The powerful US legal weapon against Huawei

By Bloomberg | 16 Feb 2020 at 17:49hrs
By filing a racketeering charge against Huawei Technologies Co., federal prosecutors unleashed a potent legal weapon in a multipronged and increasingly noisy U.S. campaign against the Chinese technology giant.

Huawei engaged in a two-decade racketeering operation to steal intellectual property from U.S. technology companies, as well as conspiracies to launder money and obstruct justice, according to the indictment unsealed Thursday in federal court in Brooklyn, New York. Those new counts added to earlier charges accusing Huawei of violating U.S. sanctions on Iran and financial fraud.

Deploying the Racketeer Influenced and Corrupt Organizations Act, or RICO, against the world's largest telecommunications equipment manufacturer gives the Justice Department legal and psychological advantages, said former prosecutors.

"Whether we like it or not, the first thing that people think of when they hear racketeering is organized crime," said David S. Weinstein, a former federal prosecutor. "It means that the jury receives a message that this a conspiracy at the highest level of criminal conspiracies. That strengthens in the jury's mind that this is a serious case."

Often used against organized crime outfits such as the Mafia, racketeering charges were also deployed by federal prosecutors in Brooklyn in their crackdown on corruption in soccer's governing body, FIFA. The RICO charge allows them to introduce a greater body of evidence and have wider latitude in seeking to forfeit assets if they win convictions against Huawei and its subsidiaries, said Barbara McQuade, a law professor at the University of Michigan and a former U.S. attorney.

"It gives prosecutors the ability to pull together disparate facts that they might not otherwise be able to pull together," McQuade said.

The U.S. accused Huawei of dominating markets by stealing from six U.S. technology companies and of violating economic sanctions against Iran. Meng Wanzhou, Huawei's chief financial officer and the daughter of the company's billionaire owner, was also charged in the case. She remains free on bail in Vancouver while she fights extradition to the U.S. She argues that the charges are politically motivated.

The new charges come as countries across the globe are deciding which companies will build their next generation networks. That could compound Huawei's image problem given the other allegations the U.S. has already leveled against the company, said Martijn Rasser, a senior fellow for technology and national security at the Center for a New American Security.

"The main immediate impact is it's yet another public relations hit," he said. "It's a snowball effect right when countries are making their decisions about Huawei."

Huawei called the charges "unfounded and unfair." The accusations rest on "recycled civil disputes from last 20 years that have been previously settled, litigated and in some cases, rejected by federal judges and juries," a spokesperson said. The indictment is "part of the Justice Department's attempt to irrevocably damage Huawei's reputation and its business for reasons related to competition rather than law enforcement."

Beyond the courtroom, the U.S. has waged a rhetorical offensive that depicts Huawei as a security risk and an unfair competitor with little separation from the Chinese government. The Trump administration says that Huawei's fifth-generation, or 5G, telecommunications networks pose a national security threat, a claim allies have treated with some skepticism.

The U.K. has given Huawei the green light to help develop Britain's 5G networks - allowing the company to supply equipment such as antennas and base stations, but keeping Huawei out of the most sensitive parts of the network. That decision was a major blow to U.S. efforts to block Huawei from these networks.

The U.S. has threatened to withhold intelligence sharing with allies that utilize 5G networks deemed insecure due to the presence of any Huawei gear. Meanwhile, Canada has indicated its decision may be similar to that of the U.K.

"If the Chinese control the system, they'll take everything that comes down and everything that goes up to the cloud through 5G," U.S. National Security Advisor Robert O'Brien said at an Atlantic Council event on Feb. 11.

"We have evidence that Huawei has the capability secretly to access sensitive and personal information in systems it maintains and sells around the world," he told the Wall Street Journal.

On Friday, U.S. House Speaker Nancy Pelosi offered bipartisan agreement on the threat.

"Nations cannot cede telecommunications infrastructure to China for financial expediency," Pelosi said.

The U.S., however, hasn't publicly provided evidence that details how Huawei's equipment poses a security threat.

U.S. officials have offered a variety of other arguments in warning about the dangers of using Huawei equipment.

Rob Strayer, the State Department's deputy assistant for cyberpolicy, pointed out that China has no independent court system. "You cannot have this extrajudicial, non rule-of-law-compliant process where a government can tell its companies to do something," he said in April.

Huawei has also been criticized for being the beneficiary of state-sponsored capitalism, receiving major subsidies from the Chinese government, and for China's pursuit of leadership positions on international telecommunications organizations setting standards for 5G.

The indictment gave U.S. backing to claims by technology companies that Huawei had stolen intellectual property.

"They've done this for decades, and DOJ has decided to call them to account," said Jim Lewis, a senior vice president and director of the Technology Policy Program at the Center for Strategic and International Studies in Washington. "Huawei is the poster child for China's commercial spying and this is part of a larger push back from the U.S."



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