Cybersecurity

What’s in the New Huawei Indictment?

By Charlotte Butash
Tuesday, February 25, 2020, 8:00 AM

On Feb. 11, the Department of Justice unveiled an indictment against Huawei and its subsidiaries—the third filed in approximately one year against the Chinese tech giant. Huawei’s U.S. legal troubles began in January 2019, when the Department of Justice announced two separate indictments against the company and its subsidiaries. One indictment, filed on Jan. 16, 2019, in the U.S. District Court for the Western District of Washington, focused mainly on Huawei’s alleged efforts to steal trade secrets from T-Mobile, detailing an occasion where Huawei employees removed a proprietary mechanical arm from a T-Mobile laboratory. A second indictment, filed on Jan. 24 of that year in the U.S. District Court for the Eastern District of New York, focused on allegations that Huawei operated an unofficial subsidiary to obtain otherwise prohibited U.S.-origin goods, technology and services for its Iran-based business while concealing its connection to the operation.

This recent indictment was also filed in the Eastern District of New York, superseding the charges in the Jan. 24, 2019, indictment. It includes three new charges on top of the charges in the first New York indictment: conspiracy to steal trade secrets, conspiracy to commit wire fraud and racketeering conspiracy under the Racketeer Influenced and Corrupt Organizations Act (RICO). The document also contains new allegations about Huawei’s business with countries under U.S. and international sanctions, like Iran and North Korea.

Below is a summary of the allegations and charges in the new indictment.

Factual Allegations

The indictment names as defendants Huawei Technologies and four of its subsidiaries—Huawei Device, Huawei USA, Futurwei Technologies and Skycom––along with Meng Wanzhou, the chief financial officer of Huawei and daughter of its founder. According to the government, Huawei misappropriated source code, attempted to misappropriate technology related to memory hardware and devised a scheme to misappropriate technology related to antennas. Multiple U.S.-based companies, the indictment states, were victims of Huawei’s theft of trade secrets. In one instance, the government alleges, Huawei employees took photographs of the circuitry of a device belonging to an unnamed technology company after a trade show, aiming to “misappropriate the intellectual property” of the unnamed company so that Huawei could save money on research and development of its own device.

The indictment also alleges that Huawei obstructed justice. In addition to providing inaccurate portrayals to grand juries about the activities described above, the government states, members of Huawei’s team falsely testified to the House of Representatives Permanent Select Committee on Intelligence about the company’s business dealings in Iran and North Korea. Additionally, the indictment alleges that Huawei employees falsely testified to Congress that the company did not misappropriate source code, claiming that the source code was already available and open on the Internet.

Finally, while the earlier Eastern District of New York indictment includes some details on Huawei’s business dealings with Iran in violation of U.S. and international sanctions, this indictment includes new factual allegations as to the extent of the company’s business connections. Notably, the 2020 indictment incorporates allegations that Huawei assisted the government of Iran by installing surveillance equipment, including equipment used to monitor, identify and detain protesters during the anti-government protests in 2009. According to the indictment, Huawei “repeatedly” misrepresented its business in Iran to various financial institutions and to the U.S. government. The indictment also raises new allegations about Huawei’s business activities in North Korea––which Huawei had previously denied conducting.

Count 1: Racketeering Conspiracy

The indictment includes a new charge against Huawei under RICO. The indictment claims that Huawei and its parents, global affiliates and subsidiaries constitute an enterprise that had engaged in a pattern of racketeering activity. This alleged racketeering activity consisted of acts relating to wire fraud; financial institution fraud; obstruction of justice; tampering with a witness, victim, or informant; theft of trade secrets; laundering of monetary instruments (such as transferring money in and out of the United States with the intent to promote the carrying out of a criminal activity); and relating to criminal infringement of a copyright. The addition of this RICO charge—one usually used for mob or gang leaders—is significant. It indicates that the government believes it can prove that Huawei acted as a criminal organization, profiting off the underlying crimes it committed.

Count 2: Conspiracy to Steal Trade Secrets

The indictment also charges Huawei and its subsidiaries with conspiracy to steal trade secrets, spanning from 2000 to the present. According to the indictment, in furtherance of this conspiracy, Huawei had executives falsely testify to Congress about misappropriated source code, launched a formal policy to encourage employees to steal confidential information from competitors, and filed a provisional patent application that relied in large part on misappropriated trade secret information, among other activities. The first two counts of the Washington indictment similarly charged Huawei with conspiracy to steal trade secrets but focused on Huawei’s efforts to steal confidential information from competitors, in particular from T-Mobile, which had developed a proprietary robotic phone testing system.

Counts 3 & 6: Conspiracy to Commit Wire Fraud

Count 3 charges Huawei and its subsidiaries with illegally devising a scheme to defraud the victim U.S. companies by making false representations about the nature and extent of its business dealings in Iran. Count 6 charges Huawei, Meng and Huawei’s subsidiary Skycom with conspiring to commit wire fraud, forwarding additional allegations about misrepresentations by Huawei and Meng to U.S. financial institutions that Huawei was not violating U.S. sanctions through its business dealings in Iran.

The 2019 New York indictment includes one similar count of conspiracy to commit wire fraud (Count 3).

Counts 4 & 5: Conspiracy to Commit Bank Fraud

Count 4 of the indictment charges Huawei, Skycom and Meng with conspiring to commit bank fraud by making false representations to defraud a U.S. financial institution to obtain money, funds, credit and other property under the control of the financial institution. Count 5 also charges Huawei, alongside one or more defendants whose names have been redacted from the public indictment, with conspiracy to commit bank fraud. The underlying allegations include claims that, after a financial institution terminated its relationship with Huawei, Huawei made material misrepresentations to other financial institutions about the reason for the termination. While the financial institution ended the relationship because of concerns regarding Huawei’s business practices, Huawei claimed that it in fact had ended the relationship because it was unsatisfied with the service it was receiving. Based on these misrepresentations, the other financial institutions sought to expand their business with Huawei.

The 2019 New York indictment also includes charges of conspiracy to commit bank fraud against Huawei and Meng (Counts 1 & 2).

Counts 7 & 8: Bank Fraud

Count 7 charges Huawei, Skycom and Meng with bank fraud by defrauding a U.S. financial institution, as alleged in Count 4 above. Count 8 charges Huawei alongside one or more defendants whose names have been redacted from the public indictment with bank fraud, as alleged in Count 5 above. Counts 4 and 5 of the 2019 New York indictment also include charges of bank fraud.

Count 9: Wire Fraud

The indictment charges Huawei, Skycom and Meng with wire fraud. According to the indictment, Meng and the two companies made a series of misrepresentations through email communications and other wire communications about, among other things, the relationship between Huawei and Skycom, Huawei’s compliance with U.S. and U.N. sanctions, and the kinds of financial transactions in which Huawei engaged through the victim financial institutions. While Huawei claimed that Skycom was one of Huawei’s local business partners in Iran, the government alleges that Skycom actually was Huawei’s Iran-based subsidiary. And while Huawei claimed it was doing business in accordance with international and American sanctions, it allegedly was conducting business in Iran and North Korea in violation of those sanctions. Finally, Huawei allegedly informed an unnamed financial institution that it would not use the institution’s services to process transactions with its Iran-based businesses—but, the indictment alleges, Huawei actually used that financial institution to process transactions involving millions of dollars related to Huawei’s Iran-based business.

Both the 2019 Washington indictment (Counts 3-9) and the 2019 New York indictment (Count 6) include similar allegations of wire fraud.

Count 10: Conspiracy to Defraud the United States

The indictment also charges Huawei with conspiring to defraud the United States by impairing the Office of Foreign Assets Control (OFAC)’s enforcement of economic sanctions and issuance of licenses related to the provision of financial services. The indictment alleges that Huawei was conducting business in Iran in violation of U.S. sanctions. But, according to the indictment, individuals connected to Huawei told FBI agents that Huawei was in compliance with all U.S. export laws, including the sanctions against Iran. In addition, the indictment alleges that the senior vice president of Huawei provided similar assurances to Congress about the company’s compliance with sanctions. After providing these assurances, Huawei attempted to move an individual who had knowledge about its Iran business dealings to China––beyond the jurisdiction of the U.S. government.

The 2019 New York indictment includes similar charges but does not include the attempts to move the knowledgeable individual out of the reach of the U.S. government (Count 7).

Count 11 & 13: Conspiracy to Violate the International Emergency Economic Powers Act (IEEPA)

The indictment also charges Huawei and Skycom with conspiring to violate the International Emergency Economic Powers Act (IEEPA), which allows the president to restrict economic transactions through sanctions in response to threats to the national security, foreign policy or economy of the United States. The indictment alleges that Huawei and Skycom conducted business in Iran in violation of sanctions on Iran imposed under IEEPA. According to the indictment, Huawei caused the export of banking and other financial services from the United States to Iran and to the government of Iran. The indictment also charges Huawei and Skycom with conspiring to cause the export of telecommunication services provided by a U.S.-citizen employee to Iran and the government of Iran. The 2019 New York indictment includes the same charges of conspiracy to violate IEEPA (Counts 8 & 10).

Count 12 & 14: IEEPA Violations

The indictment then charges Huawei and Skycom with violating IEEPA by exporting banking and telecommunications services to Iran, as described above. According to the indictment, Huawei and Skycom caused the exportation of technology and services in violation of IEEPA between approximately 2007 and 2014, within the Eastern District of New York as well as elsewhere.

The previous indictment includes the same charges (Counts 9 & 11).

Count 15: Money Laundering Conspiracy

The government alleges that Huawei and Skycom conspired to transport monetary instruments into and out of the United States with the intent to conspire to violate IEEPA. The previous indictment includes the same charge (Count 12).

Count 16: Conspiracy to Obstruct Justice

Finally, the indictment charges Huawei and Huawei USA with conspiracy to obstruct justice in the federal grand jury investigation in the Eastern District of New York. The 2019 indictment in the district includes the same charge (Count 13). The Washington indictment includes a charge of obstruction of justice in the proceedings in a trade secrets lawsuit filed by T-Mobile against Huawei and in grand jury proceedings in the Western District of Washington (Count 10).

The government concludes the indictment by stating that, if convicted of the above offenses, Huawei could face fines, forfeiture and other financial penalties.

Topics: