Rogue Company

U.S. Probing Huawei for Iran Sanctions Violations
BY KAREN FREIFELD and Eric Auchard

Beijing's eyes and ears

NEW YORK/LONDON -- U.S. prosecutors in New York have been investigating whether Chinese tech company Huawei violated U.S. sanctions in relation to Iran, according to sources familiar with the situation.
Since at least 2016, U.S. authorities have been probing Huawei's alleged shipping of U.S.-origin products to Iran and other countries in violation of U.S. export and sanctions laws, two of the sources said.
News of the Justice Department probe follows a series of U.S. actions aimed at stopping or reducing access by Huawei and Chinese smartphone maker ZTE Corp to the U.S. economy amid allegations the companies could be using their technology to spy on Americans.
The Justice Department probe is being run out of the U.S. attorney's office in Brooklyn, the sources said. 

John Marzulli, a spokesman for the prosecutor's office, would neither confirm nor deny the existence of the investigation. 

The probe was first reported by the Wall Street Journal on Wednesday.
The probe of Huawei is similar to one that China's ZTE Corp says is now threatening its survival. 

The United States last week banned American firms from selling parts and software to ZTE for seven years. 

Washington accused ZTE of violating an agreement on punishing employees after the company illegally shipped U.S. goods to Iran.
ZTE, which sells smartphones in the United States, paid $890 million in fines and penalties, with an additional penalty of $300 million that could be imposed.
U.S. authorities have subpoenaed Huawei seeking information related to export and sanctions violations, two sources said. 

The New York Times last April reported the U.S. Treasury's Office of Foreign Assets Control subpoena, issued in December 2016, following a Commerce Department subpoena that summer.
Both companies also have been under scrutiny by U.S. lawmakers over cybersecurity concerns.
In February, Senator Richard Burr, the Republican chairman of the U.S. Senate Intelligence Committee, cited concerns about the spread of Chinese technologies in the United States, which he called "counterintelligence and information security risks that come prepackaged with the goods and services of certain overseas vendors."
Huawei and ZTE have denied these allegations.
Republican Senators Marco Rubio and Tom Cotton have introduced legislation that would block the U.S. government from buying or leasing telecommunications equipment from Huawei or ZTE, citing concern that the Chinese companies would use their access to spy on U.S. officials.
In 2016, the Commerce Department made documents public that showed ZTE's misconduct and also revealed how a second company, identified only as F7, had successfully evaded U.S. export controls.
In a 2016 letter to the Commerce Department, 10 U.S. lawmakers said F7 was believed to be Huawei, citing media reports.
In April 2017, lawmakers sent another letter to Commerce Secretary Wilbur Ross asking for F7 to be publicly identified and fully investigated.
The U.S. government’s investigation into sanctions violations by ZTE followed reports by Reuters https://reut.rs/2H3p0Vl in 2012 that the company had signed contracts to ship millions of dollars’ worth of hardware and software from some of the best known U.S. technology companies to Iran’s largest telecoms carrier.
Reuters also previously reported on suspicious activity related to Huawei. 

In January 2013, Reuters reported https://www.reuters.com/article/uk-huawei-skycom/exclusive-huawei-cfo-linked-to-firm-that-offered-hp-gear-to-iran-idUKBRE90U0CA20130131 that a Hong Kong-based firm that attempted to sell embargoed Hewlett-Packard computer equipment to Iran's largest mobile-phone operator has much closer ties to China's Huawei Technologies than was previously known.

Chinese Fifth Column: Wolves In Tech Robes

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Huawei Connection

U.S. Lawmakers Push to Widen Iran Sanctions Probe Beyond China's ZTE

By Saleha Mohsin and Andrew Mayeda

A group of Republican lawmakers is pushing the Trump administration to investigate and unmask a company that may have violated Iran sanctions laws in the same way as Chinese mobile-phone maker ZTE Corp.
ZTE agreed last month to pay as much as $1.2 billion after pleading guilty to shipping U.S.-origin products to Iran in violation of U.S. laws restricting the sale of American technology to the country. In a letter Tuesday, Republican Congressman Robert Pittenger of North Carolina, Alabama’s Mike Rogers and eight other lawmakers, called on Commerce Secretary Wilbur Ross to probe the actions of an "unidentified company" that ZTE has said also evaded U.S. export controls.
The rival is referred to only as “F7” in a ZTE document posted on the Commerce Department’s website. 

The lawmakers in their letter note that news reports have highlighted the similarities between the company described in the documents and Huawei Technologies Co., which is the largest Chinese networking equipment maker followed by ZTE.
“We strongly support holding F7 accountable should the government conclude that unlawful behavior occurred,” according to the letter. 

“We must publicly identify those who break the law so that their activities be taken into account when public procurement activities occur or where critical infrastructure vulnerabilities might arise.”

Smoother Relations
“We do not comment on any law enforcement matters that we may or may not be working on,” Commerce spokesman James Rockas said in an email.
ZTE declined to comment.
A deeper investigation may complicate Donald Trump’s efforts to smooth relations with China after accusing the nation during last year’s election of manipulating its currency and hurting American manufacturers. 

After meeting with Xi Jinping last week, Trump tweeted that it was a “tremendous” meeting.
As Commerce officials last year gathered evidence to add ZTE to its list of restricted companies, the department posted ZTE documents related to the case on its website. 

In a document dated August 2011, ZTE describes how it conducted business in Iran and other sanctioned countries, and cited F7 as a model for such activities.

Fraught Relations
The U.S. relationship with Huawei has been fraught. 

The government has suspicions about whether Huawei has been sending U.S. technology to rogue nations including Syria, Iran, North Korea and Cuba, people familiar with the matter have said. 

The Commerce Department sent an administrative subpoena to the company’s U.S. operations in Plano Texas, Bloomberg reported in June. 

The company said at the time it cooperates with U.S. export control laws.
In 2012, the House Intelligence Committee concluded that Huawei and ZTE represent national security risks. 

Two years earlier, former Commerce Secretary Gary Locke expressed concern about Huawei’s participation in bids for a network upgrade by Sprint Nextel Corp. 

The bids were awarded to companies from France, Sweden and South Korea.
In Tuesday’s letter, the lawmakers said F7 ’s business structure was similar to ZTE in creating a “cut-off” IT company “serving as its agent to sign contractors for projects in embargoed countries.” 

It adds that F7 hired export-control compliance specialists and expanded its export-control liaison offices.
Here are some of the similarities between F7 and Huawei as described in the ZTE document:

• A U.S. government panel blocked F7’s bid to purchase server technology provider 3Leaf Co. due to national security risks. Huawei backed away from a deal to buy California-based 3Leaf due to pressure from the U.S.
• F7 once had a joint venture with Symantec, a California-based digital security company. Huawei had a similar deal with Symantec, which was dismantled.