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Huawei hit with racketeering charge in expanding US case

Bloomberg logoBloomberg 2/14/2020 Patricia Hurtado, Alyza Sebenius and Todd Shields

Video by Reuters

The U.S. raised the stakes in its battle with Huawei Technologies Co., using a law historically associated with prosecuting mafia figures to claim the Chinese company engaged in decades of intellectual property theft.

Huawei, the world’s largest maker of telecommunications equipment, and Chief Financial Officer Meng Wanzhou had already faced criminal charges. The fresh allegations, announced Thursday, up the ante by including racketeering conspiracy, increasing the potential punishment. They come as the global battle for supremacy in fifth-generation wireless technology, or 5G, is joined.

Huawei broke the law “to drastically cut its research and development costs and associated delays, giving the company a significant and unfair competitive advantage,” the Justice Department said in a statement. The company even launched a bonus program to reward employees who got their hands on confidential information from competitors, prosecutors said.

The new charges depict a company that won international standing by stealing trade secrets, evading U.S sanctions and lying to authorities. They are likely to increase tensions between Beijing and Washington, which has accused Huawei of spying for the Chinese government, even as Huawei won a brief reprieve from a proposed ban on buying parts.

The indictment doesn’t name the businesses from which Huawei allegedly stole intellectual property, but details of the allegations match descriptions of companies including Cisco Systems Inc., Motorola Inc. and Cnex Labs Inc.

“The indictment paints a damning portrait of an illegitimate organization that lacks any regard for the law,” Senator Richard Burr of North Carolina, the Republican chairman of the Intelligence Committee, and Senator Mark Warner of Virginia, the panel’s Democratic vice-chairman, said in an emailed statement. “Intellectual property theft, corporate sabotage and market manipulation are part of Huawei’s core ethos and reflected in every aspect of how it conducts business.”

Huawei doesn’t “abide by Western business practices,” Rob Spalding, a Washington-based technology and security expert at the Hudson Institute who served on the National Security Council, said in an email. “Which is why many U.S. companies are no longer competitive in the global marketplace.”

a close up of a sign: A Huawei Technologies logo during the company's Chinese New Year celebration in Brussels. © Bloomberg A Huawei Technologies logo during the company's Chinese New Year celebration in Brussels.

Read More: Why 5G Mobile Arrives With a Subplot of Espionage

Huawei, in turn, has accused the U.S. of orchestrating a campaign to intimidate its employees and launching cyberattacks to infiltrate its internal network. China’s Ministry of Foreign Affairs has urged the U.S to “stop unreasonably targeting Huawei and other Chinese enterprises.”

The new indictment “is part of the Justice Department’s attempt to irrevocably damage Huawei’s reputation and its business for reasons related to competition rather than law enforcement,” a representative of the company said Thursday. “These new charges are without merit and are based largely on recycled civil disputes” from the last 20 years “that have been previously settled, litigated and, in some cases, rejected by federal judges and juries.”

Huawei was previously accused of violating U.S. sanctions against Iran and North Korea. Meng, the CFO, was charged with fraud last year, with the case rippling into Canada, where she is currently fighting extradition to the U.S. Meng’s lawyers have argued in court that their client did nothing wrong.

The U.S. said Huawei stole trade secrets, including copyrighted works, source code and user manuals for internet routers, to “grow and operate” its business. The company swiped antenna and robot testing technology, prosecutors said.

Then, they said, it doubled down.

“When confronted with evidence of wrongdoing, the defendants allegedly made repeated misstatements to U.S. officials, including FBI agents and representatives from the U.S. House Permanent Select Committee on Intelligence, regarding their efforts to misappropriate trade secrets,” they said.

Read More: U.S. Ramps Up Huawei Fight With Iran, Trade-Secret Charges

The U.S. dates the thefts to 2002.

In the new indictment, the government is wielding some prior allegations of wrongdoing, like Huawei’s alleged theft of a phone-testing robot developed by T-Mobile US Inc., to build a more muscular case. The U.S. alleged that a Huawei engineer secretly took photos of T-Mobile’s robot, Tappy, took measurements of parts and even stole a piece of it. When T-Mobile threatened to sue, the U.S. said, Huawei blamed “rogue actors” within the company.

Intellectual property theft “explains a lot of Huawei’s success,” said Jim Lewis, of the Technology Policy Program at the Center for Strategic and International Studies in Washington. “Huawei is the poster child for China’s commercial spying.”

The case is U.S. v. Huawei Technologies Co., 18-cr-457, U.S. District Court, Eastern District of New York (Brooklyn).

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--With assistance from Bob Van Voris and Natalie Obiko Pearson.

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