Chinese exec facing US extradition appears in court for breaching Iran sanctions

Canadian prosecutors say daughter of Huawei founder used shell company to access Iranian market, urges court not to release her on bail

In this courtroom sketch, Meng Wanzhou, right, the chief financial officer of Huawei Technologies, sits beside a translator during a bail hearing at British Columbia Supreme Court in Vancouver, on December 7, 2018. (Jane Wolsak/The Canadian Press via AP)
In this courtroom sketch, Meng Wanzhou, right, the chief financial officer of Huawei Technologies, sits beside a translator during a bail hearing at British Columbia Supreme Court in Vancouver, on December 7, 2018. (Jane Wolsak/The Canadian Press via AP)

VANCOUVER, British Columbia (AP) — A top Chinese telecommunications executive facing possible extradition to the United States appeared in court Friday as she sought bail in a case that has rattled markets and raised doubts about the US being able to reach a truce in its trade war with China.

A prosecutor for the Canadian government urged the court not to grant bail, saying the charges against Meng Wanzhou, the chief financial officer for Chinese telecom giant Huawei, involve U.S. allegations that Huawei used a shell company to access the Iran market in dealings that contravene US sanctions.

Prosecutor John Gibb-Carsley said Meng, who has vast financial resources as the daughter of Huawei’s founder, has incentive to flee Canada because she faces fraud charges in the US that could bring up to 30 years in prison.

The prosecutor said Meng assured US banks that Huawei and the shell company alleged to have done business with Iran, called Skycom, were separate companies, but in fact Skycom and Huawei were one and the same.

“Ms. Meng personally represented to those banks that Skycom and Huawei were separate, when in fact they were not separate,” Gibb-Carsley said. “Skycom was Huawei.”

Meng has contended Huawei sold Skycom in 2009.

Huawei CFO Meng Wanzhou (Courtesy)

Gibb-Carsley said the warrant for Meng’s arrest was issued in New York on August 22. He said Meng was aware of the US investigation and had avoided the US since March 2017, even though her teenage son goes to school in Boston.

Meng was arrested in Vancouver on Saturday en route to Mexico from Hong Kong.

Meng’s lawyer, David Martin, disputed the prosecutor’s call to deny bail, saying: “The fact a person has worked hard and has extraordinary resources cannot be a factor that would exclude them from bail.”

He said Meng’s own personal integrity would not allow her to go against a court order, and that she would not embarrass her father, company founder Ren Zhengfei, by breaching such an order. He said Meng would agree to wear an ankle monitor.

Meng’s arrest came as a jarring surprise after Presidents Donald Trump and Xi Jinping agreed to a trade truce last weekend in Buenos Aires, Argentina.

The case is the latest development in a surprising legal wrangle that raises doubts about whether a US-China trade cease-fire can hold.

Fears of renewed US-China trade hostilities have rattled global financial markets. They tumbled Thursday. Stocks regained their equilibrium Friday in Europe and Asia after conciliatory words from Beijing but fell again on Wall Street.

Trump himself sought to inject a note of optimism into the proceedings, going on Twitter before dawn Friday to say: “China talks are going very well!”

Huawei has been a subject of US national security concerns for years and Meng’s case echoes well beyond tariffs or market access. Washington and Beijing are locked in a clash between the world’s two largest economies for economic and political dominance for decades to come.

“It’s a much broader issue than just a trade dispute,” said Amanda DeBusk, chair of international trade practice at Dechert LLP. “It pulls in: Who is going to be the world leader essentially. … It’s a Cold War situation.”

Meng was detained on the same day that Trump and Xi met at the Group of 20 summit in Argentina and agreed to a cease-fire in their trade war.

US President Donald Trump (L) shakes hand with China’s President Xi Jinping at the end of a press conference at the Great Hall of the People in Beijing on November 9, 2017. (AFP Photo/Fred Dufour)

White House economic adviser Larry Kudlow said Friday on Fox Business Network’s “Varney & Co” that Huawei had violated U.S sanctions on Iran. “They had been warned, and finally we had to prosecute that,” he said.

He dismissed speculation that Meng’s arrest was a deliberate ploy to gain leverage over China in trade talks and said that Trump did not know the arrest was coming.

Huawei is the world’s biggest supplier of network gear used by phone and internet companies and long has been seen as a front for spying by the Chinese military or security services.

“What’s getting lost in the initial frenzy here is that Huawei has been in the crosshairs of U.S. regulators for some time,” said Gregory Jaeger, special counsel at the Stroock law firm and a former Justice Department trial attorney. “This is the culmination of what is likely to be a fairly lengthy investigation.”

In a sign Meng’s case might not derail the Trump-Xi truce, Beijing protested Meng’s arrest but said talks with the Trump administration would go ahead. Chinese Commerce Ministry spokesman Gao Feng said China is confident it can reach a deal during the 90 days that Trump agreed to suspend a scheduled increase in US import taxes on $200 billion worth of Chinese products.

Still, attorney DeBusk said, “I would certainly expect the Chinese to do something in retaliation” for Meng’s arrest, perhaps by targeting US companies doing business in China. “Let’s see who doesn’t get a permit or which US executive gets arrested,” she said.

The world’s two largest economies are locked in a dispute over charges by Washington, echoed by US industry groups and analysts, that China has deployed predatory tactics in its drive to overtake America’s dominance in technology and global economic leadership. These allegedly include forcing American and other foreign companies to hand over trade secrets in exchange for access to the Chinese market and engaging in cyber theft.

Washington also regards Beijing’s ambitious long-term development plan, “Made in China 2025,” as a scheme to dominate such fields as robotics and electric vehicles by unfairly subsidizing Chinese companies and discriminating against foreign competitors.

Priscilla Moriuchi, a former East Asia specialist at National Security Agency and now with the cybersecurity firm Recorded Future, said both Huawei and its biggest Chinese rival, ZTE Corp., are wedded to China’s military and political leadership.

“The threat from these companies lies in their access to critical internet backbone infrastructure,” she said.

Pedestrians walk past a Huawei retail shop in Beijing Thursday, Dec. 6, 2018. China on Thursday demanded Canada release a Huawei Technologies executive who was arrested in a case that adds to technology tensions with Washington and threatens to complicate trade talks. (AP Photo/Ng Han Guan)

The Trump administration has tightened regulations on high-tech exports to China and made it harder for Chinese firms to invest in U.S. companies or to buy American technology in cutting-edge areas like robotics, artificial intelligence and virtual reality.

Earlier this year, the United States nearly drove ZTE out of business for selling equipment to North Korea and Iran in violation of US.sanctions. But Trump issued a reprieve, perhaps partly because US tech companies, major suppliers to ZTE, would also have been scorched. ZTE agreed to pay a $1 billion fine, change its board and management and let American regulators monitor its operations.

The US and Chinese tech industries depend on each other so much for components that “it is very hard to decouple the two without punishing US companies, without shooting ourselves in the foot,” said Adam Segal, cyberspace analyst at the Council on Foreign Relations.

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