Huawei, U.S. Subsidiaries Face New 'Contrived' Federal Racketeering Charge

Huawei Technologies and two of its U.S. subsidiaries have been charged with racketeering and conspiracy to steal trade secrets.

The indictment was handed down Wednesday in federal court in Brooklyn, New York. The 16-count superseding indictment adds the conspiracy charge stemming from the China-based company’s alleged long-running practice of using fraud and deception to misappropriate sophisticated technology from U.S. counterparts.

The indictment includes Huawei Device, Huawei USA, Futurewei and Skycom, as well as Huawei CFO Wanzhou Meng. The new superseding indictment also contains the charges from the prior superseding indictment, which was unsealed last month, according to the U.S. Department of Justice (DoJ).

When contacted, Huawei provided the following statement:

“This 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. The ‘racketeering enterprise’ that the government charged today is nothing more than a contrived repackaging of a handful of civil allegations that are almost 20 years old and that have never been the basis of any significant monetary judgment against Huawei. The government will not prevail on these charges which we will prove to be both unfounded and unfair.”

The new charges in this case relate to the alleged decades-long efforts by Huawei and several of its subsidiaries, both in the United States and China, to misappropriate intellectual property, including from six U.S. technology companies, in an effort to grow and operate Huawei’s business. The misappropriated intellectual property included trade secret information and copyrighted works, such as source code and user manuals for internet routers, antenna technology and robot testing technology, according to the indictment.

Huawei, Huawei USA and Futurewei agreed to reinvest the proceeds of this alleged racketeering activity into Huawei’s worldwide business, including in the U.S.

The means and methods of the alleged misappropriation included entering into confidentiality agreements with the owners of the intellectual property and then violating the terms of the agreements by misappropriating the intellectual property for the defendants’ own commercial use, recruiting employees of other companies and directing them to misappropriate their former employers’ intellectual property, and using proxies such as professors working at research institutions to obtain and provide the technology to the defendants, according to the DoJ. As part of the scheme, Huawei allegedly launched a bonus program to reward employees who obtained confidential information from competitors.

Huawei’s efforts to steal trade secrets and other sophisticated U.S. technology were successful, and as a result, the company was able to drastically cut its research and development costs and associated delays, giving the company a “significant and unfair competitive advantage,” according to the DoJ.

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. Similarly, the defendants engaged in obstructive conduct to minimize litigation risk and the potential for criminal investigations, including the investigation that led to this prosecution, according to the indictment.

The superseding indictment also includes new allegations about Huawei and its subsidiaries’ involvement in business and technology projects in countries subject to U.S., EU and/or U.N. sanctions, such as Iran and North Korea — as well as the company’s efforts to conceal the full scope of that involvement. The defendants’ activities, which included arranging for shipment of Huawei goods and services to end users in sanctioned countries, were typically conducted through local affiliates in the sanctioned countries. Internal Huawei documents allegedly referred to such jurisdictions with code names. For example, the code “A2” referred to Iran, and “A9” referred to North Korea.

Huawei employees also allegedly lied about Huawei’s relationship to Skycom, falsely asserting it was not a subsidiary of Huawei. The company further claimed that Huawei had only limited operations in Iran and that the company didn’t violate U.S. or other laws or regulations related to Iran. The indictment alleges Skycom was Huawei’s unofficial subsidiary that, among other services, assisted the Iranian government in performing domestic surveillance, including during the demonstrations in Tehran in 2009.