Looks Like Huawei Might Be Screwed

Photo: Wang Zhao, AFP via Getty Images

The U.S. Department of Justice announced on Thursday that it was unsealing a superseding indictment against Chinese tech giant Huawei, charging the company and several of its affiliates under a law traditionally used to take down sprawling criminal syndicates that operated under multiple layers of secrecy.

Huawei is the world’s largest telecommunications equipment provider and one of its largest cell phone manufacturers. The new charges add to the company’s legal woes, which already included two separate indictments unsealed in January 2019: one in the Western District of Washington alleging Huawei staff conspired to steal information about a T-Mobile cell phone-testing robot nicknamed “Tappy,” and another in the Eastern District of New York charging Huawei, chief financial officer Meng Wanzhou, and subsidiaries with 13 charges relating to alleged banking and financial fraud as part of a Huawei scheme to evade U.S. sanctions on Iran.

The superseding indictment adds three new charges in the Eastern District case, including conspiracy to steal trade secrets, conspiracy to commit wire fraud and racketeering conspiracy under the Racketeer Influenced and Corrupt Organisations Act (RICO). In addition to Huawei, it now includes four subsidiaries mentioned in the prior cases: Huawei Device, Huawei USA, Futurwei Technologies, and Skycom. U.S. prosecutors are essentially asserting that Huawei and those companies achieved their top-ranking status by working as a criminal enterprise akin to a corporate mafia.

A RICO charge means that Huawei and the other companies could face huge consequences if they are found to have collectively acted as such a criminal enterprise.

“It escalates the charges rather dramatically, alleging Huawei itself is a criminal enterprise (rather than a regular company that happened to break the law),” Julian Ku, a constitutional law professor at Hofstra University School of Law, told Gizmodo via Twitter DM. “... RICO is different because it means that all of the various things Huawei is alleged to have done are part of a larger plan to profit off illegal activities.”

“RICO is notoriously hard to prove because you have to prove various underlying crimes, and then that it was part of a larger enterprise whose purpose is to profit off those crimes,” he added. “I can’t recall this ever being used against a major corporation like this, especially a non-U.S. corporation.”

In our own research, we could not find RICO being used against such a large corporation by the federal government.

“The Huawei Enterprise was engaged in, and its activities affected, interstate and foreign commerce,” prosecutors wrote in the indictment. “The principal purpose of the Huawei Enterprise was to grow the global ‘Huawei’ brand into one of the most powerful telecommunications equipment and consumer electronics companies in the world by entering, developing and dominating the markets for telecommunications and consumer electronics technology and services in each of the countries in which the Huawei Enterprise operated.”

Prosecutors wrote that Huawei and its affiliates stole from at least six U.S. companies. That includes the theft of router source code from an unnamed Company 1 (as TechCrunch noted, likely Cisco) that Huawei then used to offer their own product at a lower price. In another alleged instance, the indictment claims a Huawei engineer was caught in the act of entering a competitor’s booth at Chicago trade show in the dead of night before “removing the cover from a networking device and taking photographs of the circuitry inside.” (Said engineer was caught wearing a badge that said “Weihua,” a spoonerism of Huawei.) Another unnamed Company 6 is written to have sent over a “Proprietary and Confidential” pitch deck to Huawei in an attempt to create a partnership, after which Huawei promptly distributed confidential technical info inside to its engineers.

The indictment also covers claims introduced in the Western District case, including the alleged theft of “Tappy” and an a Huawei bonus program overseen by managers for employees who stole confidential data from competitors. It also contains new details of alleged efforts by Huawei personnel to lie to federal investigators and obstruct justice, saying Huawei kept a manual listed as “Top Secret” with instructions for its corporate spies to “conceal their employment with HUAWEI during encounters with foreign law enforcement officials.” Finally, the indictment claims that Huawei personnel lie to FBI and Congress in an effort to cover up illegal dealings in Iran and North Korea, where it was doing business through “local affiliates” like Skycom.

Prosecutors are now demanding civil forfeiture of assets and profits related to the racketeering and trade theft conspiracy charges, as well as any profits from the alleged wire and banking fraud scheme to dodge sanctions. Huawei claimed over $US122 ($181) billion in sales revenue in 2019 and the brand is valued at around eight billion by Forbes, meaning the implications are huge. Though most of that is in China, where the company is headquartered and the government is unlikely to take action against its own nationals.

U.S. intelligence officials have also recently claimed (under the cover of anonymity, and without providing specifics) that they have hard evidence Huawei has been building surveillance backdoors into telco equipment it has been selling overseas to spy on behalf of Chinese military and security services. News of the indictment and the supposed smoking gun in the espionage claims hits as Germany, one of the allies the U.S. has been urging to reject Huawei, is making a decision as to whether to include it in a 5G infrastructure plan. The firm is also facing numerous sanctions by the Commerce Department and federal government that have greatly hurt its ability to do business.

Huawei strongly denies that it is a security threat and has cast the trade theft allegations as incorrect or the work of rogue employees. The U.S. and China continue to wage a trade war that has had major effects on global commerce, which has sparked suspicions that the escalating U.S. campaign against Huawei may be more of a political hostage-taking by the Trump administration designed to coerce its Chinese counterparts into striking a deal.

Huawei didn’t respond to a request for comment by Gizmodo, and we’ll update this post if we hear back.

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