Chinese Fifth Column: Wolves In Tech Robes

Huawei Is Focus of Widening U.S. Investigation
By Paul Mozur

A Huawei booth at the Mobile World Congress in Barcelona, Spain, in February. The widening inquiry in the United States puts Huawei in an awkward position at a moment when sanctions have taken on new import. 

HONG KONG — As one of the world’s biggest sellers of smartphones and the back-end equipment that makes cellular networks run, Huawei Technologies has become one of the major symbols of China’s global technology ambitions.
But as it continues its rise, its business with some countries has fallen under growing scrutiny from investigators in the United States.
American officials are widening their investigation into whether Huawei broke American trade controls on Cuba, Iran, Sudan and Syria, according to an administrative subpoena sent to Huawei and reviewed by The New York Times. 

The previously unreported subpoena was issued in December by the United States Treasury Department’s Office of Foreign Assets Control, which oversees compliance with a number of American sanctions programs.
The Treasury’s inquiry follows a subpoena sent to Huawei this summer from the United States Department of Commerce, which carries out sanctions and also oversees exports of technology that can have military as well as civilian uses.

As an administrative subpoena, the Treasury document does not indicate that the Chinese company is part of a criminal investigation.
Still, the widening inquiry puts Huawei in an awkward position at a moment when sanctions have taken on new import. 

The Trump administration has been working to push China to cut back its trade, and in turn economic support, for North Korea, amid rising tensions over the North’s nuclear and missile programs. 

The growing investigation also comes after Huawei’s smaller domestic rival, ZTE, in March pleaded guilty to breaking sanctions and was fined $1.19 billion.
It is not clear why the Treasury Department became involved with the Huawei investigation. 

But its subpoena suggests Huawei might violate American embargoes that broadly restrict the export of American goods to countries like Iran and Syria.
“The most likely thing happening here is that Commerce figured out there was more to this than dual-use commodities, and they decided to notify Treasury,” said Matthew Brazil, a former United States commercial officer in Beijing and founder of the Silicon Valley security firm Madeira Consulting.

By its own admission, Huawei has struggled with corporate governance.

In a rare 2015 media appearance, Ren Zhengfei, Huawei’s founder, said that 4,000 to 5,000 employees had admitted to various improprieties as part of a “confess for leniency” program the company set up in 2014.
“The biggest enemy we’ve run into isn’t other people,” he said at the time. 

“It’s ourselves.”
A Treasury spokeswoman declined to comment on whether it was conducting an investigation. 

A Commerce Department spokesman also declined to comment.
Huawei plays an important strategic role for China. 

The company is often a part of Chinese overseas trade delegations and investment deals in emerging markets like South America and Africa. 

As a major spender on research and development, it is also a crucial part of Chinese industrial policies aimed at building up domestic technological capabilities.
It has also turned itself into an increasingly recognized smartphone brand. 

In the fourth quarter of 2016, Huawei was the third-largest smartphone maker in the world, with a global market share of about 10 percent.
The subpoena, which was sent to Huawei’s Texas offices in the Dallas suburb of Plano, called for the company to describe technology and services provided to Cuba, Iran, Sudan and Syria over the past five years. 

It also called for the identity of individuals who played a part in those transactions. 

North Korea, which was named in the Commerce Department subpoena issued last year, was not named in the Treasury Department subpoena.
The scrutiny of Huawei shows the increased importance both the United States and China are putting on the technology industry. 

Earlier this year a Pentagon report distributed at the top levels of the Trump administration indicated Chinese flows of investment into American start-ups were a new cause for concern.
The American authorities have jurisdiction over the trade of companies like Huawei and ZTE when those companies sell equipment made by or featuring components from American companies. 

If Huawei is deemed to have violated American laws, it could have its access to American electronic components cut off. 

Given the company’s size — it is one of the two largest cellular phone equipment makers in the world — that could have an effect on the expansion of mobile networks around the globe.
When the Department of Commerce first announced its investigation into ZTE, it released a document in which ZTE executives mapped out a plan for how to get around American export controls. 

The document said the strategy came from a company that ZTE labeled with the code name F7, which The New York Times reported closely resembled Huawei.
Earlier this month 10 members of Congress sent a letter to the Commerce Department demanding that F7 be publicly identified and fully investigated.
“We strongly support holding F7 accountable should the government conclude that unlawful behavior occurred,” read a part of the letter.