Huawei under US criminal investigation over Iran sanctions

The US is investigating whether Huawei violated sanctions related to Iran, according to people familiar with the matter.

A man walks past a Huawei logo during a launch event for the Huawei Matebook in Beijing. (AP Photo/Mark Schiefelbein)

The US Justice Department is investigating whether Huawei Technologies Co. violated US sanctions related to Iran, according to people familiar with the matter — opening a new avenue of scrutiny amid wider national-security concerns over the Chinese cellular-electronics giant.

It’s unclear how far the US Justice Department probe has advanced and what specific allegation federal agents are probing. A Huawei spokesman declined to comment.

Such a probe raises the stakes for Huawei, which is facing a series of moves by Washington to diminish its already-limited business dealings in the US It could also have knock-on effects for its much larger business overseas, particularly in Europe.

Investors sold down shares in some of Huawei’s suppliers, including a group of small optical-technology firms like Lumentum Holdings Inc., after The Wall Street Journal first reported the probe. Qualcomm Inc., which supplies Huawei with chips, was also down modestly in overnight trade. Analysts said a worst-case scenario could entail Huawei becoming vulnerable to the same sort of export restrictions its rival ZTE Corp. now faces, stemming from a similar probe.

Amid the heightened scrutiny in Washington, some allied countries, where Huawei has big business, have grown more wary.

Washington’s broader assault on Huawei has exacerbated tensions with Beijing, which is already wrangling with the US over trade. The Trump administration has also recently cited Huawei, the world’s largest maker of cellular-tower electronics and other telecommunications equipment, as a threat to American leadership in the race to develop the future of mobile communication. Huawei is also the world’s No. 3 maker of smartphones, behind Apple Inc. and Samsung Electronics Co.

The criminal investigation into Huawei follows administrative subpoenas on sanctions-related issues from both the Commerce Department and the Treasury Department’s Office of Foreign Assets Control, according to these people.

The Justice Department’s interest hasn’t been previously reported, and the existence of a criminal probe represents a more serious level of potential misconduct. The Commerce and Treasury departments can impose administrative penalties and regulatory sanctions on the company.

If investigators conclude the company intentionally violated US export laws, however, Huawei could face additional criminal penalties, the imposition of a corporate monitor or the prosecution of individuals who may have been involved in the alleged illicit activity, among other potential consequences.

Last year, Huawei’s smaller Chinese rival, ZTE, agreed to pay $892 million in penalties imposed by the Justice, Commerce and Treasury departments related to sanctions busting. The company pleaded guilty and admitted it violated a law that controls the export of sensitive goods, by shipping US telecom equipment to Iran. Last week, the Commerce Department said ZTE broke that deal’s terms and added a harsher sanction: It banned US companies from selling components to ZTE.

That punishment has slammed ZTE, which relies on American suppliers to make both telecom equipment and smartphones. The Commerce Department said Friday it would let ZTE present evidence in an informal appeal.

Representatives of the Justice, Commerce and Treasury Departments declined to comment. The New York Times reported early last year that the Treasury Department had sent Huawei a sanctions-related administrative subpoena back in December 2016, following a separate Commerce Department inquiry into Huawei.

The criminal sanctions investigation adds to American pressure against Huawei. A 2012 congressional report concluded both Huawei and ZTE could become a tool for state-sponsored spying or sabotage, and Washington has taken additional steps since late last year to further curb them.

Washington sees itself battling China for control of an increasingly digital world. US officials say Beijing could order Huawei and ZTE to take control of the telecom equipment they make to disable communications, spy or launch other cyberattacks.

Huawei and ZTE have denied they are a threat. A Huawei spokesman said the company is employee-owned and that no government has ever asked it to spy on or sabotage another country. He said Huawei poses no greater risk than its rivals, given they share a global supply chain.

Huawei in 2017 led the worldwide telecom-equipment market with a 27 per cent share, while ZTE ranked fourth, with 10 per cent, according to research-firm Dell’Oro Group. Largely because of the 2012 congressional report, the Chinese companies’ US market share is less than 1 per cent for cellular and landline networks, compared with 48 per cent each for Finland’s Nokia Corp. and Sweden’s Ericsson AB.

“That pleases me, although it’s not zero,” said Sen. Tom Cotton (R., Ark.), who has led bipartisan Congressional efforts to curtail Huawei and ZTE. “And that’s where I’d like to get it.” President Donald Trump in December signed a bill that bars Huawei and ZTE equipment from US nuclear-weapon infrastructure, while Mr Cotton and politicians in both the House and Senate have sponsored legislation to ban the US government and its contractors from using electronics from the two companies. Congressional aides said they want to fold the legislation into the next annual defence spending bill, to ensure it gets passed quickly.

National-security advisers also cited Huawei’s dominance in the telecommunications-equipment industry in advising Mr Trump to block Broadcom Ltd.’s $US117 billion hostile-takeover bid for Qualcomm Inc. Neither chip maker is Chinese, but security officials fear that weakening Qualcomm, which competes with Huawei for wireless-technology patents, could further strengthen Huawei.

Last week, a bipartisan group of senators led by Mr Cotton sent a letter to the Agriculture Department, which runs a program called the Rural Utilities Service that provides grants and loans to improve telecommunications infrastructure. The senators asked the department to consider blocking the use of those funds for Huawei and ZTE equipment. A representative for the Department of Agriculture had no immediate comment.

The Federal Communications Commission last week adopted a similar measure and proposed banning the use of subsidies from an FCC rural-telecommunications fund on Huawei and ZTE gear.

Dow Jones