U.S. plays hardball with China's Huawei, despite deal

FPI / January 22, 2020

The freshly minted Phase 1 of the U.S.-China trade deal will not stop the U.S. government from pursuing criminal cases against Chinese telecommunications giant Huawei, officials say.

Huawei is the subject of criminal cases in New York and Washington state.

“The Huawei prosecution in New York, it’s a sanctions and bank fraud case, and in Washington, the allegations are that it’s a trade secrets theft,” a U.S. official said, according to a Jan. 21 report by Washington Times security correspondent Bill Gertz.

Prosecutors say the case in New York involves charges of fraud related to Huawei’s dealings with Iran which violate U.S. sanctions. Huawei’s chief financial officer, Meng Wanzhou, is a key figure in the New York case.

Related: China rebuffed on its key Huawei demand in Phase I deal, January 21, 2020

Meng, who is considered to be the company’s future senior executive, has launched a legal challenge to her extradition from Canada to the United States in a British Columbia court.

Meng, who is the daughter of Huawei founder and former People’s Liberation Army officer Ren Zhengfei, has spent the last year under house arrest in Vancouver.

In Seattle, federal prosecutors have charged two Huawei subsidiaries with stealing technology and components related to T-Mobile’s proprietary phone testing robot called Tappy which was developed in the early 2000s. The robot uses an automated arm to simulate a person touching a cellphone screen multiple times.

“The process allows manufacturers to fix flaws and increase the endurance of their devices,” Gertz wrote.

Huawei began supplying its cellphones to T-Mobile in 2010, and Huawei technicians were allowed to use Tappy to test its phones in 2012. As part of the arrangement, Huawei signed an agreement promising not to copy or steal the robot technology.

According to court papers filed in the Seattle case, when T-Mobile declined to sell Tappy technology to Huawei, the Chinese company launched a scheme to steal the robotic technology for use in Huawei’s tester known as xDeviceRobot. Investigators say Huawei employees sought details on the design, components and software, including the sliding robotic arm used to simulate screen touches.

“The main point is to figure out [Tappy] Robot’s specifications and functions,” said an email quoted in the indictment from Huawei’s director of device testing management.

In the spring of 2013, Huawei sent one of its engineers, identified in court papers only as “F.W.,” who gained access to a secure area and photographed Tappy for Huawei’s engineers in China.

Another Huawei employee who had access to T-Mobile’s Seattle facility “surreptitiously placed one of the Tappy robot arms in his laptop bag and secretly removed it from the laboratory,” court papers say. The employee was caught and returned the arm after it was closely measured and analyzed outside the plant. At that point, T-Mobile banned Huawei from access to its facility.

Huawei then sought to cover up the theft, prosecutors said, by issuing a company-produced investigative report that blamed rogue employees for the theft.

The indictment also contends that Huawei initiated a formal policy in July 2013 of offering bonuses to employees for stealing confidential information from competitors.

“Employees were directed to post confidential information obtained from other companies on an internal Huawei website, or in the case of especially sensitive information, to send an encrypted email to a special email mailbox,” the indictment says.

Gertz noted that “The T-Mobile indictments provide an inside look at some of Huawei’s operating techniques, including its targeting of key American technology and a broader effort to offer bonuses to Chinese corporate spies.”

In addition to the New York and Seattle cases, Huawei last summer was banned by the Commerce Department from buying U.S. goods. Some export restrictions were lifted in November for three months at the request of American companies that use Huawei’s technology and equipment.

Attorney General William Barr wrote to the Federal Communications Commission in November warning that allowing Huawei and a second Chinese telecommunications firm, ZTE, to sell equipment in the United States posed a national security threat. Barr said the Commerce Department noted the New York fraud and obstruction prosecution of Huawei in placing the company on its list of companies blocked from purchasing U.S. goods without an export license.

The cybersecurity company Finite State, in a report last year, said 55 percent of Huawei hardware devices it tested had at least one backdoor access point that could be used for Chinese electronic spying. The Trump administration is pressuring allies across Europe, North America and Asia to block Huawei from their plans for national 5G networks.

The Huawei prosecutions are advancing despite the trade agreement President Donald Trump signed with China last week. Trump hailed it as the “biggest deal anybody has ever seen.”

Ren, the Huawei founder, told reporters Tuesday at the annual global economic summit in Davos, Switzerland, that Huawei is braced for further U.S. opposition.

“This year in 2020, since we already gained experience from last year and we got a stronger team, I think we are more confident that we can survive even further attacks,” Ren said.

Trump, also speaking in Davos, praised Phase 1 of the trade deal and added that the deal seeks to end Chinese technology theft and other unfair trade practices.

“Our relationship with China, right now, has probably never been better,” Mr. Trump said. “We went through a very rough patch, but it’s never, ever been better. My relationship with [Chinese President Xi Jinping] is an extraordinary one. He’s for China; I’m for the U.S. But other than that, we love each other.”

Free Press International