US case against Huawei ratchets up several notches – can only end in tears

100% human

The US case against Huawei has gone from techno-nationalistic posturing to revealing 23 charges against Huawei, some of its subsidiaries and Ms Meng Wanzhou, its CFO and founder’s daughter.

The issue so far:

On 1 December Ms Wanzhou was detained in Canada at the US request pending extradition. The US alleges that from November 2007 to May 2015, she (acting as CFO and a Director of Huawei) breached US sanctions against Iran. Coincidentally she was also a director of Huawei Australia from 2005-2011 during the time in question.

US case against Huawei

The US had until 31 January to lodge indictments of she would be free to leave.

Since then two Canadian nationals, Michael Spavor and former diplomat Michael Kovrig, have been detained in China. Another Canadian man found guilty of drug smuggling has been given a death sentence.

There has been more than a fair share of posturing from both the US and China about the issue – trade wars. But ultimately Canada and the US have acted within the law as has China for detaining Canadians. It may however, be ill-advised at present for US or Chinese citizens working in sensitive government areas to travel to either country.

The US case against Huawei

GadgetGuy is not privy to the full text of the case as there is a publication ban. We can report on what is in the public arena.

United States prosecutors allege that Huawei used a Hong Kong shell company called Skycom Tech to sell equipment to Iran in violation of the sanctions. Further, it misled US banks into believing the companies had no relationship. In all, there are 23 separate charges.

FBI Director Chris Wray said,

“As you can tell from the number and magnitude of the charges, Huawei and its senior executives repeatedly refused to respect US law and standard international business practices. Today’s charges serve as a warning that the FBI does not and will not tolerate business that violates our laws, obstructs our justice and jeopardises our national security. Huawei’s brazen and persistent actions to exploit American companies and financial institutions, threaten the free and fair global marketplace”.

There is a second charge that Huawei stole trade secrets, including the technology behind a robotic device called Tappy that T-Mobile used to test smartphones.

It is fair to say that this has added fuel to the fire about techno-nationalistic allegations that Huawei spies for the Chinese government via technology it supplies in routers and telecommunications equipment. It has been banned from the US 5G roll-out.

The Chinese response

Huawei is what the Chinese call a national champion. A private firm, tasked with China’s ambitions to go into the world and lead the way. It cannot afford for Huawei to lose face.

Mianzi is the ‘Importance of Face’. It is most closely defined as ‘dignity’. One of the worst things that can happen to someone in Chinese culture is to ‘lose’ face.

The official response from Ren Zhengfei, founder of Huawei and Ms Wanzhou’s father is, “Huawei never received any request from any government to provide improper information”.

“I trust the legal systems of Canada and the United States are open, just, and fair. After all the evidence is made open, we must rely on the decision of the court, and the just verdicts that follow.”

There has also been a diplomatic response. China’s Canadian embassy said it “resolutely opposed the arrest and made representations to Canada and the US, demanding her immediate release.”

“The Canadian police, at the request of the United States, arrested a Chinese citizen who had not violated any US or Canadian law,” the embassy said on its website.

“China has already made solemn representations to the United States and Canada, demanding they immediately correct their wrong behaviour and restore Ms Meng Wanzhou’s freedom.”

But there is more to this.

“The Meng Wanzhou case is by no means an ordinary judicial case, but a serious political incident. The US has been using state power to tarnish and crack down on specific Chinese companies in an attempt to strangle their lawful and legitimate operations. Behind such practices are deep political intentions and manipulations,” the embassy website stated.

What is next?

There is no information on how long the ‘trial’ will take. It will proceed among the tough trade negotiations forced on China by the imposition of a 25% tariff for Chinese goods imported into the US.

Is Ms Wanzhou a hostage of tehno-political negotiations? Perhaps no more than the two Canadians and one Aussie being held in China.

What does this mean to Australia?

Australia has been a strong ally of the US and other ‘five-eyes’ countries (more like 14-eyes if you count its friends) in banning Huawei, ZTE and other Chinese companies from participating in the 5G rollout or other sensitive infrastructure projects.

Coincidentally China has just detained an Australian writer and outspoken political commentator Yang Hengjun on suspicion of espionage.

Rory Medcalf, head of the Australian National University’s National Security College, warns Australia could be the next victim of ‘China’s hostage-taking.’

“It’s hard to tell the precise reason for this [Yang] detention. I think rather it’s a signal that we’re now – not only Australia but really all democracies, all middle powers – are in for a period of sustained tension with China where the safety of our nationals in China simply cannot be assured.”

But to Joe and Jane Average it’s not about 5G at all.

It is about Huawei phones (and we repeat our recommendation that they are safe to use) and the potential fall-out from US-China trade negotiations.

Asian supply chain expert QIMA reports that 30% or more of the world’s top companies/brands were in the process of diverting their sourcing from China to other regions. And 75% had already started finding suppliers in new countries or were going to do so before the year was out.

Changing suppliers/assemblers inevitably leads to higher costs in components and quality control compliance.

That means potentially higher prices for goods that may not be to the same standard as their Chinese-made counterparts.

In separate news is TPG Telecom executive chairman David Teoh’s revelation. He will stop building Australia’s fourth mobile network citing a government ban on Huawei from participating in network rollouts as the main issue. The ban would make it uneconomic for a smaller player to establish a small cell (street level) mobile network – instead, it will focus on a proposed merger with Vodafone.