SNAPSHOT: How will the U.S. charges against Huawei and its CFO impact Western businesses?

On 28 January 2019, the U.S. Department of Justice filed a 26-count indictment against Huawei, the Chinese telecommunications giant, and its associates. A2 Global analyses the possible implications of the indictments for Western businesses and staff operating in China.

Huawei

KEY POINTS 

  • On 28 January, acting U.S. attorney general Matthew Whittaker announced that the Department of Justice (DoJ) had filed a 26-count indictment against Huawei, the Chinese telecommunications giant, and its associates, including its chief financial officer Meng Wanzhou.
  • The first charge of 10 indictments alleges that Huawei stole trade secrets from U.S. mobile telecommunications company T-Mobile, and the second charge of 13 indictments claims that the firm violated U.S. trade sanctions on Iran.
  • U.S. DoJ is also filing for extradition of Meng, who was detained by Canadian authorities on 1 December and is currently under house arrest in Vancouver, Canada. She is scheduled to appear at her British Columbia court extradition warrant hearing on 6 February.
  • U.S. DoJ will need to file for extradition to the Canadian government by tomorrow (30 January), and then Ottawa will have 30 days to reply.

ANALYSIS

  • This latest development is an escalation in hostilities between the US and China, which could prompt Beijing to retaliate against the U.S. government, companies and/or U.S. citizens.
  • The indictments on Iran sanctions violations, in particular, adds another layer of complexity to the ongoing trade war.
  • In response to Meng’s detention, Chinese state security detained ex-Canadian diplomat Michael Kovrig on 10 December, followed by the 12 December detention of Canadian Michael Spavor, the director of travel tour company, Paektu Cultural Exchange. On 14 January, Chinese authorities sentenced jailed Canadian Robert Schellenberg to death, when he appealed his original 15-year sentence for drug-smuggling.
  • Retaliation from Beijing is a near certainty, most likely through the detention of senior to mid-level executives of Western companies.

OUTLOOK

  • A2 Global maintains that there is an immediate and elevated risk particularly to China-based U.S. executives working for high-profile Western companies. Executives about to travel to China are also under a credible risk of detention over the one-month outlook.
  • U.S. and Canadian nationals are assessed as the most at risk of detention.
  • In the past, Beijing has demonstrated a preference for detaining foreign nationals of Chinese heritage. A2 Global assesses that the detention of Michael Kovrig and Michael Spavor is an indication that business executives of all ethnic backgrounds are currently at risk. China does not recognise dual nationality.
  • A2 Global assesses that there is potential that citizens of the other ‘Five Eyes’ intelligence sharing community are at risk of detention. In particular, dual Australian/New Zealand/U.K.-Chinese nationals could be targeted but that they are not at the same risk as those from Canada or the U.S.. As stated, citizens of these countries not of ethnic Chinese heritage are also at risk.
  • Beijing has demonstrated a tendency to react strongly to public criticism from foreign governments, so the threat posed to these nationalities will increase if statements criticising China are made public.
  • Chinese-Australian writer and democracy activist Yang Hengjun was detained by security agents on 23 January, and there is speculation in the media that his detention was related to comments made by Australian foreign minister Marise Payne on 31 December, regarding her concern for the detained Canadian nationals.
  • A2 Global reiterates that Beijing’s retaliation will be measured, so that it sends a signal to Canada and the U.S. without harming its key commercial links with the countries. Therefore, high-profile Western companies in China that produce non-essential goods are at high risk of being targeted.
  • It is advisable that high-level personnel from any Western company with ongoing regulatory disputes, such as non-compliance with China’s cyber law, or even minor issues, do not travel to China at this time.         

FORECAST

ONE-WEEK OUTLOOK:

In the one-week outlook senior U.S. and Canadian executives choosing to travel to China should keep the head office and security vendor informed of their daily travel and meeting schedule, and check in with both parties in the morning and evening. It is advised that the executives travel in pairs and inform the U.S./Canadian embassy or consulate in China of their travel plans.

ONE-MONTH OUTLOOK:

In the one-month outlook it would be advisable to use Hong Kong, Tokyo and/or Singapore as an alternative venue for essential meetings. Although Beijing authorities have the authority to arrest a Western executive in Hong Kong, it would be considered a major escalation in U.S.-China tensions.

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