Canada arrests Huawei’s global chief financial officer in Vancouver

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Canada has arrested the chief financial officer of China’s Huawei Technologies who is facing extradition to the United States on suspicion she violated U.S. trade sanctions against Iran.

Wanzhou Meng, who is also the deputy chair of Huawei’s board and the daughter of company founder Ren Zhengfei, was arrested in Vancouver at the request of U.S. authorities.

“Wanzhou Meng was arrested in Vancouver on December 1. She is sought for extradition by the United States, and a bail hearing has been set for Friday,” Justice department spokesperson Ian McLeod said in a statement to The Globe and Mail. “As there is a publication ban in effect, we cannot provide any further detail at this time. The ban was sought by Ms. Meng.

A Canadian source with knowledge of the arrest said U.S. law enforcement authorities are alleging that Ms. Meng tried to evade the U.S. trade embargo against Iran but provided no further details..

U.S. prosecutors in New York have been investigating whether Huawei violated U.S. sanctions in relation to Iran. News of the probe broke in April 2018 when it was reported by the Wall Street Journal.

Since at least 2016, U.S. authorities have been reviewing Huawei's alleged shipping of U.S.-origin products to Iran and other countries in violation of U.S. export and sanctions laws.

The Justice Department probe, first reported by the Wall Street Journal in April, follows a series of U.S. actions aimed at stopping or reducing access by Huawei and Chinese smartphone maker ZTE Corp to the U.S. economy amid allegations the companies could be using their technology to spy on Americans.

The probe is reportedly being run out of the U.S. attorney’s office in Brooklyn, the sources said. However, a spokesman for the prosecutor’s office in April 2018 declined to confirm or deny the existence of the investigation.

Ms. Meng is a rising star at Shenzhen-based Huawei, now the world’s second-largest maker of telecommunications equipment. Reuters reported in 2013 that Ms. Meng served on the board of a Hong Kong-based Skycom Tech Co. Ltd. that later attempted to sell embargoed Hewitt Packard computer equipment to Iran’s largest mobile-phone operator.

At least 13 pages of the Skycom proposal were marked “Huawei confidential” and carried Huawei’s logo. Huawei has said neither it nor Skycom ultimately provided the HP equipment. HP said it prohibits the sale of its products to Iran.

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Huawei C.F.O. Is Arrested in Canada for Extradition to the U.S.

A top executive and daughter of the founder of the Chinese tech giant Huawei was arrested on Saturday in Canada at the request of the United States, in a move likely to escalate tensions between the two countries at a delicate moment.

The arrest of Meng Wanzhou, the chief financial officer, unfolded on the same night that President Trump and President Xi Jinping of China dined together in Buenos Aires and agreed to a 90-day trade truce. The two countries are set to begin tense negotiations in hopes of ending a trade war that has been pummeling both economies.

Those talks now face an even steeper challenge. The aim will be for the United States to ease its tariffs; in exchange, China will be expected to lower trade barriers and further open its markets to American businesses.

What’s more, Ms. Meng’s detention raises questions about the Trump administration’s overall China strategy. Beijing is now likely to pressure Canada to release her and to press the United States to avoid a trial.

“The arrest of a family member linked to Huawei’s founder indicates how the tension between the two sides is rapidly escalating,” said T.J. Pempel, a professor of political science at the University of California, Berkeley, who specializes in East Asian politics and economy.

Ms. Meng, who joined Huawei in 1993 and is also a deputy chairwoman, was taken into custody in Vancouver on Dec. 1, said Ian McLeod, a spokesman for Canada’s Justice Department. He said she was “sought for extradition by the United States” but did not give a reason for what prompted the arrest. He added that a publication ban requested by Ms. Meng prevented him from providing any further details. A bail hearing has been set for Friday.

Senator Ben Sasse, a Republican of Nebraska, linked the arrest to the American sanctions against Iran.

Mr. Sasse said China had been “working to creatively undermine our national security interests, and the United States and our allies can’t sit on the sidelines.” He added that “Americans are grateful that our Canadian partners have arrested the chief financial officer of a giant Chinese telecom company for breaking U.S. sanctions against Iran.”

Huawei, China’s largest telecom equipment maker, has been under investigation into whether it had broken American trade controls to countries including Cuba, Iran, Sudan and Syria.

This year, the Treasury and Commerce Department also asked the Justice Department to investigate Huawei for possibly violating economic sanctions against Iran, according to an official who spoke on the condition of anonymity because he was not authorized to discuss the investigation. Prosecutors in the Eastern District of New York took on the case, he said.

In response, a spokesman for the Chinese embassy in Canada said in a statement that “the Chinese side firmly opposes and strongly protests over such kind of actions” and urged the authorities “to immediately correct the wrongdoing and restore the personal freedom of Ms. Meng.”

Huawei said in a statement that Ms. Meng was arrested while changing planes in Canada and that she faced unspecified charges from the Eastern District of New York.

“The company has been provided very little information regarding the charges and is not aware of any wrongdoing by Ms. Meng,” Huawei said, adding that it complies with all laws where it operates.

Press representatives for the Justice Department and the United States Attorney’s Office in the Eastern District of New York declined to comment. The White House did not immediately respond when asked if Mr. Trump was aware of the detention during his dinner with President Xi.

Julian Ku, a professor at Hofstra University Law School, wrote on Twitter that the move was justifiable. “US law prohibits exports of certain US-origin technologies to certain countries,” he said. “When Huawei pays to license certain US tech, it promises not to export to certain countries like Iran. So it is not unreasonable for the US to punish Huawei for flouting this US law.”

The arrest meets several major foreign policy aims of the Trump administration. American officials have sought to persuade other nations to curb business ventures with Huawei because of security concerns. The White House has also focused on tightening and enforcing economic sanctions on Iran, months after Mr. Trump announced he was withdrawing from a multinational agreement reached under President Barack Obama’s administration to freeze Iran’s nuclear program.

Last month, the United States imposed sanctions aimed at reducing exports of Iranian oil to zero and crippling Iran’s economy, though China is one of a handful of countries allowed to continue to buy oil for six months.

The United States and China have also been locked in a struggle for high-tech supremacy, in a race that has increasingly taken on political undertones this year. While the United States has long claimed an advantage in the tech industry, China’s internet companies, semiconductor makers and telecom equipment makers have all been growing rapidly, with many benefiting from government investment.

President Trump has tied national security to advancement in technologies like wireless networks, and has made protection of the domestic tech industry a part of his agenda. In March, he blocked a $117 billion bid by Broadcom, a Singapore-based chip maker, for the American chip maker Qualcomm, citing national security concerns and how it might allow China — specifically citing Huawei — to leap ahead in next-generation 5G wireless networks.

A month later, the Commerce Department banned ZTE, China’s second-largest maker of telecommunications equipment, from using components made in the United States. Federal authorities said ZTE had violated American sanctions against Iran and North Korea, in a move that caused the Chinese company to cease “major operating activities” for a time. Mr. Trump ultimately intervened and ZTE agreed to pay a $1 billion fine, replace its board and senior leadership and allow the United States to inspect its operations with a handpicked compliance team.

Over the last decade, Huawei has grown into a powerhouse. Founded in 1987 by Ren Zhengfei, a former People’s Liberation Army engineer, it generated over $90 billion in revenue in 2017. Its equipment is the backbone of mobile networks around the world, and its smartphones are popular in Europe and China. That has made it a symbol of China’s technological prowess and evolution from a country that makes cheap but unreliable gadgets to cutting-edge products that can rival the best of Silicon Valley and other Asian technology giants.

Yet Huawei has long faced scrutiny as a security threat in the United States. Washington has expressed concern about using Huawei products, citing spying risk because of the company’s close ties to the Chinese government.

While Huawei has long tried to make inroads into the United States, it has been bedeviled by the security concerns. In January, Huawei’s effort to sell a new line of smartphones in the United States was derailed when AT&T walked away from a deal to distribute the devices.

Eswar Prasad, a trade policy professor at Cornell University, said the Huawei issue could be a cloud over coming talks. “A fragile trade truce between China and the U.S. that was already foundering is now at greater risk of unraveling in relatively short order,” Professor Prasad said.

He added: “It is likely that China will have a measured response to this incident, although it will certainly add a sharper edge to the negotiations between the two sides.”

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Arrest Shakes Huawei as Global Skepticism of Its Business Grows

It is one of China’s proudest corporate success stories, a colossus in cutting-edge technology that elbowed out Western rivals to become the biggest supplier of the hardware that connects our modern world.

Now, all around the globe, the walls are going up for Huawei.

The United States, which for years has considered the Chinese telecommunications giant a security threat, aimed a straight shot at the company’s leadership when it secured the arrest, in Canada, of Huawei’s chief financial officer.

But lately, Huawei’s setbacks have come on multiple fronts, from New Zealand and Australia to Britain and Canada. China sees the company as a pivotal driver of its ambitions for global technological leadership. Increasingly, much of the rest of the world sees it as a potential conduit for espionage and sabotage.

The Canadian government said on Wednesday that it had detained Huawei’s chief financial officer, Meng Wanzhou, on Saturday in Vancouver, British Columbia, while she was transferring flights. The United States is seeking Ms. Meng’s extradition but has not said what prompted the arrest.

The news ignited anger and astonishment in China on Thursday, mere days after leaders of the United States and China announced a reprieve in their trade battle.

A “declaration of war” against China was how Hu Xijin, the editor in chief of Global Times, a state-run newspaper known for its nationalist tone, described Ms. Meng’s detention on Weibo, a Twitter-like service.

Gavin Ni, the chairman of Zero2IPO Group, an influential research and consulting firm in China’s investment industry, wrote on his WeChat social media account: “The China-U.S. competition is not merely a trade rivalry, but a rivalry on all fronts. Carry on, our motherland!”

At a daily news briefing on Thursday, Geng Shuang, a spokesman for China’s Foreign Ministry, said it had asked American and Canadian officials to give a reason for the detention and to immediately release Ms. Meng.

“To detain someone without giving clear reason is an obvious violation of human rights,” Mr. Geng said.

Meng Wanzhou, Huawei’s chief financial officer and a daughter of its founder, was arrested on Saturday in Canada at the request of the United States.CreditMaxim Shipenkov/EPA, via Shutterstock

Huawei said Thursday that it was not aware of any wrongdoing by Ms. Meng, who is a daughter of the company’s founder, and that it complied with the law wherever it operated. The company has long denied that it spies on behalf of Beijing.

For many years, the fog of distrust surrounding Huawei was a problem that was largely confined to the United States. Large American mobile carriers such as AT&T have avoided using Huawei’s equipment in their networks ever since a 2012 congressional report highlighted the security risks.

In response, Huawei focused its business efforts elsewhere. Its success in wealthy places such as Europe and Japan have helped it become the planet’s largest maker of telecommunications equipment, as well as its No. 2 smartphone brand. Of the more than $90 billion in revenue it earned last year, more than a quarter came from Europe, the Middle East and Africa.

Now, a wider patch of the world appears to be siding with Washington against Chinese technology. A turn en masse against the company, led by governments in many of its most important markets, would have grave implications for its business.

Australia barred Huawei earlier this year from supplying technology for the country’s fifth-generation, or 5G, mobile networks. New Zealand last week blocked one of its leading mobile carriers from buying Huawei’s 5G gear. Britain’s intelligence chief, in a rare public appearance this week, said that the country had a difficult decision to make on whether to allow Huawei to build its 5G infrastructure.

And Canada’s top spy echoed those concerns, without naming Huawei or China, in a speech on Tuesday. Huawei has tested 5G equipment with major mobile carriers in both Canada and Britain.

Behind the tariff fight that has engulfed Washington and Beijing lies a deeper contest for leadership in future technologies such as supercomputing, artificial intelligence and 5G mobile internet. For many people in China, the contest feels not merely commercial, but civilizational. At stake is the country’s ability to claim its rightful place as a superpower.

“The Chinese government and Chinese companies must face these new circumstances, take up new countermeasures and get through this stage of crisis,” Fang Xingdong, the founder of ChinaLabs, a technology think tank in Beijing, said on Thursday. “This is a necessary rite of passage for China’s global technological rise.”

Huawei has tried to avoid being pulled into this fight. In an internal memo from January that was reviewed by The New York Times, Ren Zhengfei, the company’s founder, outlined a strategy for navigating these uncertain times.

The key, he wrote: Keep adapting. But do so quietly.

“Sometimes, it’s better to find a safe place and wait for stormy weather to pass,” Mr. Ren wrote.

Europe was one such place, Mr. Ren said. Huawei has cultivated political friendships and invested heavily in places like Britain. “Eventually, through years of effort, our goal is for Europeans to perceive Huawei as a European company,” Mr. Ren wrote.

Ren Zhengfei, the founder of Huawei, has sought to avoid conflicts by quietly adapting the company’s approach overseas. “Eventually, through years of effort, our goal is for Europeans to perceive Huawei as a European company,” he wrote at one point.CreditBobby Yip/Reuters

Canada seemed to be another safe harbor. “The Canadian government is very sensible and open, giving us enormous confidence in our investments in this country,” Mr. Ren wrote.

This was all before Washington nearly put out of business Huawei’s main Chinese rival, called ZTE.

In April, the Commerce Department banned ZTE from using components made in the United States after saying the company had failed to punish employees who violated American sanctions against Iran and North Korea. The move was effectively a death sentence because ZTE relied heavily on American microchips and other technology.

In building its case against ZTE, the United States government began investigating Huawei as well.

When the Commerce Department first announced its findings against ZTE in 2016, it released an internal ZTE document illustrating best practices for evading American sanctions.

In describing the approach, the document cited a company it nicknamed F7 as a model for how to pull it off. The description of F7 in the document matched Huawei.

A few months later, the Commerce Department subpoenaed Huawei and requested all information about its export or re-export of American technology to Cuba, Iran, North Korea, Sudan, and Syria, according to a copy of the subpoena seen by The New York Times.

The probe widened this year when the Treasury and Commerce Departments asked the Justice Department to investigate Huawei for possible sanctions violations. Prosecutors in the Eastern District of New York took on the case.

Eventually, the Trump administration decided to ease its punishment of ZTE, in an effort to cool tensions with China’s leader, Xi Jinping, ahead of a historic North Korea meeting. But the power that Washington wielded over the fates of Chinese tech companies had been made very clear to people on both sides of the Pacific. In October, the Commerce Department imposed export controls on Fujian Jinhua, a state-backed semiconductor company that has been accused of stealing American chip designs.

Should Huawei be subjected to a ban on using American technology, the consequences would be significant, though perhaps not as life-threatening as they were for ZTE.

One crucial difference is that Huawei, unlike ZTE, does not depend on outside vendors such as Qualcomm for the main microchips in its smartphones. Around two-thirds of the handsets that Huawei sells contain chips made in-house, said Sean Kao, a hardware analyst at the research firm IDC.

Still, American firms supply other kinds of chips in Huawei’s gear as well as optical equipment for its fiber cable networks and other specialized parts.

“I don’t know exactly how many suppliers are affected,” said Stéphane Téral, senior research director at the data provider IHS Markit. But one thing is certain, he said: “They won’t be easily substitutable.”

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