China's Organized Crime Syndicate

Huawei Charged With Racketeering, Stealing Trade Secrets

U.S. Prosecutors Hit Huawei With New Federal Charges

By MERRIT KENNEDY

The Chinese technology firm Huawei is facing a raft of U.S. federal charges, including racketeering conspiracy.

Federal prosecutors have added new charges against Chinese telecom giant Huawei, its U.S. subsidiaries and its chief financial officer, including accusing it of racketeering and conspiracy to steal trade secrets from U.S.-based companies.
The company already faced a long list of criminal accusations in the case, which was first filed in August 2018, including bank fraud, wire fraud and conspiracy to defraud the United States. Prosecutors filed the expanded indictment in federal court in Brooklyn on Thursday.

"The Trump administration has repeatedly made clear it has national security concerns about Huawei, including economic espionage," NPR's Ryan Lucas reported. 

Recently, President Trump tried to convince the U.K. not to contract with Huawei to provide equipment to build a 5G network, but British leaders did so anyway.

Sens. Richard Burr, R-N.C., and Mark Warner, D-Va., said in a joint statement that the indictment "paints a damning portrait of an illegitimate organization that lacks any regard for the law."

Huawei is also accused of doing business in countries subject to U.S. sanctions such as North Korea and Iran. 

Prosecutors accuse Huawei of helping Iran's government "by installing surveillance equipment, including surveillance equipment used to monitor, identify and detain protesters during the anti-government demonstrations of 2009 in Tehran, Iran."
They say that for decades, Huawei has worked to "misappropriate intellectual property, including from six U.S. technology companies, in an effort to grow and operate Huawei's business."
Huawei pushed its employees to bring in confidential information from competitors, even offering bonuses for the "most valuable stolen information," according to the indictment.
The 56-page indictment is rife with examples of Huawei scheming to obtain trade secrets from U.S. companies. 

They also attempted to recruit employees from rival companies or would use proxies such as professors working at research institutions to access intellectual property.
For example, starting in 2000 the defendants took source code and user manuals for Internet routers from an unnamed northern California-based tech company, and incorporated it into its own routers. 

They then marketed those routers as a lower-cost version of the tech company's devices. 

During a 2003 lawsuit, Huawei claimed that it had removed the source code from the routers and recalled them, but also erased the memories of the recalled devices and sent them to China so they could not be used as evidence.
In an incident that drew headlines last year, a Huawei employee in 2012 and 2013 repeatedly tried to steal technical information about a robot from an unnamed wireless network operator, eventually going as far as making off with the robot's arm. 

The details match those in a separate federal lawsuit in Seattle where the company is accused of targeting T-Mobile.
A subsidiary of the firm also entered into a partnership in 2009 with a New York and California-based company working to improve cellular telephone reception. 

Despite a nondisclosure agreement, Huawei employees stole technology. 

The subsidiary eventually filed a patent that relied on the other company's intellectual property.

Gang of Four

China, Russia, North Korea, Iran: Confronting the new axis of evil 

By Joseph Bosco

The American strike that killed the head of Iran’s terrorist Quds Force last week also may expose the emerging axis of aggression comprising China, North Korea, Russia and Iran.
Channeling Ronald Reagan’s condemnation of the Soviet Union as an “evil empire,”  George W. Bush’s 2002 State of the Union address labeled North Korea, Iraq and Iran an “axis of evil.” 
As with Reagan’s moral proclamation, Bush’s use of the term “evil” to describe recognized states scandalized some in the international community, although it accurately described the nature of those regimes.
 All three brutally mistreated their populations and were complicit in acts of terrorism and/or aggression.
But any suggestion that Pyongyang, Baghdad and Teheran were linked at that time in a coordinated strategy, similar to the original Berlin-Rome Axis pact in World War II, was a bit of an overstatement.
For one thing, Iraq and Iran had just fought a six-year war at the collective cost of up to a million dead.
Nor was there then credible evidence of Pyongyang colluding operationally with either Baghdad or Teheran against the West beyond harsh rhetoric and the occasional arms sales it routinely carried on with several Middle Eastern states.
Today, however, the four states named above that see themselves as implacable adversaries of the United States are, in fact, cooperating to oppose American interests whenever and wherever possible. 
They clearly adhere to the realpolitik principle that “the enemy of my enemy is my friend, or at least my ally of convenience.”
Those regimes are at odds with the United States because of divergent strategic interests, as well as fundamentally conflicting values.
But what differentiates them from other states which similar anti-U.S. interests and anti-Western values is their aggressive intentions to act on those differences — they are, in fact, aggressor states.
The National Defense Strategy (NDS) issued by the Department of Defense in 2018 declares that “China and Russia are now undermining the international order from within.”
But it noted that both powers also use traditional and nontraditional means to attack the system itself from without. 
“China is leveraging military modernization, influence operations, and predatory economics to coerce neighboring countries to reorder the Indo-Pacific region to [its] advantage.”
“Concurrently,” the NDS states, Russia has been making similar moves in its region.
“Russia seeks veto authority over nations on its periphery in terms of their governmental, economic and diplomatic decisions, to shatter the North Atlantic Treaty Organization and change European and Middle East security and economic structures to its favor.”
The threats to global security go beyond those from the major “revisionist” powers.
“Rogue regimes such as North Korea and Iran are destabilizing regions through their pursuit of nuclear weapons or sponsorship of terrorism.”
Compounding the menace each of these anti-Western sources poses individually, there is more than the semblance of a Beijing-Pyongyang-Moscow-Tehran axis.
The evidence of their coordination of efforts is right before our eyes.
Communist China has been formally allied with North Korea at least since the outbreak of the Korea War in June 1950, and it has propped up the Pyongyang regime economically ever since. 
Enabling and protecting its pursuit of nuclear weapons and ballistic missile systems to deliver them has encouraged North Korea’s defiance of both U.S. threats and inducements. 
At the same time, an alliance with North Korea has been strategically profitable for Beijing, making it the indispensable player in the growing nuclear and missile threat and providing it with enormous leverage over the West on other issues across the board.
Second only to China in its diplomatic protection of the Kim regime and its undermining of U.S. and international sanctions has been North Korea’s other giant neighbor, Russia.
 Like China, it also has extracted Western concessions for its illusory cooperation — formally supporting just enough sanctions to gain credibility in Western eyes, but never enough to bring the Kim regime into actual compliance.
Parallel with their tandem moves emboldening North Korean recalcitrance, China and Russia have deepened and broadened their bilateral strategic cooperation against U.S. security interests through a series of joint military exercises.
Over the past week, the two powers expanded their separate contributions to Iran’s military capabilities into a three-party arrangement.
China’s defense ministry announced that Russia and Iran will join the People’s Liberation Army Navy in joint naval drills in the Indian Ocean and Gulf of Oman just as regional tensions have increased with the growing U.S.-Iran confrontation. 
Beijing and Moscow leave no doubt as to whose side they are on.
Meanwhile, a potential crisis looms across the Taiwan Strait as Taiwan’s presidential election approaches and Beijing strives to influence voters to reject President Tsai Ing-wen and her refusal to yield to Chinese pressure and accept its claims over the island’s democratic sovereignty.
The death of Taiwan’s top general and other military officials in a helicopter crash last week, reportedly in an equipment-related accident, has only aroused concerns of a nefarious Chinese role in the political campaign.
American officials undoubtedly are on the alert for the likelihood of simultaneous crises erupting from members of the quartet of evil-doers.
In response to the U.S. strike that killed Iranian terrorist Qassem Soleimani, the head of Iran’s military described an “axis of resistance” among Iran’s terrorist proxies and partners in Lebanon, Iraq, and Syria.
But the China-Russia-North Korea-Iran linkages may be even more ominous and will require the sustained attention of America’s military and political leaders.
Joseph

National Security

Huawei, 70 affiliates placed on U.S. trade blacklist

By David Shepardson, Karen Freifeld

WASHINGTON/NEW YORK -- The U.S. Commerce Department said on Wednesday it is adding Huawei Technologies Co Ltd and 70 affiliates to its so-called “Entity List” -- a move that bans the telecom giant from buying parts and components from U.S. companies without U.S. government approval.
U.S. officials told Reuters the decision would also make it difficult if not impossible for Huawei, the largest telecommunications equipment producer in the world, to sell some products because of its reliance on U.S. suppliers.
Under the order that will take effect in the coming days, Huawei will need a U.S. government license to buy American technology.
Commerce Secretary Wilbur Ross said in a statement President Donald Trump backed the decision that will “prevent American technology from being used by foreign owned entities in ways that potentially undermine U.S. national security or foreign policy interests.”
The dramatic move comes as the Trump administration has aggressively lobbied other countries not to use Huawei equipment in next-generation 5G networks and comes just days after the Trump administration imposed new tariffs on Chinese goods amid an escalating trade war.
The Commerce Department said the move comes after the U.S. Justice Department unsealed an indictment in January of Huawei and some entities that said the company had conspired to provide prohibited financial services to Iran. 

The department said it has a reasonable basis to conclude that Huawei is “engaged in activities that are contrary to U.S. national security or foreign policy interest.”
In March 2016, the Commerce Department added ZTE Corp to the entity list over allegations it organized an elaborate scheme to hide its re-export of U.S. items to sanctioned countries in violation of U.S. law.
The restrictions prevented suppliers from providing ZTE with U.S. equipment, potentially freezing the Huawei rival’s supply chain, but they were short-lived. 

The U.S. suspended the restrictions in a series of temporary reprieves, allowing the company to maintain ties to U.S. suppliers until it agreed to a plea deal a year later.
In August, Trump signed a bill that barred the U.S. government itself from using equipment from Huawei and ZTE.
Senator Ben Sasse, a Republican, said “Huawei’s supply chain depends on contracts with American companies” and he urged the Commerce Department to look “at how we can effectively disrupt our adversary.”

The Spied Spy

By spying on Huawei, U.S. found evidence against the rogue firm

By Brendan Pierson, Karen Freifeld

NEW YORK -- U.S. authorities gathered information about Huawei Technologies Co Ltd through secret surveillance that they plan to use in a case accusing the Chinese telecom equipment maker of sanctions-busting and bank fraud, prosecutors said on Thursday.
Assistant U.S. Attorney Alex Solomon said at a hearing in federal court in Brooklyn that the evidence, obtained under the U.S. Foreign Intelligence Surveillance Act (FISA), would require classified handling.
The government notified Huawei in a court filing on Thursday of its intent to use the information, saying it was “obtained or derived from electronic surveillance and physical search,” but gave no details.
The United States has been pressuring other countries to drop Huawei from their cellular networks, worried its equipment could be used by Beijing for spying. 

Brian Frey, a former federal prosecutor who is not involved in the Huawei case, said FISA surveillance, which requires a warrant from a special court, is generally sought in connection with espionage.
“The reason they typically would have gotten the surveillance through a FISA court is where we suspect someone may be spying on behalf of a foreign power,” Frey said.
The U.S. government has been concerned about espionage by Huawei for years, he added.
In the Brooklyn case, Huawei and its chief financial officer, Meng Wanzhou, are accused of conspiring to defraud HSBC Holdings Plc and other banks by misrepresenting Huawei’s relationship with Skycom Tech Co Ltd, a Huawei front company that operated in Iran.
Meng was arrested in Canada in December at the request of the United States to face the charges of bank and wire fraud laid out in the indictment, which was not unsealed until January. 

Huawei last month pleaded not guilty to the 13-count indictment. 

Chasen Skinner, a spokesman for the company, declined to comment on Thursday on the secret U.S. surveillance, saying the company does not comment on pending litigation.
Huawei has said Skycom was a local business partner, but prosecutors said in their indictment against Huawei and Meng that it was an unofficial subsidiary used to conceal Huawei’s Iran business.
Huawei used Skycom to obtain embargoed U.S. goods, technology and services in Iran, and to move money via the international banking system. 

The charges against the company include violating U.S. sanctions on Iran.
Last month, Reuters detailed how U.S. authorities secretly tracked Huawei’s activities by collecting information copied from electronic devices carried by Chinese telecom executives traveling through airports.
Reuters also broke news of the bank fraud charges in December and exclusively reported in February how an internal HSBC probe helped lead to the charges against Huawei and Meng.
The U.S. sanctions investigation was spurred by Reuters reports over six years ago that Skycom offered to sell embargoed Hewlett-Packard computer equipment to Iran's largest mobile-phone operator and detailed the close ties between Huawei and Skycom. (reut.rs/2sUq8RT here)
Trump told Reuters in December that he would intervene in the case if it helped secure a trade deal with China. 

The next court date in the Brooklyn case is set for June 19.

Chinese and Iranian Hackers Renew Their Attacks on U.S. Companies

By Nicole Perlroth

Geoffrey Berman, the United States attorney for the Southern District of New York, discussing the charges last year against nine Iranians accused of hacking into the systems of hundreds of companies and academic institutions.

SAN FRANCISCO — Businesses and government agencies in the United States have been targeted in aggressive attacks by Iranian and Chinese hackers who security experts believe have been energized by President Trump’s withdrawal from the Iran nuclear deal last year and his trade conflicts with China.
Recent Iranian attacks on American banks, businesses and government agencies have been more extensive than previously reported.

Dozens of corporations and multiple United States agencies have been hit, according to seven people briefed on the episodes who were not authorized to discuss them publicly.
The attacks, attributed to Iran by analysts at the National Security Agency and the private security firm FireEye, prompted an emergency order by the Department of Homeland Security during the government shutdown last month.
The Iranian attacks coincide with a renewed Chinese offensive geared toward stealing trade and military secrets from American military contractors and technology companies, according to nine intelligence officials, private security researchers and lawyers familiar with the attacks who discussed them on the condition of anonymity because of confidentiality agreements.
A summary of an intelligence briefing read to The New York Times said that Boeing, General Electric Aviation and T-Mobile were among the recent targets of Chinese industrial-espionage efforts. 

The companies all declined to discuss the threats, and it is not clear if any of the hacks were successful.

Chinese cyberespionage cooled four years ago after Barack Obama and Xi Jinping reached a deal to stop hacks meant to steal trade secrets.
But the 2015 agreement appears to have been unofficially canceled amid the continuing trade tension between the United States and China, the intelligence officials and private security researchers said. Chinese hacks have returned to earlier levels, although they are now stealthier and more sophisticated.
“Cyber is one of the ways adversaries can attack us and retaliate in effective and nasty ways that are well below the threshold of an armed attack or laws of war,” said Joel Brenner, a former leader of United States counterintelligence under the director of national intelligence.
Federal agencies and private companies are back to where they were five years ago: battling increasingly sophisticated, government-affiliated hackers from China and Iran — in addition to fighting constant efforts out of Russia — who hope to steal trade and military secrets and sow mayhem. 

And it appears the hackers substantially improved their skills during the lull.
Russia is still considered America’s foremost hacking adversary. 

In addition to meddling widely and spreading disinformation during United States elections, Russian hackers are believed to have launched attacks on nuclear plants, the electrical grid and other targets.
Threats from China and Iran never stopped entirely, but Iranian hackers became much less active after the nuclear deal was signed in 2015. 

And for about 18 months, intelligence officials concluded, Beijing backed off its 10-year online effort to steal trade secrets.
But Chinese hackers have resumed carrying out commercially motivated attacks, security researchers and data-protection lawyers said. 

A priority for the hackers, researchers said, is supporting Beijing’s five-year economic plan, which is meant to make China a leader in artificial intelligence and other cutting-edge technologies.
“Some of the recent intelligence collection has been for military purposes or preparing for some future cyber conflict, but a lot of the recent theft is driven by the demands of the five-year plan and other technology strategies,” said Adam Segal, the director of the cyberspace program at the Council on Foreign Relations. 

“They always intended on coming back.”
Officials at the Chinese embassy in Washington did not respond to a request for comment.
Mr. Segal and other Chinese security experts said attacks that once would have been conducted by hackers in China’s People’s Liberation Army are now being run by China’s Ministry of State Security.
These hackers are better at covering their tracks. 

Rather than going at targets directly, they have used a side door of sorts by breaking into the networks of the targets’ suppliers. 

They have also avoided using malware commonly attributed to China, relying instead on encrypting traffic, erasing server logs and other obfuscation tactics.

Two Chinese who are suspected of participating in an extensive hacking campaign to steal data from American companies.

“The fingerprint of Chinese operations today is much different,” said Priscilla Moriuchi, who once ran the National Security Agency’s East Asia and Pacific cyber threats division. 

Her duties there included determining whether Beijing was abiding by the 2015 agreement’s terms. “These groups care about attribution. They don’t want to get caught.”
It is difficult to quantify the number of industrial-espionage attacks, in part because they have been designed mostly to steal strategic trade secrets, not the kind of personal information about customers and employees that companies must disclose. 

Only Airbus has acknowledged in recent weeks that Chinese hackers had penetrated its databases.
Many of the attacks by the Chinese Ministry of State Security have been against strategic targets like internet service providers with access to hundreds of thousands, if not millions, of corporate and government networks.
Last week, Ms. Moriuchi, who is now a threat director at the cybersecurity firm Recorded Future, released a report on a yearlong, stealth campaign by the Chinese to hack internet service providers in Western Europe and the United States and their customers.
The lone hacking target to publicly confront the Chinese was Visma, a Norwegian internet service provider with 850,000 customers. 

The goal of the attack on Visma was to gain broad access to its customers’ intellectual property, strategic plans and emails, including those of an American law firm that handles intellectual property matters for clients in the automotive, biomedical, pharmaceutical and tech sectors, according to Recorded Future.
The Visma attack was harder to trace than earlier incidents, which typically started with so-called spearphishing emails meant to steal personal credentials. 

This assault began with stolen credentials for a third-party software service, Citrix. 

And instead of using malware easily traced to China, the attackers used malware available on the so-called Dark Web that could have come from anywhere. 

They also used the online storage service Dropbox to move stolen emails and files.
Federal agencies are also trying to fend off new Iranian espionage campaigns.
After the Trump administration pulled out of the nuclear deal, Kirstjen Nielsen, the homeland security secretary, testified before Congress that her agency was “anticipating it’s a possibility” that Iran would resort to hacking attacks.

Stuart Davis, a director at a subsidiary of the security firm FireEye, which has attributed a recent wave of cyberattacks to Iranian hackers.

The Iranian attacks, which hit more than a half-dozen federal agencies last month, still caught the department off guard. 

Security researchers said the hacks, which exploited underlying weaknesses in the internet’s backbone, were continuing and were more damaging and widespread than agency officials had acknowledged.
Iranian hackers began their latest wave of attacks in Persian Gulf states last year. 

Since then, they have expanded to 80 targets — including internet service providers, telecommunications companies and government agencies — in 12 European countries and the United States, according to researchers at FireEye, which first reported the attacks last month.
The current hacks are harder to catch than previous Iranian attacks. 

Instead of hitting victims directly, FireEye researchers said, Iranian hackers have been going after the internet’s core routing system, intercepting traffic between so-called domain name registrars. 

Once they intercepted their target’s customer web traffic, they used stolen login credentials to gain access to their victims’ emails. (Domain name registrars hold the keys to hundreds, perhaps thousands, of companies’ websites.)
“They’re taking whole mailboxes of data,” said Benjamin Read, a senior manager of cyberespionage analysis at FireEye. 

Mr. Read said Iranian hackers had targeted police forces, intelligence agencies and foreign ministries, indicating a classic, state-backed espionage campaign rather than a criminal, profit-seeking motive.
There is a long history of Iranian attacks against the United States, and episodes from five years back or longer are just now being made public.
On Wednesday, the Justice Department announced an indictment against a former Air Force intelligence specialist, Monica Witt, on charges of helping Iran with an online espionage campaign. Four members of Iran’s Islamic Revolutionary Guard Corps were also charged with “computer intrusions and aggravated identity theft” directed at members of the United States intelligence community.
Also last week, the Treasury said it was putting sanctions on two Iranian companies, New Horizon Organization and Net Peygard Samavat Company, and several people linked to them. 

Treasury officials said New Horizon set up annual conferences where Iran could recruit and collect intelligence from foreign attendees.
Ms. Witt attended one of the conferences, the indictment says. 

Net Peygard used information she provided to begin a campaign in 2014 to track the online activities of United States government and military personnel, Treasury officials said.
Representatives for Iran’s Mission to the United Nations did not respond to requests for comment.
The recent Iranian attacks have unnerved American officials. 

But after issuing the emergency order about the ones last month, the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency has largely played them down.
An official with the cybersecurity agency said there was a belief that no information had been stolen and that the attacks had not “materially impacted” operations. 

But Mr. Read of FireEye and others said there had been a noticeable escalation in Iran’s digital espionage.
“If you tell the Iranians you’re going to walk out on the agreement and do everything you can to undermine their government,” said Mr. Brenner, the former counterintelligence official, “you can’t be surprised if they attack our government networks.”

Rogue Company

New documents link Huawei to front companies in Iran and Syria, and bolster US case against Meng Wanzhou

• Three Chinese had signing rights to bank accounts in Iran for both Huawei and Skycom, a company Huawei controlled
• A Huawei executive has been appointed Skycom’s Iran manager, while Huawei operated in Syria via another company, Canicula

Reuters

Visitors walk past Huawei's booth during Mobile World Congress in Barcelona, Spain, in this 2017 photo.

The US case against the chief financial officer of China’s Huawei Technologies, who was arrested in Canada last month, centres on the company’s ties to two obscure companies.
One is a telecom equipment seller that operated in Tehran; the other is that firm’s owner, a holding company registered in Mauritius.

Meng Wanzhou, chief financial officer of Huawei Technologies, leaves her home under the supervision of a private security guard in Vancouver, Canada, on December 12. 

US authorities allege CFO Meng Wanzhou deceived international banks into clearing transactions with Iran – violating America’s sanctions on the country – by claiming the two companies were independent of Huawei, when in fact Huawei controlled them.
Huawei has maintained the two are independent: equipment seller Skycom Tech Co Ltd and shell company Canicula Holdings Ltd.
But corporate filings and other documents found by Reuters in Iran and Syria show that Huawei, the world’s largest supplier of telecommunications network equipment, is more closely linked to both firms than previously known.
The documents reveal that a high-level Huawei executive has been appointed Skycom’s Iran manager. 

They also show that at least three Chinese-named individuals had signing rights for both Huawei and Skycom bank accounts in Iran.
Reuters also discovered that a Middle Eastern lawyer said Huawei conducted operations in Syria through Canicula.
The previously unreported ties between Huawei and the two companies could bear on the US case against Meng, who is the daughter of Huawei founder Ren Zhengfei, by further undermining Huawei’s claims that Skycom was merely an arms-length business partner.
Huawei retained control of Skycom, using it to sell telecom equipment to Iran and move money out via the international banking system.
As a result of the deception, banks unwittingly cleared hundreds of millions of dollars of transactions that violated economic sanctions Washington had in place at the time against doing business with Iran.
Meng did not respond to a request for comment, and Huawei declined to answer questions for this story. 

Canicula’s offices could not be reached. 

A Justice Department spokesman in Washington declined to comment.
Meng was released on C$10 million (US$7.5 million) bail on December 11 and remains in Vancouver while Washington tries to extradite her. 

In the United States, Meng would face charges in connection with an conspiracy to defraud multiple financial institutions, with a maximum sentence of 30 years for each charge. 

The exact charges have not been made public.

Meng’s arrest on a US warrant has caused an uproar in China. 

It comes at a time of growing trade and military tensions between Washington and Beijing, and amid worries by US intelligence that Huawei’s telecommunications equipment could contain “back doors” for Chinese espionage.
Australia and New Zealand recently banned Huawei from building their next generation of mobile phone networks, and British authorities have also expressed concerns.
Articles published by Reuters in 2012 and 2013 about Huawei, Skycom and Meng figure prominently in the US case against her.
Reuters reported that Skycom had offered to sell at least 1.3 million euros (US$1.5 million) worth of embargoed Hewlett-Packard computer equipment to Iran’s largest mobile-phone operator in 2010.
At least 13 pages of the proposal were marked “Huawei confidential” and carried Huawei’s logo. 

Reuters also reported numerous financial and personnel links between Huawei and Skycom, including that Meng had served on Skycom’s board of directors between February 2008 and April 2009.
Several banks questioned Huawei about the articles, according to court documents filed by Canadian authorities at the request of the US for Meng’s bail hearing in Vancouver last month.
According to the documents, US investigators allege that in responding to the banks, which weren’t named, Meng and other Huawei employees repeatedly lied about the company’s relationship with Skycom and failed to disclose that “Skycom was entirely controlled by Huawei”.
US authorities also allege that at a private meeting with a bank executive, in or about August 2013, Meng said Huawei had sold its shares in Skycom, but didn’t disclose that the buyer was “a company also controlled by Huawei”.
The court documents allege that Huawei told the executive’s bank that the Chinese company had sold its shares in Skycom in 2009 – the same year Meng stepped down from Skycom’s board. 

Skycom’s buyer wasn’t identified in the documents.
But Skycom records filed in Hong Kong, where the company was registered, show that its shares were transferred in November 2007 to Canicula. 

Canicula, which was registered in Mauritius in 2006, continued to hold Skycom shares for about a decade, Skycom records show.

Meng Wanzhou and other Huawei employees repeatedly lied about the company’s relationship with Skycom and failed to disclose that “Skycom was entirely controlled by Huawei”.

A “Summary of Facts” filed by US authorities for Meng’s Canadian bail hearing states: “Documents and email records show that persons listed as ‘Managing Directors’ for Skycom were Huawei employees.” 

None of those individuals were named.
A company record filed by Skycom in Iran that was entered in the Iranian registry in December 2011 states that a Shi Yaohong had been elected as manager of Skycom’s Iran branch for two years. Huawei employs an executive named Shi Yaohong.
According to his LinkedIn profile, Shi was named Huawei’s “President Middle East Region” in June 2012. 

An Emirates News Agency press release identified him in November 2010 as “President of Huawei Etisalat Key Account.” 

Etisalat is a major Middle Eastern telecommunications group and a Huawei partner.
Shi, now president of Huawei’s software business unit, hung up the phone when Reuters asked him about his relationship with Skycom.
Many corporate records filed by Skycom in Iran list signatories for its bank accounts in the country. Most of the names are Chinese; at least three of the individuals had signing rights for both Skycom and Huawei bank accounts (one of the names is listed in the Iranian registry with two slightly different spellings but has the same passport number).
US authorities allege in the court documents filed in Canada that Huawei employees were signatories on Skycom bank accounts between 2007 and 2013.
Records in Hong Kong show that Skycom was voluntarily liquidated in June 2017 and that Canicula was paid about US$132,000 as part of the resolution. 

The liquidator, Chan Leung Lee, of BDO Ltd in Hong Kong, declined to comment.
The Financial Services Commission in Mauritius, where Canicula remains registered, declined to release any of its records, saying they were confidential.
Until two years ago, Canicula had an office in Syria, another country that has been subject to US and European Union sanctions. 

In May 2014, a Middle Eastern business website called Aliqtisadi.com published a brief article about the dissolution of a Huawei company in Syria that specialised in automated teller machine (ATM) equipment.
Osama Karawani, an attorney who was identified as the appointed liquidator, wrote a letter asking for a correction, stating that the article had caused “serious damage” to Huawei.
Karawani said the article suggested that Huawei itself had been dissolved, not just the ATM company. In his letter, which was linked to on the Aliqtisadi website, he said Huawei was still in business.
“Huawei was never dissolved,” he wrote; he added that it “has been and is still operating in Syria through several companies which are Huawei Technologies Ltd and Canicula Holdings Ltd.” 

Huawei Technologies is one of Huawei’s main operating companies.
Karawani didn’t respond to emailed questions about Canicula.
US investigators are aware of Canicula’s connection to Syria, according to a person familiar with the probe. 

Canicula had an office in Damascus and operated in Syria on behalf of Huawei, another person said.
That person said Canicula’s customers there included three major telecommunications companies. One is MTN Syria, controlled by South Africa’s MTN Group Ltd, which has mobile-phone operations in both Syria and Iran.
MTN has a joint venture in Iran – MTN Irancell – that is also a Huawei customer. 

MTN advised Huawei on setting up the structure of Skycom’s office in Iran, according to another source familiar with the matter.
“Skycom was just a front” for Huawei, the person said.
An official with MTN said no one at the company was available to comment.
In December 2017, a notice was placed in a Syrian newspaper by “the General Director of the branch of the company Canicula Ltd”. 

He was not named. 

It announced that Canicula had “totally stopped operating” in Syria two months before. No explanation was given.

Rogue Company

Huawei CFO seeks bail on "health" concerns; Canada wants her in jail

By Anna Mehler Paperny, Ben Blanchard

TORONTO/BEIJING -- The CFO of China’s Huawei Technologies Co Ltd argued that she should be released on bail while awaiting an extradition hearing, citing her longstanding ties to Canada, properties she owns in Vancouver and fears for her health while incarcerated, court documents showed on Sunday.

Huawei Chief Financial Officer Meng Wanzhou is fighting to be released on bail after she was arrested on Dec. 1 in Vancouver at the request of the United States. 

She is also fighting the extradition request, and China has protested her arrest to U.S. and Canadian officials.
Meng, 46, faces U.S. accusations that she misled multinational banks about Huawei’s control of a company operating in Iran. 

This deception put the banks at risk of violating U.S. sanctions and incurring severe penalties, according to court documents seen by Reuters. 

U.S. officials allege that Huawei was trying to use the banks to move money out of Iran.

In a sworn affidavit, Meng, the daughter of Huawei’s founder, said she is innocent and will contest the allegations at trial in the United States if she is surrendered there.
Meng said she was taken to a hospital for treatment for hypertension after being detained. 

She cited hypertension in a bail application seeking her release pending an extradition hearing. 

She also noted that she owns two homes in Vancouver worth millions of dollars each.

BACK IN THE COURT
Her family assured the court she would remain in Vancouver if she was granted bail, according to the court documents. 

Her husband said he plans to bring the couple’s daughter to Vancouver to attend school during the proceedings. 

Meng will be back in the court for a bail hearing on Monday.
Huawei, the world’s biggest supplier of telecoms network equipment and second biggest smartphone seller, did not offer an immediate comment on the court documents. 

Earlier on Sunday, China’s foreign ministry summoned the U.S. ambassador to lodge a “strong protest” over the arrest, and said the United States should withdraw its arrest warrant.
Chinese Vice Foreign Minister Le Yucheng told U.S. ambassador Terry Branstad the United States had made an “unreasonable demand” on Canada to detain Meng while she was passing through Vancouver, China’s Foreign Ministry said.

On Saturday, Le warned the Canadian ambassador there would be severe consequences if it did not immediately release Meng. 

There was no immediate reaction from Canada. 

On Friday, the country’s ambassador in Beijing has assured the Chinese consular access will be provided to Meng.

THE CASE
The United States has been looking since at least 2016 into whether Huawei shipped U.S.-origin products to Iran and other countries in violation of U.S. export and sanctions laws, Reuters reported in April.
The U.S. case against Meng involves Skycom Tech Co. Ltd, which Huawei has described as one of its “major local partners” in Iran. 

Huawei used Skycom’s Tehran office to provide mobile network equipment to several major telecommunications companies in Iran.
In December 2012, Reuters reported that documents showed Skycom had tried to sell embargoed Hewlett-Packard computer equipment in 2010 to Iran’s largest mobile-phone operator. 

Reuters later reported that Skycom had much closer ties to Huawei and Meng than previously known.
In Canadian court papers made public on Friday, an investigation by U.S. authorities found Huawei operated Skycom as an “unofficial subsidiary” to conduct business in Iran.
Meng and other Huawei representatives misled financial institutions about Huawei’s control of Skycom, so the Chinese company could gain access to the international banking system. 

As a result, an unidentified financial institution cleared more than $100 million worth of transactions related to Skycom through the U.S. between 2010 and 2014, the court papers said.
On Thursday, Reuters identified HSBC Holdings Plc as one of the banks involved in the Meng case and, citing sources, reported that the probe included possible bank fraud.
Companies are barred from using the U.S. financial system to funnel goods and services to sanctioned entities.
U.S. Senator Marco Rubio said on Sunday he would “100 percent absolutely” introduce a measure in the new Congress that would ban Chinese telecom companies from doing business in the United States.
“We have to understand Chinese companies are not like American companies. OK. We can’t even get Apple to crack an iPhone for us in a terrorist investigation,” he told CBS “Face the Nation.”
“When the Chinese ask a telecom company, we want you to turn over all the data you’ve gathered in the country you’re operating in, they will do it. No court order. Nothing like that. They will just do it. They have to. We need to understand that.”
Rubio was a strong critic of China’s ZTE Corp, which pleaded guilty in 2017 to violating U.S. laws that restrict the sale of American-made technology to Iran.

Axis of Evil: North Korea, China, and Iran are not happy with President Trump’s foreign policy

The three countries heavily criticized the US over the last 72 hours for its tough economic policies meant to change their behaviors.
By Alex Ward
North Korean leader Kim Jong Un’s regime is clearly unhappy with the state of nuclear talks with the United States. 

President Donald Trump has taken hard-line stances against North Korea, China, and Iran — and in the last 72 hours, each country pushed back on America’s pressure campaign.
On Friday, North Korea threatened to build more nuclear weapons unless the US offers some sanctions relief.

Three days later, Chinese dictator Xi Jinping said Beijing would survive the trade war with America and continue exporting goods around the world.

Also on Monday, Iranian President Hassan Rouhani vowed to “break” Trump’s latest and greatest imposition of financial penalties.
Each country has somewhat similar reasons for their anger: The US has imposed stringent economic penalties on them to force a change in behavior. 

Washington sanctioned Pyongyang to force North Koreans to dismantle their nuclear program; maintains tariffs on Chinese goods until the country opens its market to US companies; and has increased sanctions on Iran to get the country to abandon its aggressive foreign policy and pursuit of a nuclear weapon.
It’s not surprising that all three countries would bristle at America’s stances toward them. 

North Korea says it may build new nuclear weapons
The Trump administration’s strategy toward North Korea is to impose “maximum pressure” — or, mounting economic penalties and diplomatic isolation — on Pyongyang so that it has no choice but to stop its pursuit of nuclear weapons. 

The strategy has led to a sharp decline in North Korea’s economy, including a drop-off in its ability to export top goods like seafood products and iron.
But North Korea says it first wants to end hostilities between the two countries, mainly through a “peace declaration.” 

That document would be symbolic, as both sides would agree to no longer fight each other in the Korean War that ended in an armistice, not a peace treaty. 

Pyongyang claims that declaration would make it feel safer and may therefore dismantle its nuclear arsenal down the line.
The two sides are extremely far apart, making it much harder to reach a compromise, Harry Kazianis, a North Korea expert at the Center for the National Interest, told me.
Still, President Trump promised North Korean leader Kim Jong Un he’d sign the peace declaration during their Singapore summit last June. 

The problem is there’s been very little progress, which has locked Washington and Pyongyang in a diplomatic stalemate while sanctions continue to cripple North Korea’s economy.
North Korea is angry about that; a top official put out a scathing statement on Friday letting the US know it.
“The U.S. thinks that its oft-repeated ‘sanctions and pressure’ lead to ‘denuclearization.’ We cannot help laughing at such a foolish idea,” Kwon Jong Gun, a top North Korean diplomat focused on American relations, wrote in the state-run Korean Central News Agency on Friday. 

“If the U.S. keep behaving arrogant without showing any change in its stand,” Pyongyang could start “building up nuclear forces.”

US intelligence, however, shows that North Korea is still making more bombs, but aims to hide that from the US and the international community. 

Now Pyongyang wants to let the Trump administration know the window for denuclearization is closing.
Secretary of State Mike Pompeo responded to the statement on “Fox News Sunday.”
“We’ve seen this as we go through negotiations. Stray voltage happens to be all around us,” he told anchor Chris Wallace. 

“We know with whom we’re negotiating. We know what their positions are. And President Trump’s made his position very clear, no economic relief until we have achieved our ultimate objective.”
Pompeo will meet with Kim Yong Chol, arguably the second-most powerful person in North Korea, later this week for another round of talks.
Robert Carlin, a leading North Korea expert at the Stimson Center think tank, noted in the Koreas-focused 38 North website on Monday that Kwon had omitted any reference to Trump. 

That indicates “the overall tone in Kwon’s piece was not so much of confrontation but of ridicule about the US position,” Carlin wrote.

“I am worried that the detente of the last few months could be in serious trouble,” Kazianis said.

China is angry with the US over the trade war
President Trump has placed around $250 billion in tariffs on Chinese goods — about half the total worth of goods the US imports from China — this year in his escalating trade war. 

It’s part of a strategy to force Beijing to let American companies freely sell to the country’s consumers, compel it to stop stealing the intellectual property of US businesses, and cripple China’s economy in the process.
That, naturally, has rankled Xi, China’s increasingly authoritarian leader. 

During a Monday speech intended to kick off the China International Import Expo, Xi took thinly veiled shots at the US — and President Trump specifically without saying his name.
People who dislike China’s economic practices “should not just point fingers at others to gloss over their own problems,” he told the audience. 

“They should not hold a flashlight that only exposes others while doing nothing themselves.”
He did promise to cut import taxes and export around $30 trillion in products and services over the next decade and a half. 

But he also made sure to note that China would survive mounting economic pressure from the United States.
“Great winds and storms may upset a pond, but not an ocean,” Xi said. 

“After 5,000 years of trials and tribulations, China is still here. Looking ahead, China will be here to stay.”

It’s quite a defiant message, and it comes at a particularly tense time. 

Washington-Beijing relations have soured recently as the US rejects any talks with China to end the trade war, hoping the standoff will compel the country to cave to American demands. 

What’s more, President Trump and Xi plan to meet during the G20 summit later this month, and it’s possible that Xi’s speech could make that meeting a bit awkward.
It also behooves both leaders to end the spat soon. 

Last month, the International Monetary Fund (IMF) — a world body that helps keep the global economy stable — released a major report that projected the world’s economy will grow by 3.7 percent this year, which is 0.2 points lower than they had estimated in April. 

That’s the same rate of growth as in 2017, but the trade war is a major reason for the slight dip in expectations.
The IMF also noted that the trade war could curb China’s economic growth by about 2 percent over the next two years. 

If true, it would be a major blow to China’s economy, which prioritizes continued growth above all else.
It’s no wonder, then, that Xi is upset.

Iran says it will “break” US sanctions
At midnight on Monday, the Trump administration reimposed sanctions on Iran that were lifted once the 2015 Iran nuclear deal was in place. 

The goal, as the administration said, is to force Tehran to stop funding proxies in the Middle East, supporting Syrian leader Bashar al-Assad, stealing money from regular Iranians, and improving its nuclear program.
In effect, the US wants Iran to change everything about itself — or else.
Iranian leaders, and especially President Hassan Rouhani, have shown their displeasure with the Trump administration’s decision.
“We will proudly break the sanctions,” Rouhani said during a meeting of Iranian economic officials on Monday. 

That may be tough, as the US just placed penalties on more than 700 people, organizations, and vessels — mainly targeting the country’s oil, banking, and shipping industries — stopping them from accessing the international banking network and the US market.
Rouhani remains defiant despite the economic stranglehold. 

“We have to make Americans understand that they cannot talk to the great Iranian nation with the language of pressure and sanctions,” he said during a televised address.
While the sanctions are meant to hurt the regime — and could do so — they currently impact regular Iranians the most. 

In October, a top UN court ruled that the US had to ease its sanctions on Iran for humanitarian reasons. 

Specifically, the US was told it could not restrict exports to Iran of food, medicine, and other items because it threatened the lives of ordinary citizens there.
It’s unclear if the pressure on the Iranian people could lead to a revolt that would eventually topple the regime, but it seems that’s what the US administration wants. 

John Bolton advocated as much before he joined the administration as national security adviser, although officials deny regime change is the goal.

Pompeo Hits Iran Leader for Silence on China's Detained Muslims

China’s treatment of Muslim minority under increasing scrutiny

By David Tweed

U.S. Secretary of State Michael Pompeo

Ayatollah Ali Khamanei 

U.S. Secretary of State Michael Pompeo blasted Iran’s top leader for failing to speak out over China’s reported detention of large contingents of its Muslim minority population.
Iranian Supreme Leader Ayatollah Ali Khamenei “fancies himself the leader of the Islamic world, but his regime has been totally silent as China — the top buyer of #Iran’s oil — has persecuted and detained hundreds of thousands of its Muslim citizens,” Pompeo wrote on Twitter.
The tweet is likely to cause as much or more dismay in Beijing, where authorities have faced increasing international scrutiny of their treatment of Turkic-speaking Uighurs while also engaged in a trade war with President Donald Trump’s administration. 

Multiple accounts have emerged of secretive “re-education camps” that have detained tens of thousands to “upwards of 1 million” Uighurs, according to a United Nations committee’s assessment.
Pompeo is one of the most senior officials in Trump’s administration to raise the plight of the Uighurs. 

Last month, a group of legislators asked Pompeo and Treasury Secretary Steven Mnuchin to restrict the travel and freeze the assets of top Communist Party officials over their role in the persecution of Uighurs.

Police patrol a village in Hotan prefecture, in China’s East Turkestan colony, in Feb. 2018.

Xi Jinping’s government officially denies problems in East Turkestan, a vast region the size of Alaska bordering Pakistan and Afghanistan that’s home to some 10 million Uighurs.
While Iran’s oil exports to China have dropped, the Asian nation remained the Middle East producer’s biggest customer and its top overall trading partner. 

All crude shipments since July have been made via the Islamic Republic’s own tanker fleet, rather than vessels owned by Chinese shipowners.
Iran recently endured the longest gap without sending oil to China in at least three years, raising speculation that China’s refineries are seeking better terms for cargoes as imminent U.S. sanctions pile pressure onto Tehran.
Iran will keep selling oil in spite of U.S. measures to stop the country’s crude shipments, President Hassan Rouhani said earlier this month. 

Supporters of Muslim Uighur minority burn China's flag outside the Chinese consulate in Istanbul, in July 2018.

Muslim un-solidarity
Governments in Muslim countries from Saudi Arabia to Indonesia have been silent on the Uighurs, even as calls grow in the U.S. and Europe for China to stop its human-rights abuses. 

This week Anwar Ibrahim, who’s in line to become Malaysia’s next premier, became the most prominent Muslim leader to speak out against China, calling for formal talks on the crackdown.
Asked in an interview why Muslim governments have largely remained silent, Anwar said: “They’re scared. Nobody wants to say anything.”

Chinese Peril

U.S. and India, Wary of China, Agree to Strengthen Military Ties

By Maria Abi-Habib

From left, Defense Secretary Jim Mattis and Secretary of State Mike Pompeo, with India’s foreign and defense ministers, Sushma Swaraj and Nirmala Sitharaman, in New Delhi on Thursday.

NEW DELHI — The United States and India signed an agreement Thursday to pave the way for New Delhi to buy advanced American weaponry and to share sensitive military technology, strengthening their military partnership as both powers warily eye the rise of China.
“Today’s fruitful discussion illustrated the value of continued cooperation between the world’s two largest democracies,” said Jim Mattis, the United States defense secretary, at a news conference on Thursday after the agreement was signed. 

“We will work together for a free and prosperous Indo-Pacific.”
The countries also promised to hold joint land, sea and air military exercises in India next year. 

In the past, they have held joint exercises outside the country.
But despite the friendly handshakes and flattering remarks exchanged as Mr. Mattis and Mike Pompeo, the secretary of state, met with their counterparts in New Delhi on Wednesday and Thursday, the two counties remain deeply skeptical of each other.
The United States is worried about how willing India will be to openly counter China as the Chinese expand their influence in the waters between the Indian and Pacific Oceans. 

It is also unhappy about India’s reluctance to cut trade relations with Iran.
India views the Trump administration as erratic, and it is troubled by the United States’ recent barriers to trade, which threaten to impose tariffs on Indian goods and force New Delhi to import more American products.
Still, the agreement won praise.
“This is a huge deal,” said Rudra Chaudhuri, a senior lecturer at King’s College, London. 

“In one sense, it makes clear that the wind in the U.S.-India sail is strong, whatever differences there might be.”
The Indian and American defense secretaries, he said, have pulled off a big accomplishment “at a time the Trump White House remains committed to undermining the United States’ global partnerships.”
India is critical to the United States’ new “Indo-Pacific” strategy — formerly known as “Asia-Pacific” — which aims to curb the growing influence of China’s navy in the region by elevating New Delhi as a cornerstone of future military cooperation.

Although India is worried about China’s growing influence in the region — the two militaries engaged in a tense standoff over a disputed border region last year — New Delhi prefers to avert confrontation with Beijing when it can. 

That reluctance may stymie Washington’s plans for India to be a linchpin of its efforts to counter China, American officials worry.
India’s military budget this year is $45 billion, while China’s is $175 billion. 

India has 18 submarines in service; China has 78.
New Delhi has been alarmed by the growing presence of Chinese submarines in its traditional sphere of influence, and as Beijing strikes seaport deals with countries encircling India. 

Western and Indian diplomats worry China may turn these seaports, currently used for commercial purposes, into calling docks for Beijing’s navy by leveraging the enormous debt of countries it has lent money to across the region.
The goal of the trip by the American delegation this week was to smooth over the ability of the United States and India to cooperate militarily. 

Under the pact signed by the two countries, the Communication Compatibility and Security Agreement, the United States will transfer high-tech communications platforms to India. 

Until now, the countries have communicated over open radio channels.
“The defense cooperation has emerged as the most significant dimension of our strategic partnership and as a key driver of our overall bilateral relationship,” India’s defense minister, Nirmala Sitharaman, said at the news conference Thursday, sitting with Mr. Mattis and Mike Pompeo.
American sanctions on Russia and Iran also loomed over the meetings, as both countries have major deals and economic ties with India.
Earlier this year, President Trump scrapped the Iran nuclear deal and reinstated sanctions on the country, which currently supplies roughly 20 percent of India’s oil needs. 

Indian businesses also have deep ties in Iran.
Mr. Trump has given allies a November deadline to stop trading with Iran or also face sanctions, but Indian officials have said they would ignore the threats and continue buying Iranian oil. 

Earlier this week, Mr. Pompeo acknowledged that Iran would feature in the negotiations in New Delhi, but said they would be a minor part of discussions.
India is also set to buy a Russian antiaircraft missile system, the S-400 Triumf, a $6 billion deal that violates sanctions that Congress imposed earlier this year on Russia.
American officials have indicated they may overlook the purchase, but they remain irked by New Delhi’s reliance on Russian defense equipment, which makes up the bulk of India’s military hardware.
Washington has tried to increase its military sales to New Delhi over the years. 

Sales have gone from nearly zero a decade ago to an estimated $18 billion next year.

Senate blocks ZTE deal in rebuke of Trump deal

The move comes less than a week after Trump entered into an agreement with telecom giant. 
By Leigh Ann Caldwell

In a major rebuke to Donald Trump, the Senate has adopted a measure that would block the administration's deal with Chinese telecom giant ZTE, pitting the president against Congress on what many senators say is an issue of national security.
The Senate's move comes less than a week after the administration struck an agreement with ZTE that would have kept the telecom company engaged in the U.S. market.

The president’s deal with ZTE would have forced the company to pay a $1 billion penalty, reorganize its company and allow U.S. compliance officers in exchange for being able to sell its products inside the U.S.
But the bipartisan senate amendment, which has been added to the must-pass National Defense Authorization Act, would essentially kill that agreement by retroactively reinstating financial penalties and continuing the prohibition on ZTE's ability to sell to the U.S. government.
Sen. Tom Cotton, R-Ark., who is one of the co-sponsors of the measure, said that the amendment would likely put ZTE out of business.
“ZTE said they couldn’t remain in business, or at least not remain anything other than a cell phone hand-held business, if the denial order from March was in effect. And this would essential put the denial order back into effect,” Cotton told reporters.
The telecom company is a mechanism for espionage by, in part, selling phones in the U.S. that can be tracked and enabled to steal intellectual property.
The U.S. slapped sanctions on ZTE in 2016, prohibiting the company from doing business in the U.S. for seven years, when it violated U.S. sanctions against Iran and North Korea. 
The Commerce Department placed additional sanctions on the company after it failed to follow through with its reorganization plan and lied to the U.S. government about it.
A bipartisan group of senators praised the amendment, saying it protects the U.S.’s national security.
“The fact that a bipartisan group of senators came together this quickly is a testament to how bad the Trump administration's ZTE deal is and how we will not shy away from holding the president's feet to the fire when it comes to keeping his promise to be tough on China,” Senate Democratic Leader Chuck Schumer said in a statement.
The amendment was added just as Commerce Secretary Wilbur Ross was on Capitol Hill briefing senators about a component of the president’s ZTE deal.
Sen. John Cornyn, R-Texas, left the meeting saying he was supportive of the Senate’s effort.
The NDAA still has to pass the Senate and the House of Representatives must still agree to the defense bill with the measure included before it can advance.
Trump would then face a choice: Veto a critical defense bill to save the ZTE deal or allow the administration's deal to collapse.
Sen. Cotton said the president won’t veto the bill “because the bill pertains many other critical priorities.”

Keep ZTE Out of China Trade Talks

The company needs to be punished, not used as a bargaining chip.

Bloomberg

By The Editors
ZTE is a double offender. 

Donald Trump has indicated, via Twitter, that he’s prepared to make an enormous concession to smooth trade talks with China, offering upfront to ease sanctions on ZTE Corp., the country’s second-largest telecom equipment maker. 

But ZTE is being punished for deliberately violating U.S. sanctions — twice. 

The company’s punishment needs to be enforced, not used as a bargaining chip. 

If Trump goes ahead anyway, he stands to have a very hard time making sure the U.S. gets its money’s worth.
The American case against ZTE isn’t in dispute. 

The company was singled out in 2016 for doing business with Iran in violation of U.S. sanctions. 

A $1.2 billion settlement last year was supposed to include internal punishment for the ZTE officials involved. 

Instead, according to the U.S. Commerce Department, the firm paid those executives bonuses. 

The U.S. then banned ZTE from buying irreplaceable U.S. components for seven years, effectively killing its business.
It is possible to conceive of different punishments for ZTE that would cause the company material pain without destroying its ability to operate. 

Commerce Secretary Wilbur Ross is said to be exploring such options.
But if Trump were to soften the blow now, the cost to U.S. credibility would be substantial, weakening the effect of its sanctions on Iran, North Korea and others. 

That cost would hardly be reduced if the U.S. were able to improve its position in trade talks with China.
After all, the greatest threat the U.S. has to address in those talks is China’s use of unfair means to pursue technological superiority over the U.S. 

If anything, the ZTE case has made Chinese officials more determined to achieve self-sufficiency in key high-tech sectors. 

Lightening ZTE’s punishment would only encourage Chinese companies to continue cheating, and not only on sanctions.
Trump’s injudicious tweeting may have already diminished U.S. bargaining power. 

But it’s not too late to take ZTE off the table.

Dura lex, sed lex

ZTE main business operations cease due to U.S. ban

By Sijia Jiang

HONG KONG -- ZTE Corp’s main business operations have ceased due to a ban imposed by the U.S. government, but China’s second biggest telecom equipment maker is trying to have the ban modified or reversed, it said on Wednesday.
ZTE was hit by a ban last month from Washington, forbidding U.S. firms from supplying it with components and technology after it was found to have violated U.S. export restrictions by illegally shipping goods to Iran.
“As a result of the Denial Order, the major operating activities of the company have ceased,” ZTE said in the exchange filings late on Wednesday.
“As of now, the company maintains sufficient cash and strictly adheres to its commercial obligations subject in compliance with laws and regulations,” it said.
The U.S. action, first reported by Reuters, could be devastating to ZTE.
As one of the world’s largest telecom equipment makers alongside Huawei, Ericsson and Nokia, ZTE relies on U.S. companies such as Qualcomm and Intel for up to a third of its components.
Analysts have said it will be hard for ZTE to stay competitive even if it could find non-American suppliers.
Taiwanese semiconductor company Mediatek said last week it had received a permit from the Taiwanese government to continue to supply ZTE.
ZTE said it was actively communicating with the U.S. government “in order to facilitate the modification or reversal of the Denial Order by the U.S. government and forge a positive outcome in the development of matters.”
The ban that threatens to cut off ZTE’s supply chain came amid heightened tension over a U.S.-China trade war. 

The Chinese government raised the issue of ZTE last week with a visiting U.S. trade delegation.
ZTE said on Sunday it had submitted a request to the U.S. Commerce Department for the suspension of the ban.
ZTE appears to have suspended its online stores on its own website as well as on Alibaba Group’s e-commerce platform Taobao over the past few days, which display a “page being updated” message with no products to order.
The Chinese firm did not respond to calls and messages from Reuters seeking comment.
Consumer Cellular Inc, a U.S. wireless operator, said ZTE was unable to continue supplying phones after the sanctions, but had asked the company to hold inventory spots open as it worked to resolve the export ban, said Consumer Cellular Chief Executive John Marick in an interview.
Marick said ZTE has not given guidance on whether its phones can continue receiving software updates from Android, and discussions between the companies have been about ensuring ZTE can supply parts and service to honor phone warranties.
A ZTE employee told Reuters that staff had been reporting to work as normal but “with not much to do”. 

The employee, who declined to be named, said business trips had been halted.
Employees at ZTE’s headquarters in the southern Chinese technology hub of Shenzhen were cagey about speaking to reporters after the ban was announced, but some voiced concerns.
One employee said this was the “the biggest challenge” for ZTE since he joined 10 years ago. Another said he hoped the Chinese government would help, saying he was confident Xi Jinping would “sort out this trouble”.
ZTE settled the sanction case with the U.S. government last March after admitting to illegally shipping products with U.S. technology to countries including Iran and paying a record fine of nearly $900 million.
Last month, the U.S. government reactivated the ban after ZTE violated terms of the settlement and made repeated false statements.

Death of a Gangster

Rogue Company ZTE is First Victim of the China-U.S. Trade War

By Raymond Zhong

ZTE's logo on a building in Shanghai. The firm said it had ceased “major operating activities” after the Trump administration banned it from using components made in the United States.

SHENZHEN, China — Not Apple. Not Huawei. 

The first casualty of the high-tech cold war between the United States and China might be the biggest electronics maker you’ve never heard of.
The Chinese firm ZTE said on Wednesday it had ceased “major operating activities” after the Trump administration banned the company last month from using components made in the United States. With manufacturing halted at the ZTE plant in Shenzhen, factory workers have been getting called in for training sessions every other day or so — a snooze, they say. 

The rest of the time, they loaf around in nearby dorms.
Trading in the company’s shares has been suspended for weeks. 

Staff members have been instructed, in new guidelines reviewed by The New York Times, to reassure anxious clients, while being sure to avoid discussing with them the American technology from which the firm is cut off for the next seven years.
One of China’s most internationally successful technology suppliers, with about $17 billion in annual revenue, ZTE is facing a death sentence. 

The Commerce Department has blocked its access to American-made components until 2025, the company failing to punish employees who violated trade controls against Iran and North Korea.
American microchips power ZTE’s wireless stations. 

American optical components go into its optical fiber networks. 

Google’s Android operating system runs its smartphones. 

ZTE’s moment of crisis, if it leads to the company’s collapse, could also show how the tech war might ripple around the world.
The company has 75,000 employees and does business in more than 160 countries. 

It is the No. 4 smartphone vendor in the United States. 

And its telecommunications gear supports the digital backbone of a great swath of the developing world.
The wireless carrier MTN, which serves 220 million people in 22 nations in Africa and the Middle East, said last week that it was assessing contingency plans, “given our exposure to ZTE in our networks.” 

The chief executive of the Norwegian carrier Telenor, which has large operations in Asia, said the company was “following the situation closely.”
Several employees described the situation inside ZTE on condition of anonymity, fearing reprisals from their employer. 

A company spokeswoman declined to comment.
The United States has for years deemed ZTE and Huawei, its much larger rival in network gear, to be national security threats. 

Large American mobile carriers already shun the companies’ telecom equipment. 

The White House is mulling an executive order that would make it harder for government agencies to buy from them.
In response to the sanctions issued last month, ZTE said it had worked to improve its compliance practices. 

It has requested a stay on the export ban and has sent additional information to the Commerce Department in support of its argument.
Zhongxing Telecommunications Equipment’s corporate predecessor was established in 1985, as a joint venture between a state-owned aerospace factory and two other firms. 

Within a few years, the company was producing equipment for phone operators in the Chinese countryside, before expanding into cities and then overseas.
“Zhongxing” means “China Prospers.” 

The company’s controlling shareholder is Shenzhen Zhongxingxin Telecommunications Equipment, which is nearly half-owned by two Chinese state entities. 

Several members of the firm’s board also have leadership roles at Zhongxingxin. 

ZTE says Zhongxingxin does not interfere in its business decisions. 

Working on a circuit board at a ZTE plant in Shenzhen, China.

The electronics maker released its first smartphone for the American market in 2011. 

Within two years, it was a top-five vendor in the United States, largely targeting people who wanted a phone but not a long contract with a cell carrier. 

Even in China, the company has not had great success selling smartphones.
“It’s extraordinarily impressive, what they’ve done in the U.S.,” said Avi Greengart, a consumer tech analyst with the research firm GlobalData. 

“So many Asian companies either said they would come to the U.S. and then had to pull back — like Xiaomi, like Huawei. Or they invested in the U.S. and weren’t able to make it work.”
ZTE’s secret, Mr. Greengart said, was a light touch. 

The company’s American managers have had significant leeway in tailoring their products to the local market. 

“That’s not the way many of its competitors work,” he said.
The company was, for instance, quick to spot that Americans were gravitating toward larger phones. It offered inexpensive devices with big screens — if not those with the highest resolution — and fingerprint readers at a time when such features were considered premium.
To build its brand, ZTE has sponsored several National Basketball Association teams. 

In February, the company and the Cleveland Cavaliers celebrated Chinese New Year at a game against the Brooklyn Nets. 

The Quicken Loans Arena in Cleveland was decorated with Chinese lanterns. 

An acrobat rode around the court on a unicycle at halftime.
In Africa, ZTE and Huawei have helped connect many of the continent’s fast-growing economies, often with the help of generous export financing from Chinese state banks. 

ZTE has laid thousands of miles of fiber optic cable in Ethiopia and it recently signed an agreement with MTN of South Africa to test fifth-generation wireless, or 5G.
Some of the company’s deals with cash-stricken governments have attracted accusations of corruption and overbilling. 

On the whole, though, ZTE is known in Africa for good service, said Dobek Pater, a telecom expert at the research firm Africa Analysis.
“The initial perception — of Chinese companies coming in and being very secretive and not wanting to have much to do with the locals — has changed over the past decade,” he said.
In Iran, it was secrecy of another kind that got ZTE into trouble.
The company used an elaborate system to sell American-made goods there, and then lied and deleted emails when the Commerce Department began to investigate. 

It even made plans to resume shipments to Iran while the investigation was ongoing, according to the Commerce Department.
“At home, they might have been doing some things not according to standards, and then, when it came time to internationalize, they might not have done so entirely properly,” said Gu Wenjun, chief analyst at ICwise, a semiconductor market research firm in Shanghai.
“For other companies thinking about how to follow the rules and manage internal risks, I think this is going to serve as a wakeup call,” Mr. Gu said.
Late last Friday, ZTE management sent an email to staff members updating them on the company’s efforts to reconcile with Washington.
“Even the longest road has an end,” the email concluded. 

“Even the longest night ends in day. Let us stay resolute and confident, and, full of hope, greet the coming dawn!”