The U.S. government has long suspected that Chinese telecom equipment giant Huawei had links to the Chinese military and/or communist party, and that the corporation had secretly violated U.S. economic sanctions against Iran, for which the company needed to be held accountable.
Thus, when Huawei’s Chief Financial Officer Meng Wanzhou was changing flights at an airport in Vancouver, Canada, on Dec. 1, law enforcement pounced and placed her under arrest on accusations of fraud.
The New York Times reported that Canadian law enforcement officials made the arrest at the request of the U.S. government, which is seeking to extradite the Chinese official to America for prosecution.
This despite the fact that the arrest threw a wrench into President Donald Trump’s efforts at trade negotiations with China, not to mention causing turmoil in the international markets.
Top executive at Huawei
The 46-year-old Meng is the daughter of Huawei founder and leader Ren Zhengfei, a former Chinese military engineer who started the company to produce telephone switches in 1987 and eventually grew to become the world’s second-largest manufacturer of telecom equipment. Interestingly, “Huawei” translates to “China’s Achievement.”
Meng started off as a secretary at her father’s company in 1993, eventually earned a masters degree in management and transferred to the finance department of the business, and then worked her way up to be the chief finance officer. She now also serves as the public face of the corporation to the business world.
As part of her greater responsibilities, Meng sat on the board of a Hong Kong-based affiliate known as Skycom Tech. Skycom Tech is accused of having violated international sanctions to conduct business in Iran. Meng is also accused of being personally involved in deceiving financial institutions into conducting transactions that were in violation of the sanctions against Iran.
Fraud and violation of economic sanctions
At a bail hearing in a Canadian court on Friday, Canadian authorities accused Meng of fraud and said she had “direct involvement” in convincing financial institutions that Huawei and Skycom were in strict compliance with the sanctions against Iran, even though they were not.
Huawei has denied that any wrongdoing occurred, maintaining that all business conducted in Iran was lawful and demanding that Meng be immediately released from custody.
But the U.S. has been investigating Meng and Huawei’s business dealings in Iran for several years, and White House economic adviser Larry Kudlow said Huawei has been repeatedly warned against violating the sanctions. In an appearance on CNBC on Friday, Kudlow said, “We have these sanctions on Iran, it runs against our policy, why shouldn’t we enforce that?”
It remains to be seen if Meng will be ultimately prosecuted for fraud or released by Canadian officials, or if she is extradited to the U.S. to be held accountable for violating the Iran sanctions.
It further remains to be seen how this arrest and potential prosecution will impact the financial markets — hint: the markets don’t like the uncertainty — and U.S-Chinese relations, particularly with regard to trade imbalance and technology issues.