Huawei Faces U.S. Criminal Trial Weeks Before Trump-Xi Meeting

Dow Jones
Sep 10

When President Trump and Chinese leader Xi Jinping meet in Washington later this month, there will be no shortage of contentious subjects to address, including trade, artificial intelligence and the war in Iran.

Behind the scenes is another long-simmering irritant, dating back to Trump's first term: the Justice Department's prosecution of Chinese national champion Huawei Technologies, which is finally going to trial after a nearly eight-year wait.

The proceedings, playing out in a Brooklyn, N.Y., courtroom, are a flashback to an era when Trump began using tariffs and economic sanctions in an effort to limit Chinese military and technology advances and punish intellectual-property violations.

In opening statements Wednesday, prosecutors told the jury that Huawei systematically stole trade secrets from American companies and misled banks about its business in Iran and North Korea.

"Theft. Lies. Cover ups. For 20 years that's how Huawei, a global telecommunication company, victimized American companies and abused the American financial system to dominate telecommunications around the world," Justice Department lawyer Taylor Stout told jurors.

It is a rare instance of U.S. prosecutors putting a corporation-but none of its employees-on criminal trial. Huawei's chief financial officer was arrested in Canada on related charges and spent nearly three years under house arrest before admitting to wrongdoing.

The charges against the company include racketeering conspiracy, an offense indicating a pattern of illegal acts that typically is levied against organized crime. Other charges include conspiracy to steal trade secrets, bank fraud, wire fraud and violations of Iran sanctions.

Prosecutors say Huawei ran an elaborate trade-theft operation. Employees who stole valuable information from competitors got bonuses. One employee was caught sneaking photos at a trade show of the inside of rivals' networking devices. The company allegedly paid a university professor to pose as a researcher interested in a company's memory devices, when the real purpose was to obtain a chip so Huawei could copy it.

Today Huawei makes products from routers and switches to smartphones and is one of the world's largest technology companies. Facing U.S. sanctions, it is effectively shut out from acquiring American technology. But it has become a major producer of artificial-intelligence chips in China and is critical to the country's goal of becoming self-sufficient in some critical areas of AI.

Huawei lawyer Brian Heberlig told jurors that company founder and CEO Ren Zhengfei built his success from a small apartment to a global enterprise through innovation, hard work and pouring billions into research and development. He said the government is painting a distorted picture of the company based on cherry-picked facts and unreliable witnesses.

"It's about competition, not conspiracy. Innovation, not theft. Ordinary business, not misconduct," Heberlig said. "Huawei earned its success."

The trial "will get Beijing's attention and irritate them," said Jonathan Czin, a China expert at the Brookings Institution.

Prosecutors unveiled the indictment in early 2019, and Washington slapped a first round of sanctions on Huawei after the charges were levied. Huawei had a small footprint in the U.S. at the time, but was a major purchaser of American semiconductors and telecom components. The company also owned a U.S.-based research and development lab, Futurewei Technologies.

Huawei has flourished despite the sanctions, expanding into new businesses, boosting profitability and finding fresh ways to curb its dependence on U.S. suppliers. It has in the past blamed individual employees for isolated attempts to obtain other companies' technology, according to court filings.

While the trial is unlikely to derail the summit, the decision to proceed, rather than reach a settlement, "highlights that there is a strong undertow within the administration toward a more hawkish posture toward China," Czin said.

The arrest in 2019 of Meng Wanzhou, Huawei's CFO and the daughter of the company's founder, inflamed U.S.-China relations. It dragged Canada, which detained her at the U.S.'s request, into the geopolitical rivalry between the world's two biggest economies.

Global banks such as HSBC and Standard Chartered had grown worried about dealing with Huawei over its compliance with Iran sanctions and cut ties with the company. The banks had cleared millions of dollars in transactions for Huawei that potentially violated international sanctions, the U.S. alleges.

Meng was accused of misleading one of the banks, previously identified as HSBC, about its control of a subsidiary that did business in Iran. Under an agreement with the Justice Department, she admitted in September 2021 to the conduct and was allowed to return home in a prisoner swap between Canada and Beijing. U.S. District Judge Ann Donnelly ruled prosecutors can use her admissions in their case.

In China, Meng was portrayed as a victim of America's growing hostility against Beijing, while Huawei cemented its position as the national technology champion.

The case has persisted even as the Justice Department under the Trump administration has moved away from criminally charging corporations, although national-security investigations have remained a priority, according to former officials.

"It's very clear from the DOJ's guidance that the administration is very focused on China and in prosecuting Chinese entities and persons who are committing crimes either in or affecting the U.S.," said Billy Jacobson, a former federal prosecutor.

A guilty verdict could lead to severe financial penalties and hurt Huawei's ability to deal with some banks and customers around the globe.

"It is harder to do business with companies that have been convicted of felonies," said Matthew Axelrod, a partner at Gibson Dunn who specializes in sanctions enforcement. "That is a significant thing."

 

At the request of the copyright holder, you need to log in to view this content

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Most Discussed

  1. 1
     
     
     
     
  2. 2
     
     
     
     
  3. 3
     
     
     
     
  4. 4
     
     
     
     
  5. 5
     
     
     
     
  6. 6
     
     
     
     
  7. 7
     
     
     
     
  8. 8
     
     
     
     
  9. 9
     
     
     
     
  10. 10