SinoTech

SinoTech: Department of Justice Unseals Two Indictments Against Huawei

By Rachel Brown, Preston Lim
Wednesday, February 6, 2019, 1:59 PM

On Jan. 28, the U.S. Department of Justice unveiled two sweeping indictments against Huawei. At a press conference, Acting Attorney General Matthew Whitaker first discussed the 10-count indictment unsealed in the Western District of Washington. The charges include wire fraud and obstruction of justice but center on Huawei’s theft and attempted theft of T-Mobile’s trade secrets. According to the indictment, from 2012 to 2013, Huawei China, with help from its employees in the United States, implemented a scheme to steal the Tappy robot system, T-Mobile’s phone-testing robot. At the time, Huawei was working on its own phone-testing robot, the “X Device Robot.” A Huawei engineer named “A.X.” went so far as to take one of the Tappy robot arms and place it in his laptop bag. Huawei, it is alleged, incentivized such theft by establishing a “formal schedule for rewarding employees for stealing information.”

Meanwhile, the 13-count indictment unsealed in the Eastern District of New York focuses on Huawei’s alleged attempts to skirt U.S. sanctions on Iran. As the New York Times has noted, the charges largely resemble those articulated by federal prosecutors during Huawei CFO Meng Wanzhou’s December 2018 bail hearing in Canada. Key charges include bank fraud, conspiracy to defraud the United States and conspiracy to obstruct justice. The indictment accuses Huawei of operating Skycom as an “unofficial subsidiary to obtain otherwise prohibited U.S.-origin goods, technology and services, including banking services.” It also accuses Meng Wanzhou of misrepresenting Huawei’s relationship with Skycom. Finally, the indictment contends that, starting around 2017, Huawei and Huawei USA attempted to cover their tracks by transferring key witnesses with knowledge about Huawei’s Iranian activities back to China and by destroying and concealing evidence.

Huawei employees aren’t the only Chinese actors under U.S. scrutiny right now. The FBI recently arrested Jizhong Chen, a Chinese citizen and former Apple employee, for allegedly stealing trade secrets from Apple’s autonomous vehicle program. Chen is the second Chinese national to have been arrested for stealing proprietary information from Apple’s self-driving car program. Still, the Huawei indictments represent arguably the most public and concerted push to date by Justice Department officials to hold Chinese actors responsible for trade secret theft.

In conjunction with the Huawei indictments, U.S. authorities also filed a formal request for Meng Wanzhou’s extradition from Canada. Canadian authorities have until March 1 to decide whether or not to authorize an extradition hearing. Meng’s case has continued to attract national attention in Canada. Prime Minister Justin Trudeau fired Canada’s ambassador to China, John McCallum, after McCallum repeatedly argued that Meng had a strong argument against being extradited to the United States. As Canada and other countries debate the merits of a ban on use of Huawei technology in fifth-generation (5G) mobile networks, the U.S. indictments are likely to persuade at least some policymakers of the dangers of contracting with Huawei.

Presidents Trump and Xi to Meet as U.S.-China Trade Talks Continue

Another round of U.S.-China trade talks concluded last week, bringing with it limited concessions but a generally upbeat tone from President Donald Trump on the prospects for a trade deal. The Chinese delegation, led by Vice Premier Liu He, traveled to Washington for two days of talks with U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer. On the Chinese side, changes focused on proposals to buy more energy and agricultural items from the United States and allow greater U.S. investment in financial services. Neither side offered details about progress on larger structural challenges relating to forced technology transfer or subsidies that the Chinese government provides to local companies.

At the end of the negotiations on Jan. 31, President Trump met with Chinese officials including Liu. During the meeting, President Trump was particularly enthusiastic about a Chinese pledge to purchase 5 million tons of U.S. soybeans, which was included in a letter from Chinese President Xi Jinping. President Trump said, “We never really had a trade deal with China and now we’re going to have a great trade deal with China. If it all works out.” Ambassador Lighthizer provided a somewhat more sober take on the talks, stressing structural issues and that even with an agreement there would be a need for “enforcement, enforcement, enforcement.” President Trump also noted that the Huawei indictments had not yet been discussed, but would be.

President Trump also announced on Twitter that he and President Xi would meet this month. The exact time and locale for such a meeting remain unspecified, but initial reports indicate the meeting may occur in Vietnam at the end of February. President Trump indicated that the two leaders would likely be the ones to reach a final agreement. He raised the ongoing trade talks with China again during his State of the Union address on Feb. 5, explaining that he didn’t “blame China for taking advantage of us—I blame our leaders and representatives for allowing this travesty to happen.” He further noted that, while progress on a deal was ongoing, “it must include real, structural change to end unfair trade practices, reduce our chronic trade deficit, and protect American jobs.”

Mnuchin and Lighthizer will travel to China later this month for continued negotiations toward such a deal. If the two sides fail to come to an agreement by March 2, the current 90-day truce that Presidents Xi and Trump agreed to last December on the sidelines of the G-20 will expire and tariffs on $200 billion of Chinese goods could rise from 10 percent to 25 percent. A recent study by the United Nations Conference on Trade and Development (UNCTAD) found that if tariff hikes go into effect, European countries, Japan, Mexico and Canada could all benefit from increased exports, while manufacturers in smaller East Asian countries would suffer. President Trump has tweeted that any agreement the two sides reach will be “a complete deal, leaving NOTHING unresolved on the table,” but whether such a deal is achievable on this timeline remains to be seen.

In Other News

  • The China Securities Regulatory Commission (CSRC) announced the publication of draft rules for a “Nasdaq-style start-up board in Shanghai.” President Xi discussed the planned “technology innovation board” last November. The board will host companies that work in emerging technology sectors. The CSRC’s announcement led to a rise in China stocks, with upward bumps for the Shanghai Stock Exchange Composite Index and the Shenzhen Index.
  • China’s National Information Security Standardization Technical Committee (NISSTC) released a revised draft of the “Information Security Technology: Personal Information Security Specifications.” The public consultation period on the draft will last until March 3. The NISSTC sets standards for data privacy and cybersecurity and is composed of representatives from several government agencies and major Chinese tech firms. The draft introduces new subsections and amends several others. For example, the newly added section 5.3, a “ban on the forced collection of personal information,” regulates how vendors collect personal data.
  • According to a CNBC report, China conducted tests of a warship-mounted electromagnetic railgun last month. The weapon could be fully deployable by 2025. According to Zhang Xiao, a research fellow at the PLA Naval University of Engineering, the “breakthrough was a hard-won result after hundreds of failures and more than 50,000 tests.” Railguns use electromagnetic force to accelerate projectiles, allowing for greater range and destructive potential. A National Interest piece comparing American and Chinese railgun development noted that the American railgun has “not yet gone to sea for tests.” The Chinese state tabloid, the Global Times, triumphantly noted that “China will be the first country to actually equip [the railgun] on a warship.”
  • On Jan. 19, the MV Xue Long, China’s only icebreaker that is currently in service, collided with an icebreaker in Antarctica’s Amundsen Sea. According to China Daily, the collision left some 250 metric tons of snow and ice on the icebreaker’s front deck. The ship was forced to turn back, stranding 24 Chinese workers who were building research facilities on Inexpressible Island, China’s fifth Antarctic research site. The South Korean icebreaker Aaron picked up the Chinese workers, whose provisions would have lasted only into early February.
  • China Daily has reported that the Chinese marine research ship Kexue successfully transmitted data between deep ocean transponders and the Beidou navigation satellite system. Transponders at a depth of 6,000 meters were able to transmit “temperature, salinity and currents data.” Such advances in information transmission have military applications too. A satellite link means that submarines will be able to transmit information far more stealthily and without having to raise a “communications mast or buoy” to the ocean surface, a tactic that risks detection.

Commentary

On Lawfare, Steve Stransky reviews the Senate testimony on Jan. 29 from the heads of six U.S. intelligence agencies and highlights the discussion of cyberespionage threats posed by China, including to critical infrastructure. Jack Watson and Beau Woods analyze the United Kingdom’s new code of practice for the security of internet-of-things devices, and Sasha Romanosky considers how to develop a more objective process for governments to decide when to disclose zero-day software vulnerabilities. Nathan Swire highlights the opening of a Chinese maritime rescue facility in the South China Sea. On the National Security Law Podcast, Robert Chesney and Steve Vladeck discuss the Huawei indictments (at 44:56). On the Cyberlaw Law Podcast, Stewart Baker interviews John Carlin about the Department of Justice’s evolving approach to cyber indictments (at 27:03). Finally, on the Lawfare Podcast, Jack Goldsmith talks with Herb Lin and Amy Zegart, co-directors of the Stanford Cyber Policy Program, about a recent book they edited titled “Bytes, Bombs, and Spies: The Strategic Dimensions of Offensive Cyber Operations.”

In testimony before the Senate Armed Services Committee, Ely Ratner of the Center for a New American Security addresses how the United States can improve its approach to the deepening strategic competition with China. For the Center for Strategic and International Studies, Daniel Rosen and Scott Kennedy explore the elements of what would make for successful U.S.-China trade negotiations, including structural reforms on the Chinese side to provide greater protection for intellectual property rights. In Project Syndicate, Martin Feldstein argues that the United States and China are not involved in a trade war, but rather the United States is using the threat of further tariffs to try to prevent technology theft. For the Hoover Institution, Michael Spence explains that even if immediate trade tensions are resolved, the United States and China are unlikely to return to the status quo.

In Foreign Affairs, Robert Williams analyzes the tensions around Huawei in the context of the U.S.-China trade war and related national security concerns. Meanwhile, in the Financial Times, John Gapper warns against the adoption of Huawei equipment for the United Kingdom’s 5G networks, arguing that possible threats posed by the company are “structural, not ethical” because the Chinese government could require certain behaviors even over the company’s opposition. In the Washington Post, Yu Zhou argues that attempts to limit or cut off Chinese access to American technology could backfire and hurt U.S. companies’ sales in China in the long term. Finally, for the Council on Foreign Relations, Valentin Weber considers a new approach to fight censorship in China by co-opting terms that are economically costly to suppress—such as brand slogans—for subversive purposes.

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