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.

Han Duplicity: U.N. Report Details North Korea’s Front Companies in China

A maze of shadowy businesses allows Kim Jong-un to evade sanctions and experts say there's no way Beijing doesn't know.
BY COLUM LYNCH

When China announced last week plans to cut off imports of coal from North Korea, a vital source of revenue for the cash-starved Hermit Kingdom, it fueled optimism that Beijing may be getting serious about reining in its erratic neighbor.
But an unpublished U.N. report obtained by Foreign Policy that documents sophisticated North Korean efforts to evade sanctions shows that China has proved a fickle partner at best in Washington’s effort to stymie Pyongyang’s nuclear ambitions.
That poses a fresh challenge for U.S. President Donald Trump, whose prospects of containing North Korea’s nuclear weapons program — which has made great strides lately — rest largely with Beijing. But instead of low-key diplomatic spadework, Trump has sought to browbeat China into helping, blaming the Asian powerhouse with failing to use its influence to clip Pyongyang’s atomic aspirations.
North Korea “is flouting sanctions through trade in prohibited goods, with evasion techniques that are increasing in scale, scope and sophistication,” according to the report compiled by an eight-member panel, which is chaired by a British national and includes experts from China, Russia, and the United States. 

The North Korean schemes are “combining to significantly negate the impact” of international sanctions.
China, despite its apparent cooperation of late with international efforts to sanction North Korea, has instead served as Pyongyang’s economic lifeline, purchasing the vast majority of its coal, gold, and iron ore and serving as the primary hub for illicit trade that undermines a raft of U.N. sanctions that China nominally supports, the report’s findings suggest.
As early as December 2016, China had blown past a U.N.-imposed ceiling of 1 million metric tons on coal imports, purchasing twice that amount. 

China then shrugged off a requirement to report its North Korean coal imports to the U.N. Security Council sanctions committee. 

When U.S. and Japanese diplomats pressed their Chinese counterpart for an explanation in a closed-door meeting this month, the Chinese diplomat said nothing, according to a U.N.-based official.
North Korean banks and firms, meanwhile, have maintained access to international financial markets through a vast network of Chinese-based front companies, enabling Pyongyang to evade sanctions. 

That includes trades in cash and gold bullion and concealing financial transactions behind a network of foreign countries and individuals, allowing North Korea to gain ready access to the international financial system, as well as to banks in China and New York. 

North Korea’s business “networks are adapting by using greater ingenuity in accessing formal banking channels as well as bulk cash and gold transfers,” the report found.
William Newcomb, a former member of the U.N. sanctions panel on North Korea, said it is hard to believe China is unaware of the illicit trade.
“You have designated entities that have continued to operate in China,” he told FP. 

“It’s not an accident. China’s security services are good enough to know who is doing what” inside their country.
China has a pattern of showing goodwill in the U.N. Security Council by supporting a succession of sanctions resolutions aimed at curtailing Pyongyang’s nuclear trade, according to Newcomb. 

But it has shown no commitment to enforcing those measures.
And it has used its power in an obscure Security Council sanctions subcommittee — which makes its decisions by consensus and in secret — to “slow-roll” efforts to ensure that sanctions are respected, Newcomb said.
The Chinese mission to the United Nations did not respond to a request for comment. 

An official at the North Korean mission who declined to identify himself said: “I don’t think there is anyone available for this issue.”
The evasions raise fresh questions about China’s commitment and pose a major challenge to Trump, who has vowed to prevent North Korea from achieving its goal of developing an intercontinental ballistic missile (ICBM) capable of delivering a nuclear explosive to American cities.
Pyongyang has already conducted five nuclear tests since 2006, and it has made huge strides in missile technology, conducting a record 26 ballistic missile tests in 2016, including the firing in April of a submarine-launched ballistic missile using solid fuel. 

North Korean leader Kim Jong Un appears poised to test an ICBM with much greater reach.
“The unprecedented frequency and intensity of the nuclear and ballistic missile tests conducted during the reporting period helped the country to achieve technological milestones in weapons of mass destruction capability, and all indications are that this pace will continue,” according to the report’s findings.
The report — which is expected to be made public next week — “shows once again that the North Korean regime continues its methodical effort to develop a nuclear military program and the means to deliver the corresponding weapons,” said François Delattre, France’s U.N. ambassador. 

“It is a real challenge to the [nuclear] nonproliferation regime.”
The extent of Chinese companies’ role in enabling North Korea’s evasion of sanctions is detailed deep in the fine print of the still unpublished 105-page report. 

For instance, North Korea’s Daedong Credit Bank (DCB) and Korea Daesong Bank, both subject to U.S. and U.N. sanctions, continue to operate in the Chinese cities of Dalian, Dandong, and Shenyang in violation of U.N. resolutions. 

The panel suspects that one of the banks, Daedong, may in fact be majority-owned by Chinese shareholders, citing July 2011 documents indicating the sale of a controlling stake, 60 percent, to a Chinese firm.
Daedong “effectively accesses the international financial system through a network of offshore accounts and representative offices in China,” the panel report states. 

Its operations, according to the report, provide evidence that North Korean banks “manage to operate abroad through the establishment of front companies that are not registered as financial institutions but function as such.”
The United States sanctioned Daedong; its finance wing, DCB Finance; and their Dalian-based North Korean representative, Kim Chol Sam, in June 2013 for providing financial services to the Korea Mining Development Trading Corp., or KOMID, North Korea’s chief arms dealer.
Kim has established a series of front companies in China, including a Hong Kong firm he opened with a fake ID indicating he was a citizen of South Korea, according to the report. 

He has facilitated millions of dollars in “payments and loans between companies linked to DCB and exchanged large quantities of bulk cash transferred to China from the Democratic Republic of Korea.” 

The report says member states — an obvious reference to China — are obliged to expel Kim and “freeze all property, assets and other economic resources owned or controlled by him.”
The Chinese connection is at the center of an international web that stretches from Angola to Malaysia and the Caribbean and involves a large network of North Korean diplomats, entrepreneurs, smugglers, and foreign facilitators. 

The off-the-books trade includes the export of gold, coal, and rare-earth metals and the sale of rockets, Scud missile parts, government monuments, and high-tech battlefield communications equipment, among other things.
Last year, the panel’s investigations exposed trade in “encrypted military communications, man-portable air-defense systems, and satellite-guided missiles that may involve large teams of the country’s technicians deployed to assemble or service the banned items,” according to the report.
One example of a new niche market: North Korea buys cheap electronics in Hong Kong for a pittance and then turns them into military-grade radios it sells to developing countries for $8,000 a pop.
In July 2016, authorities from an unidentified nation seized an air shipment containing 45 boxes of battlefield radios, and assorted high-tech communications gear, from China to a technology company in Eritrea.
By the standards of North Korea’s multibillion-dollar black-market trade, the Eritrea haul was a drop in the bucket; North Korea earned $1.2 billion in coal sales to China last year. 

But the case provided insights into Pyongyang’s elaborate, and ever evolving, financial scheme to evade U.N. sanctions and stay two steps ahead of the United States and other key powers seeking to thwart North Korea’s illicit trade.
The equipment bore the trademark of Global Communications Co., or Glocom, a Malaysia-based front company for North Korean firm Pan Systems Pyongyang, which operates a network of front companies and agents in Malaysia and China. 

The company also has a branch in Singapore. 

Efforts to reach the company were unsuccessful.
But the head of Pan Systems in Singapore, Louis Low, told Reuters — which first reported on the scheme — that his company set up an office in Pyongyang in 1996 but that it severed relations with North Korea in 2010 and has had no dealings with Glocom. 

He suggested that North Koreans might still be using the company’s name without his agreement.
The mastermind behind the operation is North Korea’s premier intelligence agency, the Reconnaissance General Bureau, which runs Pan Systems and other front companies.
“The global network consisted of individuals, companies and bank accounts in China, Indonesia, Malaysia, Singapore and the Middle East,” the report stated.