Criminal Company

Inside the U.S. war on Huawei

By Cassell Bryan-Low, Colin Packham, David Lague, Steve Stecklow, Jack Stubbs

CANBERRA -- In early 2018, in a complex of low-rise buildings in the Australian capital, a team of government hackers was engaging in a destructive digital war game.
The operatives – agents of the Australian Signals Directorate, the nation’s top-secret eavesdropping agency – had been given a challenge. 

With all the offensive cyber tools at their disposal, what harm could they inflict if they had access to equipment installed in the 5G network, the next-generation mobile communications technology, of a target nation?
What the team found, say current and former government officials, was sobering for Australian security and political leaders: The offensive potential of 5G was so great that if Australia were on the receiving end of such attacks, the country could be seriously exposed. 

The understanding of how 5G could be exploited for spying and to sabotage critical infrastructure changed everything for the Australians, according to people familiar with the deliberations.
Mike Burgess, the head of the signals directorate, recently explained why the security of fifth generation, or 5G, technology was so important: It will be integral to the communications at the heart of a country’s critical infrastructure -- everything from electric power to water supplies to sewage, he said in a March speech at a Sydney research institute.
Washington is widely seen as having taken the initiative in the global campaign against Huawei Technologies Co Ltd, a tech juggernaut that in the three decades since its founding has become a pillar of Beijing’s bid to expand its global influence. 

Yet Reuters interviews with more than two dozen current and former Western officials show it was the Australians who led the way in pressing for action on 5G; that the United States was initially slow to act; and that Britain and other European countries are caught between security concerns and the competitive prices offered by Huawei.
The Australians had long harbored misgivings about Huawei in existing networks, but the 5G war game was a turning point. 

About six months after the simulation began, the Australian government effectively banned Huawei, the world’s largest maker of telecom networking gear, from any involvement in its 5G plans. 

An Australian government spokeswoman declined to comment on the war game.
After the Australians shared their findings with U.S. leaders, other countries, including the United States, moved to restrict Huawei.
The anti-Huawei campaign intensified last week, when President Donald Trump signed an executive order that effectively banned the use of Huawei equipment in U.S. telecom networks on national security grounds and the Commerce Department put limits on the firm’s purchasing of U.S. technology. 

Google’s parent, Alphabet, suspended some of its business with Huawei, Reuters reported.
Until the middle of last year, the U.S. government largely “wasn’t paying attention,” said retired U.S. Marine Corps General James Jones, who served as national security adviser to Barack Obama. 

What spurred senior U.S. officials into action? 

A sudden dawning of what 5G will bring, according to Jones.
“This has been a very, very fast-moving realization” in terms of understanding the technology, he said. 

“I think most people were treating it as a kind of evolutionary step as opposed to a revolutionary step. And now that light has come on.”
The Americans are now campaigning aggressively to contain Huawei as part of a much broader effort to check Beijing’s growing military might under Xi Jinping. 

Strengthening cyber operations is a key element in the sweeping military overhaul that Xi launched soon after taking power in 2012, according to official U.S. and Chinese military documents. 

The United States has accused China of widespread, state-sponsored hacking for strategic and commercial gain.

A THREAT TO CRITICAL INFRASTRUCTURE
If Huawei gains a foothold in global 5G networks, this will give Beijing an unprecedented opportunity to attack critical infrastructure and compromise intelligence sharing with key allies. 

This could involve cyber attacks on public utilities, communication networks and key financial centers.
In any military clash, such attacks would amount to a dramatic change in the nature of war, inflicting economic harm and disrupting civilian life far from the conflict without bullets, bombs or blockades.

However, blocking Huawei is a huge challenge for Washington and its closest allies, particularly the other members of the so-called Five Eyes intelligence-sharing group – Britain, Canada, Australia and New Zealand. 

From humble beginnings in the 1980s in the southern Chinese boom town of Shenzhen, Huawei has grown to become a technology giant that is deeply embedded in global communications networks and poised to dominate 5G infrastructure. 

There are few global alternatives to Huawei, which has financial muscle – the company reported revenue for 2018 jumped almost 20 percent to more than $100 billion – as well as competitive technology and the political backing of Beijing.
For countries that exclude Huawei there is a risk of retaliation from Beijing. 

Since Australia banned the company from its 5G networks last year, it has experienced disruption to its coal exports to China, including customs delays on the Chinese side. 

Tension over Huawei is also exposing divisions in the Five Eyes group, which has been a foundation of the post-Second World War Western security architecture. 

During a trip to London on May 8, U.S. Secretary of State Mike Pompeo issued a stark warning to Britain, which has not ruled out using Huawei in its 5G networks. 

“Insufficient security will impede the United States’ ability to share certain information within trusted networks,” he said. 

“This is exactly what China wants; they want to divide Western alliances through bits and bytes, not bullets and bombs.”

Washington argues that surreptitious backdoors aren’t necessarily needed to wreak havoc in 5G systems. 

The systems will rely heavily on software updates pushed out by equipment suppliers -- and that access to the 5G network, says the United States, could be used to deploy malicious code.
Asked whether the United States was slow to react to potential threats posed by 5G, Robert Strayer, the State Department’s lead cyber policy diplomat, told Reuters that America had long been concerned about Chinese telecom companies, but that over the past year, as 5G loomed closer, “we were starting to talk more and more with our allies.” 

Banning Huawei from 5G networks remains “an end goal,” he said.
The West has long harbored concerns about Chinese telecom equipment. 

In 2012, a U.S. House Intelligence Committee report concluded Chinese tech companies posed a national security threat. 
Despite such concerns, the U.S. government’s response to the threats posed by 5G only took shape more recently.
In February 2018, Malcolm Turnbull, then prime minister of Australia, flew to Washington D.C. 

Even before Australia’s eavesdropping agency had run its war game, Turnbull was already raising red flags in Washington. 

A former technology entrepreneur, he believed 5G presented significant risks and wanted to press allies to act against Huawei.
“He was warning about how important 5G networks would be and the security risks we all needed to think about around countries that had capability, form and intent, as well as coercive laws,” a senior Australian source told Reuters.
A spokesman for Turnbull declined to comment.
Turnbull and his advisers met U.S. officials, including Kirstjen Nielsen, then U.S. secretary of homeland security, and Michael Rogers, then head of the U.S. National Security Agency, the U.S. signals-intelligence operation. 

The Australians said they believed Beijing could compel Huawei to do its bidding and that this posed a threat should tensions with China rise in the future, said two of the Australian officials familiar with the meeting.
The U.S. officials were receptive to the Australian message, but imposing restrictions on the world’s largest maker of mobile network gear didn’t appear to be a high priority, according to the two Australian officials. 

“They didn’t share our concern with the same urgency,” said one.
Rogers declined to comment. 

A Department of Homeland Security official did not elaborate on the meeting, but said the agency works closely with Australia on security issues and that “China will continue to use cyber espionage and bolster cyber-attack capabilities to support its national security priorities.”
5G technology is expected to deliver a huge leap in the speed and capacity of communications. Downloading data may be up to 100 times faster than on current networks.
But 5G isn’t only about faster data. 

The upgrade will see an exponential spike in the number of connections between the billions of devices, from smart fridges to driverless cars, that are expected to run on the 5G network. 

“It’s not just that there will be more people with multiple devices, but it will be machines talking to machines, devices talking to devices – all enabled by 5G,” said Burgess, the Australian Signals Directorate chief, in his March address.
This configuration of 5G networks means there are many more points of entry for a hostile power or group to conduct cyber warfare against the critical infrastructure of a target nation or community. 

That threat is magnified if an adversary has supplied equipment in the network, U.S. officials say.

In July 2018, Britain delivered a blow to Huawei. 

A government-led panel that includes senior intelligence officials said it was no longer fully confident it could manage national security risks posed by the Chinese telecom equipment giant.
That panel oversees the work of a laboratory that was set up by the British government in 2010 and is funded by Huawei to vet the company’s equipment used in the UK. 

The facility was established because even then Huawei was perceived as a security risk. 

The oversight panel said serious problems it had identified with Huawei’s engineering processes “exposed new risks in the UK telecommunication networks and long-term challenges in mitigation and management.”
That report was a “bombshell,” shaping how the Americans viewed the Huawei 5G risk, said one U.S. official.
U.S. officials also point to Chinese laws enacted in recent years that they say could compel individuals and companies to assist the Chinese government in conducting espionage.

THE WEST AWAKES
Through the middle of last year, the Australians continued to apprise other countries of their worries about 5G. 

“We were sharing our concerns about security with many allies, not just the U.S. and not just the traditional partners,” said one of the senior Australian officials. 

“We shared our thoughts with Japan, Germany, other European countries and South Korea.”
In Washington, the administration began imposing restrictions on Huawei. 

In August, Trump signed a bill banning federal agencies and their contractors from using equipment from Huawei and ZTE Corp, another Chinese telecom equipment maker. 

Huawei has since filed a lawsuit in federal court in Texas challenging the ban.
In late August, the Australians went further: They banned companies that didn’t meet their security requirements, which included Huawei, from supplying any equipment for the country’s 5G network, whether run by the government or by private firms.
In November, New Zealand’s intelligence agency blocked the country’s first request by a telecom service provider to use Huawei kit for a 5G network, citing national security concerns.
Like the Australians and Americans, British security officials had concerns over China’s potential use of Huawei as a channel for conducting espionage. 

But the options are limited. 

Huawei is one of only three major global companies that analysts say can supply a broad range of advanced mobile network equipment at scale. 

The other two are Ericsson and Nokia. 

And Huawei has a reputation among telecom operators for supplying cost-effective equipment promptly.
Nevertheless, British security officials were becoming increasingly frustrated with Huawei’s failure to fix software flaws in its equipment, particularly discrepancies in the source code – the programs’ underlying set of instructions.
This problem means the laboratory near Oxford set up to vet Huawei equipment can not even be sure that the code it is testing is exactly the same as the code Huawei deploys in its real-world equipment.
This makes it difficult to provide safety assurances about the company’s gear.

British officials say the array of flaws could be exploited by malevolent China.

Ian Levy, a British security official who oversees the UK’s review of Huawei equipment, told Reuters the company’s software engineering is like something from 20 years ago. 

“The chance of a vulnerability with a Huawei piece of kit is much higher than other vendors,” he said.
The company said it has pledged to spend at least $2 billion “over the next five years” to improve its software engineering capabilities.
British ministers have agreed to allow Huawei a restricted role in building parts of its 5G network, but the government has yet to announce its final decision. 

The European Union has left it to individual governments to decide whether to ban any company on national security grounds. 

Some European security officials say banning one supplier doesn’t address the broader issue of the risks posed by Chinese technology in general.

As the tensions between the West and Huawei intensified through last year, they suddenly took a personal turn. 

U.S. law enforcement officials had for some time been investigating links between Huawei and Iran, including the involvement of Meng Wanzhou, Huawei’s chief financial officer, who is the daughter of the company’s founder. 

The probe followed Reuters stories in 2012 and 2013 that revealed links between Huawei, Meng and another company that attempted to violate U.S. sanctions on Iran.
When U.S. officials became aware that Meng would be traveling through Vancouver in December, they pounced, asking Canada to detain her on allegations of bank and wire fraud. 

Meng remains free on bail in Canada while the U.S. government tries to have her extradited. 

The Huawei conflict isn’t only about U.S.-China superpower rivalry: The activities of Meng and Huawei were under scrutiny by U.S. authorities long before Trump began a trade war with China, according to interviews with people familiar with those probes. 

But there is no doubt the wider showdown with Huawei has now become intensely geopolitical.
In recent months, the U.S. has ramped up diplomatic efforts to urge allies to sideline Huawei. 

5G is a “game-changing technology with implications across all aspects of society from business, government, military and beyond,” Gordon Sondland, U.S. ambassador to the European Union, told Reuters in February. 

“It seems common sense to me to not hand over the keys to your entire society to an actor that has … demonstrated malign conduct.”
Asked whether there is evidence of Huawei equipment having been used for espionage, Sondland said “there is classified evidence.” 

He declined to expand on the nature of the material beyond saying there was no doubt that Huawei had “the capability to hack a system” and “the mandate by the government to do so upon request.”
Pompeo has publicly gone further than most U.S. officials by directly linking the company to Beijing. “Huawei is owned by the state of China and has deep connections to their intelligence service,” he said in March. 

“That should send off flares for everybody who understands what the Chinese military and Chinese intelligence services do.”

While Huawei was initially muted in its public response, it too has become more combative. 

In late February, the company confronted the United States at a major annual gathering of mobile industry executives in Barcelona, where Huawei’s red logo was ubiquitous. 

Top American officials arrived intent on warning government and industry representatives off Huawei. 

But the company had flown in a team of senior executives to offer customers and representatives of European governments reassurance in the face of the U.S. accusations.
In a keynote speech, Guo Ping, a deputy chairman at Huawei, took aim at America’s own spying operations. 

Europeans pushed back, too. 

During one closed-door session, senior representatives from European telecom operators pressed a U.S. official for hard evidence that Huawei presented a security risk. 

One executive demanded to see a smoking gun, recalled the U.S. official.
The American official fired back: “If the gun is smoking, you’ve already been shot. I don’t know why you’re lining up in front of a loaded weapon.”

US lawmakers urge Canada to snub China’s Huawei from 5G network out of grave concerns over US security

Huawei equipment in Canada’s 5G networks would pose dangers for US networks
Reuters

Senator Marco Rubio

Two leading US lawmakers urged Canadian Prime Minister Justin Trudeau on Friday to consider dropping China’s Huawei Technologies from helping to build next-generation 5G telecommunications networks.
Senators Mark Warner, a Virginia Democrat, and Marco Rubio, a Florida Republican, said they had grave concerns about the prospects of Huawei equipment in Canada’s 5G networks on the grounds that it would pose dangers for US networks.
“While Canada has strong telecommunications security safeguards in place, we have serious concerns that such safeguards are inadequate given what the United States and other allies know about Huawei,” the lawmakers wrote in the letter to Trudeau. 

Warner and Rubio are on the Senate Select Committee on Intelligence.

Senator Mark Warner

A spokesman for Huawei did not immediately respond to an email request for comment.
Huawei’s chips and equipment have faced scepticism in a number of developed countries, with Australia saying in August that it would ban Huawei technology from its 5G network.

China's Criminal Economic Activity

With new indictment, U.S. launches aggressive campaign to thwart China’s economic attacks

By Ellen Nakashima

Attorney General Jeff Sessions announced a new initiative to combat mounting criminal economic activity by China. 

The Justice Department on Thursday unveiled a broad new initiative to combat mounting criminal economic activity by China, announcing the plan as U.S. officials unsealed charges against several individuals and Chinese and Taiwanese companies for trade-secret theft.
Thursday’s actions follow a series of moves meant to put Beijing on notice. 

The Trump administration has prioritized countering threats to U.S. national and economic security as China seeks to supplant the United States as the world’s dominant economic power. 

The administration already has imposed tariffs on $250 billion worth of Chinese goods, and since September federal prosecutors have brought charges in three intellectual property theft cases involving Chinese spies and hackers.
“Chinese economic espionage against the United States has been increasing — and it has been increasing rapidly,” said Attorney General Jeff Sessions. 

“Enough is enough. We’re not going to take it anymore.”
The initiative is significant in that it fuses ongoing efforts within the FBI, Justice Department and other federal agencies into a single coordinated initiative, and sends a clear message to Beijing that Chinese economic espionage — whether by cyber or human means — will not be tolerated, officials said. 

The Chinese embassy did not respond to a request for comment.
As both countries place greater emphasis on competition and security, the big question, analysts say, is whether the two governments can maintain commercial engagement despite increasing tensions over the quest for technological supremacy. 

In the meantime, Washington is signaling that the gloves are off.
Under the initiative, Sessions said, the department will aggressively pursue trade-secret theft cases, and develop a strategy to identify researchers and defense industry employees who’ve been “co-opted” by Chinese agents to transfer technology to China.
“China wants the fruits of America’s brainpower to harvest the seeds of its planned economic dominance,” Assistant Attorney General John Demers said. 

With this new initiative, he said, “we will confront China’s malign behaviors and encourage them to conduct themselves as they aspire to be one of the world’s leading nations.”
The indictment alleges the defendants conspired to steal trade secrets from Micron, an Idaho-based semiconductor company with a subsidiary in Taiwan. 

Micron is worth an estimated $100 billion and is the only company in the United States that makes “dynamic random-access memory,” or DRAM, high-capacity data storage used in computers, mobile devices and other electronics. 

The company has a 20 to 25 percent share of the world’s supply of DRAM, prosecutors said.
According to the indictment, the Chinese government set up a state-owned company, Fujian Jinhua Integrated Circuit Co. Ltd., for the express purpose of developing DRAM technology and sought to learn trade secrets through the criminal acts of former employees of Micron’s Taiwan branch.
In July 2015, the president of Micron’s Taiwan subsidiary, Chen Zhengkun, also known as Stephen Chen, left to join United Microelectronics Corporation, a semiconductor foundry headquartered in Taiwan. 

Some months later, in early 2016, Jinhua, the Chinese company, began discussions with United Microelectronics to forge a technology cooperation agreement, according to the indictment. 

Chen helped negotiate the agreement, and in early 2017 became president of Jinhua in charge of its DRAM factory, prosecutors said.
It was Chen, who orchestrated the theft of trade secrets from Micron worth up to $8.75 billion.
Chen is said to have recruited former colleagues, including defendant He Jianting, or J.T. Ho, a Taiwanese national, who before leaving Micron stole confidential DRAM materials.

Chen also brought on defendant Kenny Wang, a Micron manager and Taiwanese national who stole more than 900 files, some containing confidential DRAM designs.

Wang downloaded secrets from Micron’s servers in the United States and stored them on his Google Drive account, the indictment said.
“This was,” said U.S. Attorney for the Northern District of California Alex Tse, “some of the most advanced semiconductor technology in the world.”
If convicted, the defendants face up to 14 years in prison and $5 million in fines. 

The two companies, United Microelectronics and Jinhua, could face fines worth more than $20 billion. 

The three men charged Thursday are in China, U.S. officials said.
This week, the Commerce Department added Jinhua to its “entity list” to prevent it from buying goods and services in the United States, effectively cutting it off from the U.S. market. 

Without equipment sold only in the United States, Jinhua cannot build the DRAM chips.
The Justice Department on Thursday also filed a civil suit in San Francisco seeking to stop the further transfer of these stolen trade secrets and to prevent the defendants from exporting to the United States any products resulting from the theft.
“We are not just reacting to crimes — we are acting to block the defendants from doing any more harm to Micron,” Sessions said.
The attorney general outlined a number of laws that prosecutors would use, including the Foreign Agents Registration Act, to identify unregistered agents seeking to advance China’s political agenda.
Congress in August passed the Foreign Investment Risk Review Modernization Act to expand the government’s power to review investments from foreign countries — a response to China’s efforts to obtain U.S. technology through mergers, acquisitions and takeovers. 

Last month, the Treasury Department released interim rules to implement the new law. 

Sessions said the Justice Department will work with Treasury on further developing those regulations.
The Justice Department also will target Chinese threats to U.S. companies that provide components for sensitive technologies, especially those in the telecommunications sector as it readies for the transition to 5G networks.
“This is consistent with the state of confrontational actions over the last couple of weeks taken by the administration to tackle everything China’s trying to do,” said Samm Sacks, a senior fellow at the Center for Strategic and International Studies. 

“It’s bigger than intellectual property theft. It’s supply chain risk. It’s China’s efforts to be global leaders in 5G. It’s traditional espionage. It’s influence operations. This is part of a much broader whole-of-government approach to countering China’s efforts to gain strategic advantage, particularly in emerging technology.”
Sessions noted that earlier this year, U.S. Trade Representative Robert E. Lighthizer found that Chinese sponsorship of hacking into American businesses has gone on for more than a decade. 

By some estimates, the cost to the U.S. economy is $30 billion annually. 

Chinese pledge

In September 2015, Chinese dictator Xi Jinping pledged that China would not target U.S. companies for the economic benefit of nonmilitary Chinese companies.
“Obviously that commitment has not been met,” Sessions said.
Dmitri Alperovitch, a cyber expert and chief technology officer at the cybersecurity firm CrowdStrike, said the Chinese military curtailed its commercial hacking in 2016 but that over the past year, operatives affiliated with China’s Ministry of State Security have increasingly taken up the slack, stealing military, medical, agricultural, high-tech and other secrets.
For months, the Trump administration has been considering ways to decouple the U.S. and Chinese tech sectors: restricting visas for Chinese students in the scientific, engineering and math fields, banning Chinese telecommunications equipment companies from U.S. 5G networks, expanding export controls on U.S. tech firms, and increasing official scrutiny of Chinese investments and joint U.S.-Chinese research, Sacks said.
“This initiative is an important set of hammer blows against China’s efforts to disadvantage American companies, steal their intellectual property, and exercise unwanted influence in our universities and political system,” said James Mulvenon, a China expert and general manager of SOS International’s Special Programs Division, which provides consulting services to intelligence and defense agencies.

The U.S.-China Rivalry Is, More Than Ever, a Fight Over Tech

By CECILIA KANG and ALAN RAPPEPORT

The chip maker Qualcomm is the target of a hostile takeover bid by Broadcom, a proposal that the United States government has said could give Chinese rivals an advantage. 

WASHINGTON — As the United States and China look to protect their national security needs and economic interests, the fight between the two financial superpowers is increasingly focused on a single area: technology.
The clash erupted in public on Tuesday after the United States government, citing national security concerns, called for a full investigation into a hostile bid to buy the American chip stalwart Qualcomm — a review that is often a death knell for a corporate deal.
The proposed acquisition by the Singapore-based Broadcom would have been the largest deal in technology history, creating a major force in the development of the computer chips that power smartphones and many internet-connected devices. 

But a government panel said the takeover could weaken Qualcomm and give its Chinese rivals an advantage.
“China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover,” a United States Treasury official wrote in a letter calling for a review of the deal.
The fight over technology is redefining the rules of engagement in an era when national security and economic power are closely intertwined.

China, under Xi Jinping, has launched an ambitious plan to dominate mobile technology, supercomputers, artificial intelligence and other cutting-edge industries, putting huge resources behind an effort that it considers crucial to the country’s government, military and economy. 

Beijing wants to build its own technology champions and is encouraging companies to acquire the engineering, expertise and intellectual property from big rivals in the United States.
The aggressive push has set off alarms in Washington, with policymakers and lawmakers fearful that American giants could lose their edge. 

President Trump is now building up the country’s defenses, as the government investigates violations of American intellectual property rights and intensifies scrutiny of overseas deals.
The secretive panel that is reviewing the Qualcomm deal, the Committee on Foreign Investment in the United States, or Cfius, has taken on a central role in the resistance to Chinese investment. 

The panel, which is led by the Treasury Department and made up of representatives from multiple agencies, has the authority to block foreign acquisitions of American companies for national security reasons; it has effectively killed several acquisitions linked to Chinese buyers over the past year. Lawmakers are also calling to expand the powers of Cfius to reflect the broader scope of China’s interests.

[ What is Cfius? It is the “ultimate regulatory bazooka,” according to an executive who works on mergers and acquisitions. Read more about the panel here » ]

“The Trump administration turbocharged it,” Tony Balloon, the head of the corporate China practice at the law firm Alston & Bird, said, referring to Cfius. 

“There is now a recognition in government that foreign investors, particularly from China, are getting more and more sophisticated on how they get access to technology in the U.S.”
With Qualcomm, the government has articulated its evolving vision for global economic leadership.
The company, which is a major supplier to the United States government, is a leading player in the race to build the next generation wireless technology, known as 5G. 

These high-speed mobile networks will form the infrastructure backbone that ultimately connects home appliances, streetlights and driverless cars to the internet. 

And Qualcomm’s chips will be in the multitude of devices and machines that will run on those networks.
“Having a well-known and trusted company hold the dominant role that Qualcomm does in the telecommunications infrastructure provides significant confidence in the integrity of such infrastructure as it relates to national security,” the Treasury official wrote in the letter.

Huawei’s display at the Mobile World Congress last month in Barcelona. The Chinese telecom-equipment giant was cited by the United States as a benefactor of the a Qualcomm takeover.

The government specifically cited Huawei, the Chinese telecom-equipment giant, as a potential competitor that could move into a breach created by a merger. 

The Chinese company has spent heavily on 5G, and the government said it owns 10 percent of the essential patents.
“It is the new paradigm,” said Paul Triolo, head of global technology policy at Eurasia Group, a geopolitical risk consulting company. 

“That implies technologies with 5G, artificial intelligence, biotech and automation are now considered more sensitive and part of a national innovation base that needs to be protected.”
Broadcom said it was cooperating with Cfius, saying it was “making the combined company a global leader in critical 5G and other technologies.” 

Qualcomm, in an earlier statement, said the review was a “very serious matter.”
The letter and the call for an investigation reflect the newly forceful position of Cfius.
In most cases, the panel weighs in after a deal is announced. 

With Qualcomm, Cfius is taking a proactive role and investigating before an acquisition agreement has even been signed.
Cfius has stymied several deals in the past year.
MoneyGram, the money transfer company, and Ant Financial, the Chinese electronics payment company, called off their merger in January, citing regulatory concerns of Cfius. 

If the deal had gone through, Ant Financial would have had access to reams of financial data, which could have created security problems. 

Ant Financial has said that consumer data would have stayed in the United States.
Last year, the White House blocked a Chinese-backed investor from buying Lattice Semiconductor, which is a supplier to the United States government. China Venture Capital Fund Corporation, which was part of the investment group, is owned by state-backed entities.
“It’s very much an expansion of what is considered to be national security,” said Tai Ming Cheung, director of the Institute on Global Conflict and Cooperation at the University of California at San Diego. 

“This is about China’s efforts to invest and acquire key parts of the U.S. innovation system.”
Cfius could soon have even more muscle.
There is new legislation to broaden the jurisdiction of Cfius; it has bipartisan support in the Senate. The Trump administration has expressed support for rewriting the rules governing Cfius, and Steven Mnuchin, the Treasury secretary, said last year that the administration was working closely with the House and the Senate.
The bill, proposed by Senators John Cornyn, a Republican from Texas, and Dianne Feinstein, a Democrat from California, would give Cfius the authority to assess some types of joint ventures, minority investments and real estate transactions near military bases. 

The legislation would also widen the definition of “critical technologies” slated for potential review to include “emerging technologies that could be essential for maintaining the U.S. technological advantage over countries that pose threats, such as China,” according to a news release on the bill.
Adding to the scrutiny, the United States Trade Representative has also opened an investigation into whether China is “harming American intellectual property rights, innovation or technology development.” 

One concern is that American companies have been forced to hand over technology, create joint ventures and otherwise help homegrown players, in exchange for access to the Chinese market. 

Qualcomm, for example, has been working with the Chinese government to develop drones, artificial intelligence and mobile technology.
Technology companies are stuck in the middle of the fight between the United States and China. While there are concerns about Chinese encroachment, the industry also recognizes that such deals are the price for entry to the world’s second-largest economy. 

Companies have protested the proposed changes to Cfius, saying an expansion of its powers could be misused and that the new definitions of emerging technologies are unclear.
IBM has said the bill would limit the “ability of American firms to do business abroad while empowering foreign competitors to capture global markets.” 

The Information Technology Industry Council, a tech trade group, has lobbied against the changes, saying they add complexity for Silicon Valley companies that often have intricate business ties in China.
“They are between a rock and a hard place,” said Rob Atkinson, president of the Information Technology and Innovation Foundation, a think tank that is sponsored by technology firms like Microsoft. 

“The Chinese government says you have to do this to operate here. The U.S. says, but you can’t do that.”

Chinese Espionage

Washington Is Obsessed With Huawei
By Stu Woo

In intervening this week in the Broadcom-Qualcomm takeover battle, the U.S. government also had its eye on another company: China’s Huawei Technologies Co.
Huawei in the past three months has been the subject of a series of interventions by the Trump administration and Congress across the telecommunications industry.
The latest was Washington’s move this week to intervene in Singapore-based Broadcom Ltd.’s attempted hostile takeover of U.S.-based Qualcomm Inc. 

It ordered Qualcomm to delay a shareholder vote that Broadcom hoped would elevate directors friendly to its $117 billion bid.
In a letter explaining its interference, the Committee on Foreign Investment in the U.S., a panel that reviews foreign takeovers for national-security concerns, cited its worry that China, specifically Huawei, could gain the upper hand in the development of 5G technology.
Translation: Removing an able U.S. competitor to Huawei risks strengthening the Chinese company at the expense of the American wireless industry.
Broadcom on Tuesday tried to dispel those concerns. 

“We are fully cooperating with CFIUS, and are absolutely committed to making the combined company a global leader in critical 5G and other technologies,” a spokesman said in a statement.
5G is the next-generation mobile-network technology that the industry is preparing to roll out around the world. 

American officials and Western telecom companies worry that if China gains widespread 5G before the U.S. does, it could have a head start in technologies that the new networks’ speed and capacity are expected to kick-start, like self-driving cars.
Washington policy makers and industry executives have suggested a deeper worry that, with Huawei’s help, China could displace Silicon Valley as the world’s innovation center and lure top engineers there. 

Another concern: If Huawei extends its lead in the telecom-equipment industry, American wireless carriers might have no choice but to use Huawei gear in the future.

Major American wireless carriers, such as AT&T Inc. and Verizon Communications Inc.,have said they are initially focusing 5G coverage in a few cities. 

“What I see in the U.S. is wireless carriers choosing particular geographic markets for 5G,” said Gartner Inc. analyst Ian Keene. 

“The way the Chinese are going to approach it, it’s going to be blanketed.”
The extent to which the U.S. government shares that fear was laid bare in unusual clarity in the CFIUS letter. 

The committee said it would probe whether a Broadcom-Qualcomm tie-up would “leave an opening for China to expand its influence on the 5G standard setting process.” 

It cited specifically Huawei’s 5G “engagement.”

In the past decade, U.S. telecom companies such as Lucent and Motorola merged into foreign hands, leaving Qualcomm as one of the few American powerhouses in the industry. 

Huawei buys chips from and pays patent royalties to Qualcomm, and on Tuesday the two sides were close to an agreement to settle a patent-royalty dispute, according to people familiar with the matter. The two also fiercely compete for cellular patents. 

In that $14 billion a-year-industry, Qualcomm dominates. 

Both are leaders in the international consortium currently setting standards for 5G.

“When you look at the whole package—the standards innovations, the hardware innovation, the impact on the industry from a technology perspective – then yes, Qualcomm is the leader in 5G,” said Bob DiFazio, vice president at wireless-technology developer InterDigital.
Concern over Huawei isn’t new. 

Congress effectively barred major carriers from using the company, after a 2012 report concluded Huawei's equipment is designed to spy or disable telecom networks.

Late last year, congressional pressure mounted on AT&T to drop plans to sell Huawei smartphones in the U.S. 

In a surprise reversal, the company did just that in January; it declined to cite a reason.
Then, a National Security Council official cited Huawei’s telecom-equipment-industry dominance in a proposal to build a government-backed nationwide, 5G wireless network. 

After the proposal became public in January, drawing widespread criticism from other government officials and the wireless industry, a Trump administration spokeswoman said it was only an early stage idea.
And in December, President Donald Trump signed a defense-spending bill that will ban equipment from Huawei and China’s ZTE Corp. from the Defense Department’s nuclear-weapon infrastructure. Lawmakers in the House and Senate have also introduced separate bills to bar the U.S. government and its contractors from using Huawei and ZTE equipment.

https://www.phonearena.com/news/Former-CIA-chief-has-seen-hard-evidence-of-Huawei-spying-on-behalf-of-China_id45500

Chinese Espionage

US lawmakers urge AT&T to cut commercial ties with Huawei

Reuters

U.S. lawmakers are urging AT&T, the No. 2 wireless carrier, to cut all commercial ties to Chinese phone maker Huawei Technologies and oppose plans by telecom operator China Mobile to enter the U.S. market because of national security concerns, said two congressional aides.
The warning comes after the administration of President Donald Trump took a harder line on policies initiated by his predecessor Barack Obama on issues ranging from Beijing's role in restraining North Korea to Chinese efforts to acquire U.S. strategic industries.
Earlier this month, AT&T was forced to scrap a plan to offer its customers Huawei handsets after members of Congress lobbied against the idea with federal regulators, sources told
Reuters.
The U.S. government has also blocked a string of Chinese acquisitions over national security concerns, including Ant Financial's proposed purchase of U.S. money transfer company MoneyGram International Inc.
The lawmakers are also advising U.S. companies that if they have ties to Huawei or China Mobile, it could hamper their ability to do business with the U.S. government.
One of the commercial ties senators and House members want AT&T to cut is its collaboration with Huawei over standards for the high-speed next generation 5G network, the aides said.
Another is the use of Huawei handsets by AT&T's discount subsidiary Cricket, the aides said.
China Mobile, the world's biggest mobile phone operator, did not respond to requests for comment.
AT&T declined to comment but said that it had made no decisions on 5G suppliers. 

U.S. lawmakers who have in the past expressed concerns about the prospect of the deal between AT&T and Huawei either declined to comment or were not immediately available.
Huawei declined to comment.
National security experts fear that any data from a Huawei device, for example about the location of the phone's user, would be available to Chinese government intelligence services.
In 2012, Huawei and ZTE were the subject of a U.S. investigation into whether their equipment provided an opportunity for foreign espionage and threatened critical U.S. infrastructure.
"The next wave of wireless communication has enormous economic and national security implications. China's participation in setting the standards and selling the equipment raises many national security issues that demand strict and prompt attention," said Michael Wessel, a member of the U.S.-China Economic and Security Review Commission, which was set up by Congress.
U.S. lawmakers do not want China Mobile to be given a license to do business in the United States.

China Mobile applied for the license in 2011, and the application is pending before the Federal Communications Commission.
Huawei and Chinese telecom firms have long struggled to gain a toehold in the U.S. market, partly because of U.S. government pressure on potential U.S. partners.
Two Republican lawmakers, Representatives Michael Conaway and Liz Cheney, introduced a bill this week that bars the U.S. government from using or contracting with Huawei or ZTE, a Chinese telecommunications and equipment and systems company.