Technology Sep 17

Top Huawei executives had close ties to company at centre of US criminal case

Evidence emerges as SMIC seeks US permission to continue supplying tech giant 

by Reuters
Top Huawei executives had close ties to company at center of U.S.
A man wearing a face mask following the coronavirus disease outbreak walks past a booth of Huawei at the 2020 China International Fair for Trade in Services (CIFTIS) in Beijing. Photo: Reuters

LONDON/SAO PAULO: An obscure Hong Kong-registered company stands at the centre of the US criminal case against China's Huawei Technologies and its chief financial officer.

US authorities allege the giant telecom-gear maker used the firm to skirt American economic sanctions on Iran between 2007 and 2014. Huawei has said it sold the business in 2007 and denies any wrongdoing.

Now, Reuters has uncovered previously unreported links in Brazil between Huawei and the company, Skycom Tech, that could offer support to the US case against the tech giant and Meng Wanzhou, its chief financial officer and daughter of its founder. Corporate records filed with the state of Sao Paulo in Brazil show that Huawei and Skycom were closely intertwined there for five years after Huawei disposed of its shares in Skycom in 2007.

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Until late 2007, two other top-level Huawei executives also had close ties with Skycom, corporate records filed in Brazil and Hong Kong show. Both men - Ken Hu and Guo Ping - currently are deputy chairmen of Huawei and serve on a rotating basis as the company's chairman. Guo now has the chairman's role.

The criminal case is part of a multifaceted, global campaign by Washington to check the power of Huawei, a front in America's broadening cold war with China. The United States has been lobbying allies to avoid using Huawei equipment in their next-generation mobile telecommunications systems, known as 5G. Washington argues China could use the technology to attack critical infrastructure and compromise intelligence sharing. Huawei and China have strenuously denied this.

Huawei's relationship with Skycom is central to the high-profile US criminal case. A US indictment alleges Huawei controlled Skycom and used it to violate American sanctions by obtaining embargoed US computer gear in Iran. Huawei and Meng have maintained that while Huawei once owned Skycom, the firm later became in effect an arms-length business partner. In a recent court filing related to the case, however, Meng's lawyers acknowledged that Huawei "exercised a level of control over Skycom”.

The information newly uncovered by Reuters buttresses the US case by establishing that Huawei's control over Skycom was even stronger than American prosecutors have asserted. Corporate records show that two additional Huawei executives ran a company that owned Skycom – not just Meng, the sole executive named by prosecutors. Records also show that Huawei's control of Skycom extended to Brazil, not only Iran, and lasted through the period of the alleged sanctions violations, long after the Chinese tech giant claims it sold its 100% stake.

Huawei declined to comment for this article.

Until now, only Skycom's business activities in Iran have received public attention. But the company records filed in Sao Paulo show that Skycom also had a little-known presence in Brazil between 2002 and 2012.

The records show that Hu was based in Sao Paulo in May 2002 when Skycom acquired a small stake in Huawei Brazil, where he was then a manager. Hu's LinkedIn profile states he also was president of Huawei's Latin America region around that time.

Hu later left Brazil, but he established another link to Skycom. Hong Kong company records show that in 2007, Hu and Guo were directors of a Huawei affiliate, Hua Ying Management that owned Skycom. Hua Ying transferred its shares in Skycom to another company that year. Meng was listed at the time as Hua Ying's corporate secretary.

Documents filed by American authorities in the US criminal case describe the share transfer as essentially a sham transaction and that Huawei continued to control Skycom as "an unofficial subsidiary."

Last year, the US Department of Commerce added Huawei and scores of its affiliates, including Hua Ying, to its so-called "Entity List." That move restricted sales of US goods and technology to Huawei. Washington said the affiliates "pose a significant risk of involvement in activities contrary to the national security or foreign policy interests of the United States”.

Hu, Guo and Meng are currently listed as the three directors of Hua Ying in the Hong Kong companies registry.

Hu, who is also known as Hu Houkun, and Guo aren't named in the US criminal case. Their links to Skycom and its activities in Brazil haven't been reported before.

Huawei's close links to Skycom in Iran after the purported 2007 sale have been previously documented by Reuters. The Brazilian documents, filed with the Sao Paulo companies registry, show the extent to which Huawei and Skycom also continued to be closely linked in Brazil for five more years.

For example, in July 2008, Huawei Brazil's two shareholders at that time – Skycom and a Huawei affiliate called Huawei Tech Investment – each appointed the same Chinese person to represent them at Huawei Brazil. The documents also show that Meng, who was then serving on the boards of both shareholding companies, authorized the appointments.

Indeed, during Skycom's decade as a shareholder of Huawei Brazil until 2012, Skycom was always represented in the Brazilian company by people who were also representing Huawei's interests, the documents show.

Numerous misrepresentations

The United States has been trying to get Meng extradited from Canada, where she was arrested at the request of US authorities while changing planes in Vancouver in December 2018.

The US indictment alleges that Huawei and Meng participated in a fraudulent scheme to obtain prohibited American goods and technology for Huawei's Iran-based business via Skycom, and move money out of Iran by deceiving a major bank. US authorities have identified the bank as HSBC Holdings. Meng is accused of giving a PowerPoint presentation to a HSBC executive in 2013 that included "numerous misrepresentations regarding Huawei's ownership and control of Skycom."

A spokesman for HSBC declined to comment.

Huawei and Meng have denied the US criminal charges, which include bank fraud, wire fraud and other allegations. They have argued in court filings in Canada that Meng did not deceive HSBC. Skycom, which was incorporated in Hong Kong in 1998 and dissolved in 2017, is also a defendant.

The US indictment cites Reuters stories in 2012 and 2013 that detailed numerous financial and other ties between Skycom, Huawei and Meng and described an attempt by Skycom in 2010 to obtain embargoed US computer equipment in Iran. The 2013 article directly linked Meng to Skycom. 

In June, Reuters reported that following its 2013 article, Huawei acted to cover up its relationship with Skycom in Iran, according to internal Huawei documents. Huawei declined to comment on the story.

The Brazilian records show Skycom became a small shareholder of Huawei Brazil in 2002 without injecting new money into the company. Instead, Huawei Brazil's two shareholders at the time - both Huawei-affiliated companies - transferred shares to Skycom.

When Skycom exited Huawei Brazil in 2012, it transferred its shares to yet another Huawei entity, Huawei Technologies (Netherlands), the Brazilian filings show.

Public role

Hong Kong corporate filings show that in 2005, Hu and Guo became directors of Hua Ying, the Huawei affiliate, within days of the unit's incorporation there that year. Hua Ying later played a key role in Huawei's purported sale of Skycom.

Skycom filings in Hong Kong show that Hua Ying acquired all of Skycom's shares in February 2007. Nine months later, Hua Ying transferred the shares to a company called Canicula Holdings Ltd, a holding company registered in Mauritius.

US authorities allege that Huawei never gave up control of Skycom. In court papers filed in Canada, they allege that Huawei treated Canicula as a subsidiary and that Huawei lent Canicula money to buy Skycom. The loan came from another Huawei affiliate, Huawei Tech Investment, they say. Huawei Tech Investment is the company that co-owned Huawei Brazil with Skycom.

Hu and Guo today are among Huawei's highest-level executives. At times, both have played key public roles at the tech giant.

Shortly after Meng's 2018 arrest, Hu held a press conference in China with international media, in part to address U.S. allegations against Huawei. Asked about Huawei's relationship with Skycom, he said he couldn't provide any information because the matter was "under a judicial process."

SMIC seeks approval

In another development, China's Semiconductor Manufacturing International (SMIC) has asked for approval from the United States to continue supplying Huawei Technologies, state media outlet Beijing News reported on Tuesday, citing the company.

The company told the newspaper that it had, in accordance with regulations, applied in the United States to continue supplying Huawei, and reiterated that it will abide by relevant laws and regulations in all countries and regions. 

SMIC did not immediately respond to a request for comment from Reuters. 

The restrictions imposed by Washington in May on Huawei barring major semiconductor equipment vendors from supplying or service Huawei go into effect on Tuesday. 

Companies hoping to continue doing business with the smartphone maker must now first receive a licence from Washington.

Taiwan Semiconductor Manufacturing (TSMC), the most important manufacturer for Huawei's high-end mobile phone chipsets, said in July it would cease supplying Huawei come the deadline.

Micron Technology, a maker of DRAM memory chips, also said it will no longer supply Huawei. Taiwanese chip designer MediaTek said last month it had applied for US permission to continue supplying Huawei.

Huawei is a major customer for SMIC and generates 20% of the foundry's revenue, according to an analysis from Bernstein research. 

The foundry is incapable of producing the most advanced chips in Huawei's Kirin mobile chipsets, however, and still relies of equipment from US companies who may also cease servicing Huawei as the restrictions take effect.

SMIC itself has fallen under scrutiny from Washington. Earlier this month Reuters reported that the Trump administration is considering placing restrictions on the company similar to those it placed on Huawei, barring U.S. companies from servicing and supplying it.

  • Reporting by Steve Stecklow, Marcelo Rochabrun and Josh Horwitz