U.S. charges Chinese telecom giant Huawei with fraud, stealing trade secrets; violations go 'to the top'

Corrections and clarifications: A previous version of this story incorrectly spelled the name of Chinese telecom giant Huawei.

WASHINGTON – U.S. authorities unsealed a wave of criminal charges Monday against a Chinese telecom giant, its affiliates and one of its top executives who has been detained in Canada, alleging that the company defrauded banks, stole trade secretsand tried to obstruct justice. The move is almost certain to stoke tensions between Washington and Beijing.

Federal prosecutors in Brooklyn, New York, and Seattle brought the charges against Huawei and its chief financial officer, Meng Wanzhou, who has been in Canadian custody since last month. Huawei’s affiliates Skycom and Huawei Device USA also were included in indictments unsealed Monday.

Acting Attorney General Matthew Whitaker, flanked by two cabinet secretaries and FBI Director Christopher Wray, said the misconduct goes "to the top of the company."

“The behavior in both those cases alleged more than just rogue employees,” Whitaker said. “These are very serious actions by a company that appears to be using corporate espionage and sanctions violations to enhance potentially not only their bottom line but also to compete in the world economy. This is something the United States will not stand for."

Prosecutors revealed two criminal cases targeting the company on Monday.

A 10-count indictment unsealed Monday in Seattle charged Huawei Device Co. Ltd. and Huawei Device Co. USA with theft of trade secrets conspiracy, attempted theft of trade secrets, seven counts of wire fraud, and one count of obstruction of justice.

The indictment charged Huawei with obstruction involving the brazen theft of robotic technology from Bellevue, Washington, based T-Mobile USA.

Beginning in 2012, according to court documents, Huawei began to lift information from a T-Mobile phone-testing robot dubbed “Tappy.” In an effort to build their own robot, Huawei engineers secretly took photos of “Tappy,” took measurements of parts of the robot and even stole a piece of the robot so that the Huawei engineers in China could try to replicate it, prosecutors asserted.

A New York grand jury returned 13 other charges against the company and a subsidiary in Iran for crimes dating to at least 2007. The company is charged with having misrepresented its relationship to its Iranian subsidiary Skycom as a separate rather than a related company, which led U.S. banks to unknowingly violate laws governing sanctions against Iran, Whitaker said. One bank handled $100 million in fraudulent transactions over four years, Whitaker said.

“As I told Chinese officials in August, China must hold its citizens and Chinese companies accountable for complying with the law,” Whitaker said.

The acting attorney general asserted that the company spirited potential witnesses out of the country in an alleged attempt to thwart the government’s investigation.

“In pursuit of their commercial ambitions, Huawei relies on dishonest business practices that contradict the economic principles that have allowed American companies and the United States to thrive,” FBI Director Christopher Wray said.

“The prosperity that drives our economic security is inherently linked to our national security,” Wray said. “And the immense influence that the Chinese government holds over Chinese corporations like Huawei represents a threat to both.”

Huawei did not immediately respond to the charges on Monday.

The charges are punishable by a maximum fine of up to $5 million or three times the value of the stolen trade secret, whichever is greater. The charges for wire fraud and obstruction of justice are punishable by a fine of up to $500,000.

Meng, who is being detained by Canadian authorities in Vancouver, is charged with bank fraud, wire fraud and related conspiracy counts.

Whitaker said the U.S. is expected to file a formal extradition request with Canada Tuesday.

The U.S. investigation and the Canadian enforcement action have been at the center of increasing diplomatic tensions with China.

American officials and their Chinese counterparts were scheduled to meet this week in Washington where discussions about intellectual property protections were expected to highlight continuing trade discussions. But there have been other signs of increasing strain with China.

Last month, China detained former Canadian diplomat Michael Kovrig and Canadian entrepreneur Michael Spavor in an apparent attempt to pressure Canada to release Meng, who was arrested at the request of U.S. authorities.

Meng is the daughter of Huawei founder, Ren Zhengfei.

Although the Chinese government was not directly implicated in Monday's action, Virginia Sen. Mark Warner, the top Democrat on the Senate Intelligence Committee, said there is "ample evidence to suggest that no major Chinese company is independent of the Chinese government and Communist Party."

"Huawei, which China’s government and military tout as a ‘national champion,’ is no exception. It has been clear for some time that Huawei poses a threat to our national security, and I applaud the Trump Administration for taking steps to finally hold the company accountable."

This article originally appeared on USA TODAY: U.S. charges Chinese telecom giant Huawei with fraud, stealing trade secrets; violations go 'to the top'