Huawei under probe

U.S. prosecutors in New York have been investigating whether Chinese tech company Huawei has violated U.S. sanctions in relation to Iran. The investigation comes during a period of heightened tensions in trade ties between China and the US.

Background

Huawei Technologies is a Chinese multinational networking and telecommunications equipment & services company headquartered in Shenzhen, Guangdong. It is the largest telecommunications equipment manufacturer in the world, having overtaken Ericsson in 2012.

In 2012, the House Intelligence Committee in the US released a report that urged US telecom companies not to do business with Huawei. The report also warned companies against Shenzhen-based firm, ZTE. The report stated that these companies could threaten US security.

In January 2018 it was reported that the deal between China’s Huawei Technologies & US carrier AT&T has fallen through, amid concerns about security. The two companies had decided to come together to sell Huawei’s smartphones in the United States.

Sanctions against Iran

The United States has imposed restrictions on activities with Iran under various legal authorities since 1979, following the seizure of the U.S. Embassy in Tehran. The Department of State's Office of Economic Sanctions Policy and Implementation is responsible for enforcing and implementing a number of U.S. sanctions programs. It restricts access to the United States for companies that engage in certain commercial activities in Iran.

Analysis

Recently, US President Trump also blocked the sale of Qualcomm to Broadcom. The former is a US owned semiconductor and telecommunications Company, while the latter is a technology firm based in Singapore. The sale was blocked due to reports that Broadcom could restrict Qualcomm’s investment in 5G R&D. This week, it was announced that Washington had slapped Chinese telecommunication company, ZTE, with a seven-year ban on purchases of crucial American technology.

Multiple media reports now have revealed that U.S. prosecutors have been investigating Huawei. The investigation revolves around whether or not the company has violated U.S. sanctions in relation to Iran. Huawei has been under US scrutiny for many years. In 2016, U.S. Commerce Department's Bureau of Industry and Security (BIS) issued a subpoena for information regarding Huawei's direct and indirect exports and re-exports of U.S. technology. This was to probe and understand the company’s actions in nations that the US has designated as supporters of international terrorism or countries that have been imposed by US trade sanctions. This includes countries like Cuba, Iran, North Korea, Sudan and Syria.

The latest development comes just days after Huawei scaled down its US operations. It also comes during a period when U.S. Treasury Secretary Steven Mnuchin is scheduled to conduct high level meetings in Beijing to discuss trade ties between the two nations. In 2018, both US and China have imposed tariffs worth billions of dollars on each other. This has increased concerns of a potential trade war between the two nations.

Glenn Schloss, a spokesman for Huawei in Shenzhen, declined to comment about the probes. The company has said it complies with all applicable laws and regulations where it operates, including U.S. export controls and sanctions laws and regulations, and that it “actively cooperates” with government agencies regarding its compliance.

Assessment

Our assessment is that it is in US strategic interest to stay ahead of the Chinese in telecommunication. The ban on ZTE was also in part to curb the rise of the Chinese telecommunications industry.  A ban on Huawei that is in place will significantly affect Chinese telecommunications industry. The investigation against Huawei also presents serious repercussions for the company itself and could severely hit the company’s revenue. In addition, the various moves initiated by the US to block Chinese companies is likely to negatively affect any upcoming trade talks between China and the US.