As predicted here a few days ago, the U.S.-China meltdown just got a lot worse with major indictments against Huawei Technologies Co, announced in Federal Courts on both the East and West coasts.

On Monday morning, U.S. prosecutors in the Eastern District Court in Brooklyn unsealed a 13-count indictment charging four defendants. The defendants are Huawei Technologies Co. Ltd. (Huawei), the world’s largest telecommunications equipment manufacturer, two Huawei affiliates--Huawei Device USA Inc. (Huawei USA) and Skycom Tech Co. Ltd. (Skycom) and Huawei’s Chief Financial Officer (CFO) Wanzhou Meng, who is now held for possible extradition in Canada.

Huawei and Skycom are charged with bank fraud and conspiracy to commit bank fraud, wire fraud and conspiracy to commit wire fraud, violations of the International Emergency Economic Powers Act (IEEPA) and conspiracy to violate IEEPA, and conspiracy to commit money laundering.

Huawei and Huawei USA are charged with conspiracy to obstruct justice related to the grand jury investigation in the Eastern District of New York. Meng is charged with bank fraud, wire fraud, and conspiracies to commit bank and wire fraud.

The charges in this case relate to what prosecutors refer to as “a long-running scheme by Huawei, its CFO, and other employees” to deceive numerous global financial institutions and the U.S. government regarding Huawei’s business activities in Iran.

As alleged in the indictment, beginning in 2007, Huawei employees lied about Huawei’s relationship to a company in Iran called Skycom, falsely asserting it was not an affiliate of Huawei. Said U.S. Attorney Richard P. Donoghue for the Eastern District of New York:

As charged in the indictment, Huawei and its subsidiaries, with the direct and personal involvement of their executives, engaged in serious fraudulent conduct, including conspiracy, bank fraud, wire fraud, sanctions violations, money laundering and the orchestrated obstruction of justice. For over a decade, Huawei employed a strategy of lies and deceit to conduct and grow its business.

Meanwhile, on the West Coast

Today, a Federal court in the Western District of Washington State charged Huawei Device Co., Ltd. and Huawei Device Co. USA with theft of trade secrets conspiracy, attempted theft of trade secrets, seven counts of wire fraud, and one count of obstruction of justice.

The indictment details Huawei’s efforts to steal trade secrets from Bellevue, Washington-based T-Mobile USA and then obstruct justice when T-Mobile threatened to sue Huawei in U.S. District Court in Seattle. The alleged conduct described in the indictment occurred from 2012 to 2014, and includes an internal Huawei announcement that the company was offering bonuses to employees who succeeded in stealing confidential information from other companies. Said FBI director Christopher Wray:

The charges unsealed today clearly allege that Huawei intentionally conspired to steal the intellectual property of an American company in an attempt to undermine the free and fair global marketplace. To the detriment of American ingenuity, Huawei continually disregarded the laws of the United States in the hopes of gaining an unfair economic advantage. As the volume of these charges prove, the FBI will not tolerate corrupt businesses that violate the laws that allow American companies and the United States to thrive.

Tapping Tappy

As outlined in the indictment, in 2012 Huawei began a concerted effort to steal information on a T-Mobile phone-testing robot dubbed “Tappy.” In an effort to build their own robot to test phones before they were shipped to T-Mobile and other wireless carriers, Huawei engineers violated confidentiality and non-disclosure agreements with T-Mobile by secretly taking photos of “Tappy,” taking measurements of parts of the robot, and in one instance, stealing a piece of the robot so that the Huawei engineers in China could try to replicate it.

After T-Mobile discovered and interrupted these criminal activities, and then threatened to sue, Huawei produced a report falsely claiming that the theft was the work of rogue actors within the company and not a concerted effort by Huawei corporate entities in the United States and China. As emails obtained in the course of the investigation revealed, the conspiracy to steal secrets from T-Mobile was a company-wide effort involving many engineers and employees within the two charged companies.

As part of its investigation, FBI obtained emails revealing that in July 2013, Huawei offered bonuses to employees based on the value of information they stole from other companies around the world and provided to Huawei via an encrypted email address. Said First Assistant U.S. Attorney Annette L. Hayes of the Western District of Washington:

This indictment shines a bright light on Huawei’s flagrant abuse of the law – especially its efforts to steal valuable intellectual property from T-Mobile to gain unfair advantage in the global marketplace. We look forward to presenting the evidence of Huawei’s crimes in a court of law, and proving our case beyond a reasonable doubt. Fair competition and respect for the rule of law is essential to the functioning of our international economic system.

My take

With the March deadline on trade talks between China and U.S rapidly approaching, the Trump administration seems to be doubling or tripling down on its attempts to win significant concessions, through brute force if necessary. What isn’t clear is if or just how aggressively China will retaliate. Stay tuned. This is not the end of the story.