Huawei CFO Sabrina Meng Wanzhou fraudulently represented company to skirt US and EU sanctions on Iran, court hears

Sabrina Meng Wanzhou, the chief financial officer of Chinese telecommunications giant Huawei Technologies, misrepresented the company in order to get around US and EU sanctions on Iran, a packed courtroom in Vancouver, Canada, heard on Friday.

Meng, a daughter of Huawei founder Ren Zhengfei, is sought for extradition by the United States in relation to Huawei's alleged use of an unofficial subsidiary, Skycom, to skirt the sanctions, a lawyer representing the Canadian government said. She was arrested at Vancouver International Airport last Saturday as she changed planes and has been detained ever since.

Meng had entered courtroom 20 of the British Columbia Supreme Court dressed in a green tracksuit, smiling and laughing as she conferred with her Vancouver lawyer, David Martin.

About 100 journalists filled the high-security room, which was constructed especially for the Air India terrorism trial and is surrounded by bulletproof glass. Some of Huawei's team, apparently made up of executives and lawyers, had reserved 20 seats in the public gallery, said lawyer Sarah Leamon as she tried to move journalists out of the way.

The Canadian government's lawyer, John Gibb-Carsley, told the court that the US sought Meng on "fraud offences" involving US and EU sanctions against Iran.

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Between 2009 and 2014, Huawei used an unofficial subsidiary, Skycom, to conduct business in Iran, Gibb-Carsley said, telling the court: "This was the crux of the fraud."

In 2013, Meng "personally represented to banks that Skycom and Huawei were separate" the lawyer said, after the banks became aware that Skycom was doing business in Iran.

An arrest warrant was issued for Meng by a New York judge on August 27, 2018, seeking her to stand trial for fraud. Gibb-Carsley described the US becoming aware last month that Meng would soon be transiting through Canada, on her way from Hong Kong to Mexico.

On November 30, a Canadian judge agreed to a US request that Meng be arrested, and on December 1 she was detained at Vancouver's airport as she changed planes, said Gibb-Carsley.

There had been doubt over whether Meng's alleged breach of US and EU sanctions amounted to a Canadian offence, something required for extradition.

People wait to enter Meng's British Columbia Supreme Court bail hearing. Photo: Reuters

But Gibb-Carsley said the alleged efforts to deceive financial institutions about the nature of Huawei's relationship with Skycom amounted to the Canadian offence of fraud.

Gibb-Carsley said Meng engaged in an "extensive pattern of dishonesty", as he opposed bail, citing her supposed flight risk. Meng had access to "a vast amount of resources" and had "no meaningful connection" to Canada, he said.

He also said that she faces multiple charges, each of which carries a maximum penalty of up to 30 years in prison. "There is an incentive to flee," he said.

Ren, Huawei's founder and Meng's father, is worth US$3.2 billion, said Gibb-Carsley, citing the US request for extradition. As he argued against releasing Meng, he seemingly acknowledged that her husband, who went unnamed, was living in Canada.

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The lawyer drew laughter from the gallery when he compared the defence's request for bail of C$1 million (US$752,400), compared to her father's billions, saying "we are not in the same universe".

Meng had demonstrated that she was avoiding travel to the United States, even though she had a 16-year-old son going to school in Boston, said Gibb-Carsely.

Between 2014 and early 2017, Meng travelled frequently to the US, he said. But US authorities say that in April 2017 she became aware of the investigation, when US-based Huawei executives were served as part of a grand jury probe. She had not visited America since then, he said.

Following a 15-minute break, defence lawyer David J. Martin told the judge that Meng should be granted bail because "you can rely on her personal dignity", adding: "You can trust her."

Were Meng to breach a court order it would "humiliate and embarrass her father, whom she loves", said Martin. "She would embarrass China itself," he added.

He also portrayed the US extradition request as incomplete, saying: "We don't have a charge " the US has not identified an indictment in this material."

He said there were "glaring deficiencies" in the timelines offered by the US about Meng's alleged deceptions, and that Meng had been "very open" that Huawei had once owned Skycom, and that she had once sat on the board of directors, but that it had been sold in 2009.

Martin said that the bank that was allegedly deceived by Meng about Huawei's Iran dealings was "Hong Kong Bank", an apparent reference to HSBC, which he called "the largest bank in the world".

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The idea that a PowerPoint presentation to HSBC by Meng - which the US claimed represented fraud - could have induced the bank to provide improper financial services "is preposterous", Martin said, telling the court that the evidence presented by the US that Huawei had secret control over Skycom did not include the crucial element of timing.

Sabrina Meng Wanzhou of Huawei is seen at the VTB Capital Investment Forum in Moscow in 2014. Photo: Reuters

Martin derided evidence that Huawei maintained control over Skycom, supposedly revealed in corporate stationery shared by the companies and in Huawei email addresses once used by Skycom executives.

"Lots of people have logos of Apple on their documents," he said. "That doesn't mean they are Apple."

The evidence concerning Meng's arrest, and the reasons for it, had previously been subject to a publication ban issued at her request. However, that was lifted as the first order of business at the hearing on Friday morning.

Martin did not oppose the lifting of the measure by Mr Justice William Ehrcke, saying "the horse has left the barn". The lifting had been sought by a lawyer for various media organisations.

Despite the court's lifting of the publication ban, the US Department of Justice declined to comment or provide any details about the order for Meng's extradition.

Meng's arrest, which only became public knowledge on Wednesday, triggered an outcry from China, which demanded an explanation. Beijing has lodged protests with both Ottawa and Washington.

The situation has reverberated among investors and US multinational companies concerned about potential repercussion their executives in China might face in response to Meng's arrest.

Asked by the South China Morning Post on Friday whether China would retaliate against foreign business executives in China, Chinese foreign ministry spokesman Geng Shuang said that China "has always protected the legitimate rights and interests of foreign nationals in China and they should obey Chinese laws [when they are in China]".

Journalists stake out the Court of Appeal & Supreme Court in Vancouver, Canada, on Friday during coverage of Huawei Chief Financial Officer Meng Wanzhou, who is set to appear for a bail hearing as she awaits possible extradition to the United States. Photo: Reuters

On Friday, the Trump administration's top economic adviser, Larry Kudlow said that American firms should not alter their business operations. "I wouldn't stop business or disrupt business just on the basis of Huawei," Kudlow, director of the National Economic Council, told CNBC.

Instead, Kudlow suggested that American companies that have dealings with China should play a role in advocating on the US government's behalf as it confronts Beijing on trade and technology issues.

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"If I were they, I would try to help us with all the Chinese officials regarding these trade talks and trade openings, and tariff reduction, non-tariff barriers of course the technology issues", he said. "So they should join us."

On Thursday, US Republican Senator Marco Rubio, a national security hawk on China, tweeted: "If @Huawei has been helping violate US sanctions by transferring US technology to #Iran they should be barred from operating in the US or from purchasing US technology."

The case has echoes of the ZTE case that filled headlines earlier this year. That telecoms equipment company " China's second-biggest " was found to have gone back on an agreement with the US to reform its management after it was found to have traded with Iraq and North Korea.

It was subsequently banned from buying US products " including the chips that it needed to continue operations, effectively shuttering the company.

Chinese President Xi Jinping then spoke to US President Donald Trump, who intervened, lifting the ban in exchange for Huawei paying US$1.4 billion in penalties, changing its management, and being placed under the observation of a US-appointed compliance officer.

Huawei's exposure to American components suppliers is much lower than ZTE's, with estimates in the single figures, but a similar ban would still hit the company hard.

The tech-heavy Nasdaq composite index has lost more than 5 per cent this week, partly as a result of concern that Meng's arrest will derail talks between Washington and Beijing aimed at resolving a bilateral trade war that started in July.

The case continues.

This article originally appeared on the South China Morning Post (SCMP).

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