As previewed earlier, after the close U.S. prosecutors filed criminal charges against Huawei, China’s largest smartphone maker, alleging it stole trade secrets from an American rival and committed bank fraud by violating sanctions against doing business with Iran. In a 13-count indictment unsealed in Brooklyn on Monday afternoon, the government alleged Huawei, two affiliated companies and its chief financial officer engaged in fraud and conspiracy in connection with deals in Iran.
A separate 10-count indictment in Seattle accused the company of stealing trade secrets from T-Mobile USA Inc. and offering bonuses to employees who succeeded in getting technology from rivals.
The criminal case against Huawei first emerged in 2014, when T-Mobile USA sued the Chinese telecom giant, and three years later, a federal jury in Seattle found Huawei liable for both breach of contract and misappropriation of trade secrets. A Bloomberg source said that T-Mobile’s claims regarding the theft of its technology caught the attention of federal authorities in the Western District of Washington.
In what may be the first instance of robotic espionage, T-Mobile said Huawei sent its engineers to T-Mobile’s Bellevue, Washington, facility to see a robot, called "Tappy," which simulates smartphone use. T-Mobile said in its lawsuit that Huawei was able to use stolen parts from the robot to "develop, improve and troubleshoot its own robot."
In the indictment, the U.S. explained in detail how Huawei's engineer allegedly stole information related to "Tappy'' - two employees of Huawei USA improperly abused their badges to let the engineer, identified as F.W. in the indictment, into the T-Mobile lab where Tappy was located. A T-Mobile employee discovered F.W. there without permission and told him to leave, according to the indictment.
But perhaps more importantly, the DOJ formally announced it was seeking the extradition of Huawei CFO Meng Wanzhou, the daughter of the company’s founder, who was arrested in Vancouver on Dec. 1 on allegations that she committed fraud to sidestep sanctions against Iran. She has since become a flash-point in trade tensions between the U.S. and China; her release by the US and Canada was expected by some commentators who were confident the US would send a signal of goodwill to the US; instead Trump appears to be escalating the crackdown against Chinese technological theft.
Meng remains free in Vancouver, staying at her $4.2 million mansion with GPS monitoring, after posting bail of C$10 million ($7.5 million) as she fights extradition to the U.S. to face criminal charges.
The U.S., which had requested Canadian authorities arrest Meng, had to submit a formal extradition request by Jan. 30, which it did today. Canada’s justice minister now has up to 30 days to assess it. If she issues an "authority to proceed," that means Canada is officially moving to extradition hearings. If so, they would likely be scheduled months later, even as relations between the US and China implode.
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Needless to say, the news of fresh criminal charges against Huawei - and the extradition demand of CFO Meng - will add to the doubts of any deal between the US and China which are already hovering over Asian markets for Tuesday’s open, and increasing fears ahead of this week’s U.S.-Sino trade talks that there will be no favorable outcome. And, as Bloomberg's Garfield Reyonds adds, "with Mnuchin and Kudlow out just now saying enforcement will be key in those talks, investors would be wise to temper any optimism on the potential results of the negotiations."
If there is progress, it will be gradual, with a range of issues needing to be nailed down in subsequent meetings. As for comments from the U.S. that the two issues are separate, China’s foreign minister made it clear how important the telco giant is to the mainland government with his spirited comments in Huawei’s defense last week. Indeed, it is becoming harder to see what potential outcome from this week’s gatherings could be sufficient to set off a sustained equities rally.
Meanwhile, the China-driven weakness in earnings reports, as per Caterpillar and Nvidia, will keep coming and any triumphal announcements by Trump et al, that the trade feud has been resolved would be vulnerable to the same sort of disappointment that dogged Korean assets after the Trump-Kim summit once investors realized that little had actually come from the dialogue, the Bloomberg analyst concludes.
The indictment of Huawei for theft of trade secrets is below: