[Update: New Charges] Huawei’s CFO was arrested in Canada over alleged Iran sanction violations
Depending on who you ask, Huawei is either the world’s second or third largest smartphone brand in the world, surpassing even Apple during some previous fiscal quarters. Their impressive growth was achieved even without releasing a smartphone on a major mobile carrier in the U.S., though not for lack of trying. While it’s clear that the company hasn’t given up their ambitions to expand into the United States, their plans to do so may have become jeopardized. Huawei’s Chief Financial Officer, Wanzhou Meng, who is also the daughter of the company’s founder, was arrested in Canada on December 1st and is facing extradition to the United States for allegedly aiding in violating U.S.’ sanctions on Iran.
We learned that Huawei was under investigation for allegedly violating U.S. sanctions on Iran earlier this year. Evading Iran sanctions is what ZTE was found guilty of earlier this year, which resulted in the company being banned from doing business with key partners in the U.S. The actions of the Iran sanction violators in ZTE brought the company to its knees until the ban was lifted following a $1 billion payment to the U.S. government and a lot of negotiations. U.S. government officials are barred from using ZTE or Huawei devices for official communication, so this is just the next step in the ongoing disputes between the U.S. Government and Huawei.
In the worst case scenario, Huawei may find themselves in the same position as ZTE once was – unable to use Qualcomm hardware and a possibility of losing their license to sell devices with Android pre-installed. ZTE’s smartphone and telecommunications businesses were heavily disrupted because of their reliance on suppliers that do business in the U.S. Although Huawei notably does not source their devices’ mobile platforms from Qualcomm (instead opting to do their own chip development in-house via HiSilicon), their position as second-or-third smartphone device maker may be in jeopardy if they lose their license to distribute devices with Android pre-installed. We’ve known for years that Huawei has developed their own in-house mobile operating system as an insurance, so it’s possible the company could shift their products to this new OS if things go south.
If the allegations are true and the best case scenario plays out for Huawei, it’s possible that the company will only receive a slap on the wrist in the form of fines, a forced firing of the involved employees, and other less-costly punitive measures. This is because the Chinese government sees Huawei as an incredibly important asset as Huawei is the country’s largest company that operates globally. For their part, Chinese government officials from the Chinese embassy in Canada have already demanded that Meng be released. Huawei issued a statement to Bloomberg stating that “[t]he company has been provided very little information regarding the charges and is not aware of any wrongdoing by Ms. Meng.” For now, Huawei is playing it safe and “believes the Canadian and U.S. legal systems will ultimately reach a just conclusion.”
Update: New Charges
The US Justice Department has indicted both Huawei and CFO Meng Wanzhou for racketeering and conspiring to steal American trade secrets. Meng was arrested in Canada back in December of 2018. This indictment adds 16 counts of conspiracy to the existing charges.
Huawei and Meng are being accused of trying to steal the intellectual property of US businesses for nearly 20 years. The DOJ’s press release specifically mentions “source code and user manuals for internet routers, antenna technology, and robot testing technology.” According to the indictment, Huawei obtained this information through confidential agreements with American companies.
“Huawei’s efforts to steal trade secrets and other sophisticated U.S. technology were successful. Huawei was able to drastically cut its research and development costs and associated delays, giving the company a significant and unfair competitive advantage.”
As mentioned in the original article from 2018, Huawei is accused of collaborating with North Korea and Iran, which are subject to US and European sanctions. The DOJ claims Huawei was also attempting to “conceal” it’s involvement with those countries. Huawei has not yet issued a statement on these new charges.