The chief financial officer (CFO) of Huawei was arrested Dec. 1 in Vancouver, Canada, on an outstanding arrest warrant issued by the United States, which alleges Meng Wanzhou, daughter of the company’s founder, directed the effort of Huawei to circumvent international sanctions against Iran under the guise of China-based Skycom Tech.
As one can imagine, Beijing’s reaction to news of Meng’s detention was decidedly icy. Indeed, according to the Canadian government, in the four weeks following her arrest China clapped back with the detention of 13 Canadians. As of early January, eight of the 13 had been released. Of the remaining eight Canadians, two have been identified by China as posing a “national security risk.” The United States warned its citizens to be cautious given China’s “arbitrary enforcement of local laws.”
It should be noted that the 2018 Annual Report from the U.S. China Economic and Security Review Commission highlights China’s desire to enhance its relations with Iran. One of China’s economic initiatives, known as the Belt and Road Initiative (BRI), has Iran serving as a critical hub. To that end, China has been pushing several billion dollars of financing into infrastructure projects in Iran.
Therefore, Huawei’s interest in ensuring the company is not left without a seat in the Iranian telecommunications and infrastructure market—an engagement that would be funded by Chinese banks—makes sense. The U.S. sanctions on Iran pushed Huawei to use “independent” Skycom Tech to engage with Iran. It is that independence, or lack thereof, that is at the heart of Meng’s detention: The United States alleges that Huawei controls Skycom and used it as a front company to work around the U.S. sanctions. On Jan. 8, Reuters released its own research that identifies equipment seller Skycom Tech Co. Ltd. and shell company Canicula Holdings Ltd. as both being under Huawei’s control.
In 2017, The U.S. Department of Commerce slapped ZTE with a fine of almost $900 million for violating Iranian sanctions. In April 2018, it became widely known that Huawei was being looked at for similar violations. Meng, whose daughter attends university in the United States, immediately stopped traveling to the United States, a clear indication that Huawei had done the math, having seen the United States detain a number of individuals for sanction-busting.
Contemporaneously, several countries were looking into the efficacy of the inclusion or continued inclusion of Huawei in the mix of their national telecom providers, especially given the head start Huawei enjoys with 5G technology. The United States and others have noted the close ties between Huawei and the Chinese government pose an espionage risk that can’t be mitigated. The European Union’s technical chief noted how the EU “should be worried about Huawei and other Chinese technology companies because of the risk they pose to the bloc’s (EU) industry and security.” The result: Huawei, an entity currently holding more than 25 percent of the global telecom equipment market, could find itself excluded from some markets.
Indeed, in June 2018, Facebook announced it had terminated a number of partnerships in China—including one with Huawei—following an article in the New York Times that detailed the relationships. According to Reuters, Sen. Mark Warner, chairman of the Intelligence Committee, had commented, “The news that Facebook provided privileged access to Facebook’s API to Chinese device makers like Huawei and TCL raises legitimate concerns, and I look forward to learning more about how Facebook ensured that information about their users was not sent to Chinese servers.”
Whether espionage or sanction-busting, take your pick. Either way, Huawei has found itself in China’s geopolitical hot seat.