(Bloomberg) — Huawei Technologies Co., China’s biggest smartphone maker, is using its financial and political clout to fight U.S. allegations that the company was involved in bank fraud, technology theft and spying.
The effort probably won’t work, American legal experts say.
“I don’t see the U.S. backing away from these cases,” said Peter Henning, a former federal prosecutor who is now a professor at Wayne State University Law School in Detroit.
Huawei has aggressively fought U.S. claims it can’t be trusted by business or government, allegations at the core of two indictments. The company has lobbied countries around the world to ignore American warnings against its products. On Wednesday, Huawei filed a lawsuit saying the U.S. broke the law by barring government agencies from using Huawei equipment in contracts. It’s based on an argument that the company has been singled out for punishment by Congress in violation of the U.S. Constitution without a fair chance to defend itself.
And given that all of this is playing out amidst prolonged negotiations between China and the U.S. to resolve a trade war, there’s intense speculation over how much the cases could be used as a bargaining chip for President Donald Trump.
Huawei’s Legal Battles
The company’s aggressive response to the criminal charges may reflect a desire to both circumvent the U.S. justice system and combat claims that threaten billions of dollars in sales outside of China, said Alexander Capri, a visiting senior fellow at the National University of Singapore Business School.
“Huawei is in a public relations blitzkrieg,” Capri said. “Spying allegations have done damage to the company’s image and, if a significant number of U.S. allies were to block or restrict Huawei’s access to either western tech or markets, the company would be in serious trouble.”
China has become addicted to western technology components, and Huawei can’t afford to get cut off from U.S. suppliers, especially as it seeks to build the world’s next generation of wireless modems, Capri said. Last year, the Trump administration banned Chinese company ZTE Corp (HK:0763). from purchasing critical U.S. technology for violating export sanctions against Iran and North Korea. ZTE eventually paid more than $1 billion in fines.
But the Huawei prosecutions aren’t likely to get sidetracked, U.S. legal experts say. That’s in part due to the high-profile way in which they’re been handled, with a bombshell arrest in Vancouver on Dec. 1 of Meng Wanzhou, Huawei’s chief financial officer and daughter of the company’s founder, and a highly publicized press conference in Washington the following month when the indictments were unsealed.
In addition, the allegations at the heart of the two cases — that Huawei stole trade secrets from an American company and that it violated U.S. sanctions on Iran — are issues that the Trump administration has made top priorities. While prosecutors can always drop cases, it’s highly unlikely in this case — even if it would help trade talks. A settlement on the other hand might be a more reasonable goal for Huawei.
What Bloomberg Opinion Says
The quest for justice is everyone’s right, yet Huawei risks coming off as belligerent instead of the calm and trustworthy partner it’s trying to portray. And the irony of appealing to Canada’s rule of law when no such option exists back home isn’t lost on the hordes of critics who were already wary of this new charm offensive.–Tim Culpan, columnistClick here to view piece.
“I guess Trump could order the Justice Dept to dismiss the indictment, but that would be unprecedented,” Henning said.
To be sure, Trump is an unusual president, and international trade professor Alan Sykes said the cases could be used as leverage in the negotiations.
“There’s many ways for prosecutors to pull back on what they’re seeking,” and U.S. attorneys are subject to the commands of the Attorney General, who works for the president, said Sykes, a professor at Stanford Law School. “There’s a question of whether that’s appropriate — if it compromises the independence of the Justice Department. But it’s a logical possibility.”
The prosecutions also may not interfere with trade negotiations, like when the European Union imposed billions of dollars of fines on Google (NASDAQ:GOOGL) or levied tax penalties on Apple Inc (NASDAQ:AAPL)., Sykes said.
“Multinational companies have legal issues in foreign markets all the time,” he said. “It doesn’t mean the country that the company is based in and the country in which they’re operating can’t negotiate constructively.”
The U.S., citing security concerns, has urged allies to bar Huawei and other Chinese technology providers from building infrastructure for fifth-generation, or 5G, mobile cellular networks. China has dismissed the allegations against Huawei, saying U.S. actions are based on fear of facing a formidable industrial competitor.
In addition, it may be difficult for the U.S. to backpedal on the Huawei prosecutions after the Trump administration announced a get-tough initiative on China’s business practices. In November, then-Attorney General Jeff Sessions said the crackdown was intended to counter what he saw as a looming threat of China’s economic espionage.
Among the enforcement actions being targeted were efforts by China to gain access to proprietary U.S. technology and trade secrets, through techniques such as computer hacking or theft by insiders. Brooklyn U.S. Attorney Richard Donoghue, whose office is prosecuting Meng’s case, is on a list of the nation’s top prosecutors on the Justice Department’s Working Group for China.
And while Meng fights extradition from Canada — she too has filed a retaliatory suit, claiming the Canadians violated her constitutional rights during her arrest — the bank fraud and trade sanctions case that she’s named in is moving forward all the same. Huawei is due to be arraigned in Brooklyn federal court on March 14. Both Meng and her company have denied any wrongdoing.
Given Meng’s wealth and connections, she could drag out the extradition fight for years. But few have ever been successful in persuading a Canadian court not to extradite to the U.S., said Brad Simon, a former federal prosecutor in Brooklyn, New York, who is now a partner at Phillips Nizer LLP.
So, for Meng, too, the most likely positive outcome would be for a relatively lenient plea deal, given that under federal law, the charges she faces in Brooklyn carry as much as 30 years in prison.