DECEMBER 9, 2018 BY BRUCE ZAGARIS

On December 1, 2018, Canada arrested Meng Wanzhou, Huawei’s global chief financial officer, on a U.S. extradition warrant to answer fraud charges in the U.S. District Court for the Eastern District of New York.[1]During a bail hearing on December 7, 2018, John Gibb-Carsley, a lawyer with the Canadian federal Justice Department, told the court Ms. Meng committed multiple acts of fraud against financial institutions and should be denied bail. He told B.C. Supreme Court Justice William Ehrcke that Meng does not have meaningful connections to Canada, has enormous resources, and poses a serious flight risk, especially since each offense carries a maximum of 30 years in prison.[2]

In particular Gibb-Carlsey said Ms. Meng had “direct involvemnet” with Huawei’s representation to banks and tricked them into engaging in transactions that violated U.S. sancations against him.

According to Gibb-Carsley, between 2009 and 2014, Huawei used a Hong Kong company, Skycom Tech, to make Transactions in Iran and engage in business with telecom companies there, in violation of U.S. sanctions. U.S. banks cleared financial transactions for Huawei, inadvertently doing business with Skycom.[3]

In 2013, articles by Reuters alleged Huawei used Skycom to do business in Iran and attempted to import U.S.-made computer equipment into Iran in violation of sanctions. When several financial institutions inquired about the Huawei-Skycom relationship, Ms. Meng arranged a meeting with an executive from one of the financial institutions.  During the meeting, she presented PowerPoint slides in Chinese, saying that Huawei operated in Iran in strict compliance with U.S. sanctions.  She allegedly falsely stated that Huawei had sold the shares it had held in Skycom.  However, Mr. Gibb-Carsley said no distinction existed between Skycom and Huawei.  Huawei secretly operated Skycom as an unofficial subsidiary.

In this regard, Skycom employees used Huawei email addresses and made badges and a letterhead showing the Huawei logo. Skycom documents showed that Huawei also controlled the entity to which the company was sold in 2009 until at least 2014.[4]

Gibb-Carsley said relying on misrepresentations by Meng and other Huawei representatives, one of the banks and its U.S. subsidiary cleared more than $100 million worth of transactions concerning Skycom through the U.S. between 2010 and 2014.[5]

HSBC had officials from Exiger, a monitor due to HSBC’s prior sanctions and anti-money laundering violations, review its compliance. Exiger officials observed suspicious Iranian-connected transactions involving Huawei.  Exiger reported them to the Justice Department.[6]

With respect to bail, David Martin, counsel for Meng, said Meng has two Vancouver properties with a value of $14 million that would be available to be put up for bail. Violating her bail would humiliate her father who she loves.  Her father is a former Chinese army intelligence officer and the founder of Huawei.  Martin observed that the PowerPoint presentation made by Meng was done in 2013, and questioned why it has taken so long to start a criminal prosecution.  Martin continued that Meng’s connections to Canada include her formerly having permanent residence status and her husband and several children having lived in Vancouver at one point.  Martin said a number of conditions could be imposed for bail, including a curfew, the surrender of any passports, and surveillance if necessary.[7][8]

The bail haring is adjourned until Monday December 10, when Martin is expected to call several witnesses to describe a program of “community custody” that could apply to Meng if she is granted bail. [9]

The case has increased uncertainty in global financial markets, producing another day of sharp losses from Asia to Wall Street. Worries about potential Chinese retaliation exist. [10] On December 8, China warned Canada of severe consequences if it did not immediately release Meng, calling the case “extremely nasty.”[11]

The U.S. and Canada have strong extradition relations, so Meng has an uphill battle.

[1]   Emily Rauhala and Anna Fifield, Chinese tech executive lied to evade sanctions on Iran, U.S. charges, Wash. Post, Dec.  7, 2019, at A1, col. 1.

[2]   Reuters, China warns Canada of ‘consequences’ if it fails to release Huawei CFO, Globe & Mail, Dec. 8, 2018.

[3]   Kate Conger, Huawei Official Charged In Iran Sanctions Fraud, N.Y. Times, Dec. 8, 2018, at A7, col. 1.

[4]   Id.

[5]   Keith Fraser, Huawei exec committed fraud by deceiving multiple banks: Crown, Vancouver Sun, Dec. 8, 2018.

[6]   Conger, supra.

[7]   Fraser, supra.

[8]   Id.

[9]   Id.

[10] Rauhala and Anna Fifield,  supra.

[11] Reuters, supra.

Author – Bruce Zagaris

Mr. Zagaris is a partner of Berliner Corcoran & Rowe LLP. His practice includes white collar criminal defense, international business, international tax, and international enforcement. He has extensive experience in advising on international business, tax controversy matters, and serving as an expert witness in criminal trials. He is also experienced in extradition matters.