Wanzhou Meng and a Back Room Meeting in Hong Kong
- May 30, 2020
- Clayton Rice, Q.C.
On May 27, 2020, Associate Chief Justice Heather Holmes of the British Columbia Supreme Court released the ruling on double criminality in the extradition case involving Huawei Chief Financial Officer Wanzhou Meng reported as United States v Meng, 2020 BCSC 785. The ruling came as events continue to unfold in the diplomatic tussle between the United States and China over trade, theft of technology secrets, the involvement of Huawei in the development of 5G networks and the tightening noose on Hong Kong by the Chinese Communist Party.
On August 22, 2018, a warrant for Ms Meng’s arrest was issued by the US District Court, Eastern District of New York, for conduct alleged to correspond to fraud in Canada under s 380(1)(a) of the Criminal Code. The United States asserts that she covered up attempts by companies linked to Huawei to sell equipment to Iran contrary to US sanctions. On December 1, 2018, Ms Meng was arrested at Vancouver International Airport. Former Canadian diplomat Michael Kovrig, and businessman Michael Spavor, were then detained in China and are still confined in a secret location. On January 22, 2019, the US Department of Justice announced it would seek Ms Meng’s extradition to the United States. (See: On The Wire. The New Cold War. February 10, 2019)
The Attorney General of Canada, on behalf of the United States government, was required to establish that Ms Meng’s alleged conduct would have amounted to fraud had it taken place in Canada under ss 3(1)(b) and 29(1)(a) of the Extradition Act, SC 1999, c 18. Ms Meng argued that the alleged conduct could not have amounted to fraud in Canada because it relates to the effects of US economic sanctions against Iran. At the relevant time Canada had no such sanctions. The Attorney General countered that: (a) the elements of the crime of fraud in Canada can be established without reference to the US sanctions against Iran; and, (b) in any event the sanctions may provide context to the alleged conduct and explain why it mattered.
2. A Meeting in Hong Kong
The allegations relate to the banking relationship between Huawei, a Chinese telecommunications company founded by Ren Zhengfei, Ms Meng’s father, and HSBC, an international bank. She is alleged to have made false statements to HSBC in 2013 understating Huawei’s relationship with Skycom Tech Co Ltd based in Iran. In 2012 and 2013 Reuters published two articles associating Huawei with Skycom’s US-related business dealings in Iran. The first article reported that Huawei and Skycom had “close ties” and that Huawei described Skycom as one of its “major local partners” in Iran. The second article reported that in 2007 Ms Meng was company secretary for a Huawei holding subsidiary that owned all of Skycom’s stock and in 2008-2009 she served on Skycom’s board.
HSBC had reason to be sensitive about Iran because it had previously run afoul of US sanctions. In December 2012 HSBC entered into a deferred prosecution agreement with the US Department of Justice. The bank agreed not to commit further sanctions violations, to undertake remedial measures and to pay forfeitures and penalties over $1 billion. HSBC was therefore exposed to potential fines and penalties for violating the deferred prosecution agreement and made inquiries of Huawei about the Reuters articles.
Ms Meng requested a meeting with a senior HSBC executive. On August 22, 2013, the meeting took place in the back room of a restaurant in Hong Kong. Ms Meng is said to have made representations, including a PowerPoint presentation, that Huawei’s relationship with Skycom “was one of normal business cooperation in which Huawei required Skycom to make commitments to observe all applicable laws, regulations, and export control requirements.” On March 31, 2014, the HSBC global risk committee met in London to discuss “reputational and regulatory concerns” regarding Huawei and decided to retain Huawei’s business. The committee relied on the assurances given by Ms Meng and HSBC later confirmed terms for a $900 million credit facility.
Although Huawei had sold its shares in Skycom and Ms Meng had resigned from its board before the back room meeting, Huawei continued to control Skycom and its operations in Iran. The United States claims that Huawei’s true relationship with Skycom was material to the bank’s decision whether to retain Huawei as a client. The false assurances by Ms Meng at the back room meeting, misrepresenting the actual relationship, put HSBC at risk of fines and penalties for violating US sanctions as well as “economic and reputational risk”.
3. Double Criminality
The principle of double criminality derives from the doctrine of reciprocity among nations by which states are not required to extradite a person to a foreign jurisdiction for conduct that does not amount to a criminal offence in the requested state. Canada has adopted the conduct-based test that asks whether the conduct in the foreign jurisdiction could amount to an offence under Canadian law. The alternative offence-based test would require a match between the elements of the foreign offence and those of an equivalent Canadian offence. It is not therefore necessary that the alleged offence under the laws of the United States have an exact corresponding offence in Canadian law. The issue, then, was whether Ms Meng’s alleged conduct would have amounted to fraud had it occurred in Canada. (See: Canada v Fischbacher, 2009 SCC 46, at paras 26-9; and, MM v United States, 2015 SCC 62, at para 207)
The offence of fraud in Canadian law requires dishonest conduct with a corresponding deprivation. The dishonest conduct may consist of “an act of deceit, a falsehood or some other fraudulent means”. Deprivation may consist of “actual loss or the placing of […] pecuniary interests at risk”. The deprivation, therefore, does not have to constitute actual economic loss. The potential for loss where economic interests are imperilled will be sufficient. (See: R v Zlatic,  2 SCR 29, at para 26; and, R v Theroux,  2 SCR 5, at paras 17 and 27)
In the double criminality ruling (here), Associate Chief Justice Holmes rejected the Attorney General’s first argument that deprivation may be established without relying on US sanctions against Iran. “[F]or there to have been a deprivation it nonetheless remains necessary for the evidence to show a causal link between the misrepresentation,” she said at para 45, “and the information HSBC needed to make a decision, whether or not HSBC actually relied on that information.” Justice Holmes went on to conclude that, “[i]t is difficult to discern such a link […] that does not rely on the effects of US sanctions.” The question then emerged whether the US sanctions may play a part in the double criminality analysis.
Justice Holmes reasoned, at para 66, that the US sanctions are relevant to the analysis because the “legal character” of the foreign acts “is notionally transposed with the other relevant aspects of the context in which they were committed.” The “substance and essence” of the foreign conduct is thus “framed in generalized, or relatively abstract, terms”. In drawing this conclusion, Justice Holmes relied on a thread of extradition precedents dating back to Re Collins (No 3) (1905), 10 CCC 80 (BCSC), at para 65, where Justice Lyman Duff held that “while the court must not transplant to Canada the law supplying the definition of the offence charged, the court does transplant the accused’s environment, including the local institutions of the requesting state, and the laws effecting legal powers and rights and fixing the legal character of the persons concerned”.
What is important, then, in Canadian extradition law is the essence of the alleged conduct and foreign legal concepts may provide context in the double criminality analysis. The essence of Ms Meng’s alleged wrongful conduct is the making of false statements in the context of the banker-client relationship that put HSBC at risk. “The US sanctions,” Justice Holmes wrote at para 80, “are part of the state of affairs necessary to explain how HSBC was at risk, but they are not themselves an intrinsic part of the conduct.” Ms Meng’s application for an order discharging her from the extradition process was therefore dismissed. (See: Germany v Schreiber (2004), 184 CCC (3d) 367 (Ont SCJ) at para 37; aff’d: (2006), 206 CCC (3d) 339 (Ont CA), at para 42)
The litigation in the Meng case is a long way from over. Some pundits have speculated that it may take years with a final destination in the Supreme Court of Canada and then, ultimately, to the Attorney General’s desk. Last Wednesday’s ruling cleared the deck for the next phase where it is expected that Ms Meng will challenge the lawfulness of her arrest by the RCMP in Vancouver. While the case unfolds in the courts, relations between Canada and China remain strained. In responding to the ruling, the Chinese embassy in Ottawa called Canada an “accomplice to United States efforts to bring down Huawei and Chinese high-tech companies.” (See: Tessa Vikander and Moira Warburton. Huawei CFO Meng loses key court fight against extradition to United States. Reuters. May 27, 2020)
On the coronavirus front, China’s CanSino Biologics Inc has begun working with Canada’s National Research Council to “pave the way” for future COVID-19 vaccine trials. China has been supplying Canada with personal protection equipment during the pandemic. “If China decides to cut us off from those kinds of things, people will die,” said Professor Stephanie Carvin of Carlton University in Ottawa. “My very strong concern is that cooperation goes away very quickly, and it leaves us in a very bad position.” Other experts, however, suggested that China’s retaliation may not go much further than the rhetoric “because the coronavirus pandemic has already put China on the defensive.” (See: David Ljunggren and Steve Scherer. Canada’s Huawei extradition ruling could unleash more Chinese backlash. Reuters. May 28, 2020; and, Sean Boynton. China can’t afford to retaliate against Canada for Meng Wanzhou decision, experts say. Global News. May 27, 2020)
The Chinese Communist Party is aggressively pushing a national security law for Hong Kong while pro-democracy protesters delete their social media accounts afraid that their messages could be used against them. China has drawn the condemnation of the international community warning it against infringing on the civil liberties of the semiautonomous city. While the combined effect of the Meng case, the coronavirus pandemic and the Hong Kong pro-democracy movement diminished China’s stature on the world stage, the Trump administration announced that the United States will end its special relationship with Hong Kong which could imperil its status as an international financial centre. (See: Vivian Wang, Tiffany May and Austin Ramzy. ‘Facing the Darkest Hour’: Hong Kong’s Protest Movement in Crisis. The New York Times. May 30, 2020; and, Vivian Wang and Amy Qin. In Hong Kong, Anxiety and Defiance Over Trump’s Move to Cut Ties. The New York Times. May 30, 2020)
And, the question lingers, where are the Canadians Michael Kovrig and Michael Spavor?