American law — which is what HSBC executives were apparently worried about with Huawei and Skycom.

Huawei sent Ms. Meng — a daughter of Huawei’s founder, Ren Zhengfei — to try to assuage HSBC’s concerns. In August 2013, she gave a PowerPoint presentation to HSBC officials in which she denied that Huawei was connected to Skycom. She also said Huawei had complied with American sanctions and would not use HSBC for any transactions in Iran, according to Canadian court filings.

While Ms. Meng’s presentation was in Chinese, Huawei later sent an English version to the bank. “HSBC has been working with Huawei for a long time and has a deep understanding of Huawei’s history of growth around the world,” the presentation said. “We have been and will continue to be transparent.”

The presentation was kept on file at HSBC. Several of the bank’s risk-assessment committees relied on it to justify continuing to do business with Huawei. By 2014, the bank had unwittingly cleared more than $100 million in transactions with Skycom in Iran, according to federal prosecutors.

In 2015, HSBC appeared to have a change of heart about doing business with Huawei. The bank’s reputational risk committee met in New York on April 15 and decided not to do business with Huawei’s American subsidiary.

The next year, the United States accused ZTE, another large Chinese technology company, of operating in countries that were under sanctions. As part of that case, American officials released internal ZTE documents in which executives had described creating “cutoff companies” that would do business in places like Iran and North Korea.

In the documents, the executives said ZTE should follow the example of a rival company, called F7. American officials concluded that was a reference to Huawei, prompting them to intensify their scrutiny of the company, according to a senior Obama administration official.

By early 2017, HSBC and the court-appointed monitor inside the bank had disclosed the Iran transactions to federal prosecutors in Brooklyn, according to a person briefed on aspects of the federal investigation. HSBC provided the prosecutors with Ms. Meng’s 2013 PowerPoint presentation. HSBC said this week that it was cooperating with the government and was not under investigation itself.

In April last year, Huawei learned of the investigation when prosecutors subpoenaed one of its American subsidiaries, according to the Canadian court documents.

Federal prosecutors concluded that Huawei secretly controlled Skycom and used it to dodge international sanctions in Iran from 2009 to 2014.

This summer, the prosecutors decided to file criminal charges against Ms. Meng — fulfilling their yearslong goal of going after Huawei executives for allegedly acting as an extension of the Chinese government.

Prosecutors filed the charges, under seal, on Aug. 22, and a federal judge in Brooklyn signed a warrant for Ms. Meng’s arrest. The charges focused, at least in part, on her allegedly tricking at least four banks, including HSBC and Standard Chartered, into facilitating the company’s Iranian transactions.

While Ms. Meng’s main home is in Shenzhen, China, she regularly traveled to Canada; she and her husband own two houses in Vancouver. The authorities figured it was only a matter of time before she traveled there, and the United States and Canada have an extradition treaty.

On Dec. 1, Ms. Meng flew from Hong Kong to Vancouver International Airport, where she stopped for a 12-hour layover before flying to Mexico. As she got off the plane, the Canadian police arrested her.

The United States is seeking her extradition, but federal prosecutors haven’t unsealed the charges against her.

Much of what is known about the charges comes from a three-page letter that the Brooklyn prosecutors sent to their Canadian counterparts on Dec. 3. Court filings by the Canadian authorities largely rely on the facts provided by the United States. The filings were made public during Ms. Meng’s bail hearing this week.

In their three-page letter, the prosecutors argued that Ms. Meng had lied to banks about Huawei’s connections to Skycom to keep doing business in Iran. They said her 2013 presentation to HSBC “contains multiple material misrepresentations as to the nature of Huawei’s business in a high-risk jurisdiction.” A spokesman for the United States attorney’s office in Brooklyn declined to comment.

On Tuesday, a Canadian judge released Ms. Meng after she posted about $7.5 million in bail and submitted to strict electronic surveillance.

Federal authorities have 60 days from Ms. Meng’s arrest to file extradition papers in Canada.

David Martin, one of Ms. Meng’s lawyers in Canada, did not respond to requests for comment. During the bail hearing, he said Ms. Meng’s presentation to HSBC had been prepared by Huawei’s legal team. He said his client was innocent and planned to fight extradition.

In the meantime, her arrest has injected Ms. Meng, a mother of four, into the middle of a multifaceted tug-of-war between the United States and China.

President Trump said in an interview with Reuters on Tuesday, “If I think it’s good for what will be certainly the largest trade deal ever made — which is a very important thing — what’s good for national security — I would certainly intervene if I thought it was necessary.”

In China, online chat forums and social media are buzzing with ire toward the United States and Canada. The Global Times, a nationalistic Chinese media outlet, has floated the idea of a boycott of Canadian tourism and products like Canada goose jackets.

14Dec18

How a National Security Investigation of Huawei Set Off an International Incident

[Source: By Matthew Goldstein, Emily Flitter, Katie Benner and Adam Goldman, The New York Times, 14Dec18]

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