As Huawei CFO faces charges, company bookends 2018 with controversy

The detainment of Huawei's chief financial officer in Canada on conspiracy charges is just the latest in a slew of problems for the Chinese tech giant.

Roger Cheng Former Executive Editor / Head of News
Roger Cheng (he/him/his) was the executive editor in charge of CNET News, managing everything from daily breaking news to in-depth investigative packages. Prior to this, he was on the telecommunications beat and wrote for Dow Jones Newswires and The Wall Street Journal for nearly a decade and got his start writing and laying out pages at a local paper in Southern California. He's a devoted Trojan alum and thinks sleep is the perfect -- if unattainable -- hobby for a parent.
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Roger Cheng
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Huawei Under U.S. Criminal Investigation For Illegal Iran Sales

Huawei's arrested chief financial officer was due to appear at a bail hearing Friday.

VCG via Getty Images

Huawei , the second-largest smartphone maker and one of the biggest telecommunications equipment suppliers in the world, had a rough start to the year. A widely expected deal to be announced at CES that AT&T would carry the Huawei Mate 10 Pro never materialized.

Then reports surfaced that Verizon Wireless had also pulled out of a deal. In March, CNET reported that Best Buy would cease selling all Huawei products. Federal Communications Commission Chairman Ajit Pai proposed new rules that would bar broadband companies from using a government subsidy program to buy telecom equipment from companies that pose a national security threat (without naming Huawei). 

It seemed like a low point for the company.

And yet, here at the end of the year, things have gotten worse for Huawei. Much worse. 

Huawei's chief financial officer, Wanzhou Meng, was detained in Canada at the behest of the US Justice Department and faces extradition to the US over claims of doing business with Iran, in violation of US sanctions. While in a Vancouver courthouse on Friday to discuss her bail, a lawyer with Canada's Justice Department alleged she defrauded US banks into making transactions that violated those sanctions, according to Bloomberg.

Notably, Meng isn't just the CFO of Huawei. She's the daughter of the founder and president, Zhengfei Ren. The arrest doesn't just have ripple effects across the tech industry; it threatens to blow up an already precarious relationship between the US and China over trade talks.

Over the past week, Huawei has endured a wave of negative sentiment. On Thursday, UK carrier BT said it'd pull Huawei equipment out of its 4G network and ban it from any future 5G deployments. Earlier on Friday, Japan reportedly banned government purchases from Huawei. Also on Friday, Andrus Ansip, the EU's technology chief, warned that Huawei and other Chinese companies pose a risk to the bloc's industry and security, according to Reuters.

Huawei denied any wrongdoing by Meng.

"The company has been provided very little information regarding the charges and is not aware of any wrongdoing by Ms. Meng. The company believes the Canadian and US legal systems will ultimately reach a just conclusion," said a company spokeswoman. "Huawei complies with all applicable laws and regulations where it operates, including applicable export control and sanction laws and regulations of the UN, US and EU."

Huawei expressed disappointment with Ansip's comments to Reuters.

Canada's Justice Department noted that the bail hearing had been adjourned until Monday. 

The US Justice Department didn't immediately respond to a request for comment.

A shocking arrest

Meng was detained on Dec. 1 while changing planes in Vancouver. Canadian authorities arrested her at the request of the US government, according to The New York Times.

As the daughter of Huawei's founder, Meng was seen alongside her brother as a likely candidate to succeed Ren in running the tech titan. Ren, however, shot the idea down and has said they both lacked "vision, character and ambition," according to a letter obtained by Quartz.

Under the agreement between both countries, the US has 60 days to provide a formal request for extradition and supporting documentation.

In addition to serving as CFO, she is also the deputy chairwoman of the company's board. 

Given her high-profile position in one of China's most respected companies -- it's often referred to as a national champion thanks to its presence on the global stage -- the move will add a wrinkle to the ongoing trade talks between President Donald Trump and Chinese President Xi Jinping.

In response to Meng being detained, several Chinese companies and business groups have reportedly called for employees to support Huawei by boycotting US products. Some organizations have even threatened to punish staff members caught with Apple devices, according to CNN.

The charges of selling equipment to Iran are serious. In May, the US Commerce Department leveled a ban against fellow Chinese telecom equipment provider ZTE for failing to follow through on a settlement made with the US for selling equipment to Iran and North Korea. The ban, which prevented ZTE from buying services and hardware from US companies, including key portions of Android, such as the Google Play store, caused the company to shut down its major operating activities until Trump intervened and pushed for another settlement.

Controversial history

The arrest is the culmination of years of suspicion cast upon Huawei by US intelligence officials -- often for unclear reasons. The catalyst for concerns lies with Ren, who was a technologist with the Chinese military before retiring and starting Huawei.

Huawei executives have at numerous times dismissed the connection between the Chinese military and Huawei, arguing that it's similar to when a retired officer in the US military starts or joins a business. They prefer to focus on his ability to take $2,500 in 1987 and turn it into a multibillion-dollar telecommunications juggernaut today.


A Pegasus constructed entirely out of Huawei Ascend smartphones sat on the grounds of the 2012 Mobile World Congress in Barcelona, Spain.

Roger Cheng/CNET

But concerns that Huawei and other Chinese companies -- ZTE often gets thrown into the mix -- are embedding backdoor entrances into their equipment at the behest of the government is a perennial concern. The charges, however, have never been proven, and Huawei has argued that most American products, such as Apple's iPhones , are made in China anyway.

In 2012, a House Intelligence Committee report detailed concerns that both Huawei and ZTE, a fellow Chinese vendor, pose a threat to national security. US companies were banned from buying Huawei equipment. At the time, the report said the concerns didn't extend to the consumer phone business.

But in February, the heads of the FBI, CIA and NSA all expressed their concerns about the risks that Huawei and ZTE posed, and specifically mentioned phones .

Tainted phones

Huawei spent years attempting to break into the US market by selling directly to consumers -- with little success. While the company got its start making budget phones, it quickly ramped up its research and development chops and cranked out more and more sophisticated handsets.

For a while, it seemed like the US was the only county with a hangup on Huawei. The company now stands as the world's second-largest smartphone provider, and is welcome all over the world. The latest flagship, the Huawei Mate 20 Pro, is "outrageously innovative," says CNET Editor Scott Stein. It's often referred to as the best smartphone you can't buy in the US.


The Mate 20 Pro is a worthy flagship phone -- when you ignore those security concerns.

Érika García / CNET

Huawei kicked off the year with what appeared to be a breakthrough. Speculation surfaced ahead of January's CES that AT&T and Huawei were set to make a big announcement.

In hindsight, the announcement seemed unlikely. AT&T planned to send a small team to CES -- not usual for a phone launch -- and had stayed mum about the rumors leading up the show.

When Richard Yu, CEO of Huawei's consumer business, went on stage in Las Vegas during a CES keynote speech, he talked about the Mate 10 Pro and acknowledged that not having a US carrier was a blow

Even now, it's unclear just how much a threat Huawei's smartphones pose. But given the raft of countries and carriers moving against the company, it's certainly a red flag.

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First published Dec. 7, 2:20 p.m. PT.
Update, Dec. 11 at 11:43 a.m.: Adds details on reported boycott of US products.