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The New Cold War

  • February 10, 2019
  • Clayton Rice, Q.C.

On December 1, 2018, the RCMP arrested Wanzhou Meng at Vancouver International Airport while she was en route from Hong Kong to Mexico City after an extradition request made by the United States. The warrant for Ms Meng’s arrest was issued by the US District Court, Eastern District of New York, in Brooklyn on August 22, 2018. The extradition request touched off a firestorm as the international media descended on Vancouver and China’s totalitarian government lashed out against the West targeting three Canadian citizens in swift retribution. Here’s where we are.

1. Introduction

Ms Meng is the chief financial officer of China’s largest private company, Huawei Technologies Co Ltd, founded by her father, Ren Zhengfei, a former engineer in the People’s Liberation Army. In 2018 Huawei reported that its annual revenue was US$108.5 billion. Cybersecurity concerns have been raised by the United States government grounded in allegations that Huawei’s infrastructure may contain backdoors enabling espionage and surveillance by the Chinese government – concerns that have intensified with the development of 5G computer and phone networks.

In an article titled Huawei’s problems deepen as western suspicions mount published in The Guardian edition of January 27, 2019, Dominic Rushe and Lily Kuo reported that “[c]oncerns about Huawei’s relationship with the Chinese government have led US politicians and telecoms executives to call for banning Huawei from the rollout of the 5G network in the US, the next generation of the cellular technology”. China’s counter-espionage law compels companies and individuals to “support, provide assistance, and cooperate in national intelligence work”.

2. Bail Proceedings

On December 7, 2018, Ms Meng initiated an application for bail in the British Columbia Supreme Court. The Canadian Crown attorney, John Gibb-Carlsey, alleged at the hearing that she engaged in “conspiracy to defraud multiple financial institutions” in 2013 when she attempted to persuade bankers that Huawei and a former Hong Kong subsidiary were separate entities. “Ms Meng personally represented to those banks that SkyCom and Huawei were separate, when in fact they were not separate,” he argued. “SkyCom was Huawei.” SkyCom was used to engage in business deals with sanctioned countries including Iran. (See: Leyland Cecco. Huawei CFO committed fraud in breach of US sanctions, prosecutors say. The Guardian. December 8, 2018)

The allegation of fraud at the bail hearing was legally significant. Mr Gibb-Carlsey appears to have made the prima facie case that the alleged offence met the test of dual criminality. It was a crime in the United States and “had it occurred in Canada, would have constituted an offence that is punishable in Canada”. It was a question of law for the court and, ultimately, the decision of the Minister of Justice whether to extradict. (See: Extradition Act, SC 1999, c 18, s 3(b); and, Treaty on Extradition Between the Government of Canada and the Government of the United States (1976), Article 2.1)

Then, the President of the United States got in the way.

On December 11, 2018, the US ambassador to Canada, Kelly Craft, told reporters it is “absolutely false” to assume there is a political motive behind Ms Meng’s arrest. Later that day, Justice William Ehrcke released Ms Meng on Cdn$10 million bail with house arrest. The day ended with President Donald Trump playing into the hands of the Chinese Communist Party when he told Reuters in an interview that he might use Ms Meng to bargain for Chinese concessions on trade. “If I think its good for what will be certainly the largest trade deal ever made – which is a very important thing – what’s good for national security, I would certainly intervene if I thought it was necessary,” he said. (See: Shannon Proudfoot et al. Huawei’s Meng Wanzhou: The world’s most wanted woman. Maclean’s Magazine. February 4, 2019)

But, Mr Trump was not the only one getting in the way.

On January 26, 2019, Canada’s ambassador to China, John McCallum, resigned at the request of Prime Minister Justin Trudeau after making, and walking back, and making again, public comments about Ms Meng’s defence. “I think she has quite good arguments on her side,” Mr McCallum said on January 23, 2019. “One, political involvement by comments from Donald Trump in her case. Two, there’s an extraterritorial aspect to her case. And three, there’s the issue of Iran sanctions in her case, and Canada does not sign on to these. So I think she has some strong arguments she can make before a judge.” (See: Catharine Tunney. John McCallum fired as ambassador to China amid diplomatic crisis. CBC News. January 27, 2019)

Politicians and civil servants frequently posture behind the sub judice rule and decline to comment about ongoing legal proceedings. It’s a reasonable certainty that the legal teams on both sides of the 49th parallel would prefer that they keep their mouths shut, their heads down and their powder dry. But all of that may not necessarily mean that Ms Meng’s arrest was politically motivated. In a piece titled Huawei Arrest Wasn’t Political, Then Trump Politicized It published by Forbes Magazine on February 5, 2019, David Volodzko made the argument that Mr Trump’s comment politicized due process after the fact. “If [Ms Meng’s] legal team has evidence of anything,” Mr Volodzko said, “it’s not injustice but incompetence.” The same might be said of Mr McCallum.

3. Retaliation

On December 10, 2018, nine days after Ms Meng’s arrest, Chinese authorities arrested two Canadian citizens on vague charges of threatening national security. Michael Kovrig, a former diplomat who previously worked at the Canadian embassy in Beijing, was working for the non-government organization, International Crisis Group, based in Hong Kong. And, then, entrepreneur Michael Spavor, who grew up near Calgary, and acquired notoriety in 2013 when he helped arrange for retired NBA player Dennis Rodman to visit North Korean Supreme Leader Kim Jong Un. Canadian diplomats in China were given consular access to Mr Kovrig and Mr Spavor.

The arrests of Mr Kovrig and Mr Spavor were followed by the chilling retrial of alleged drug smuggler Robert Schellenberg by the Dalian Intermediate People’s Court. Mr Schellenberg had been sentenced in November 2018 to 15 years imprisonment following his first trial. Prosecutors claimed he was sent by drug traffickers in 2014 to Dalian, a port city on the Liaodong peninsula, to orchestrate the smuggling of over 220 kg of methamphetamine hidden in car tires to Australia. Prosecutors said more evidence had emerged about his involvement that made the original sentence inadequate. On January 14, 2019, after a one day retrial, Mr Schellenberg was sentenced to death.

4. The Huawei Indictments

On January 28, 2019, the US Department of Justice unveiled twin indictments containing, in striking detail, the allegations of how Huawei carried out multiple criminal conspiracies.

(a) The Brooklyn Indictment

On January 24, 2019, the Superseding 13-count Indictment in USA v Huawei Technologies Co Ltd, Huawei Device USA Inv, SkyCom Tech Co Ltd, and Wanzhou Meng, was filed in the US District Court, Eastern District of New York, Brooklyn Office, Cr No 18-457. Huawei is accused of (a) running a scheme to violate American sanctions on Iran (b) lying to US bankers, FBI investigators and Congress about its Iranian activities (c) devising a scheme jointly with Ms Meng to defraud two US banks and (d) using wire communications jointly with Ms Meng to carry out a fraud conspiracy.

(b) The Seattle Indictment

On January 16, 2019, the 10-count Indictment in USA v Huawei Device Co Ltd and Huawei Device USA, Inc was filed in the US District Court, Western District of Washington, at Seattle, No CR19-010. Huawei is accused of (a) conspiring to steal trade secrets belonging to T-Mobile (b) wire fraud and (c) obstruction of justice. It is count 1 that received most of the media attention. It alleges that Huawei conspired to steal trade secrets related to T-Mobile’s robotic phone testing system nicknamed “Tappy”. The testing system identifies software errors in new phones before they are sold to customers.

5. Conclusion

At the heart of this confrontation is Huawei’s role in the creation of next-generation 5G networks. It is a technological time bomb. The West has entered a new cold war with China – a country that has become increasingly repressive at home with ubiquitous facial recognition technology and increasingly forceful abroad in the conduct of international affairs by hostage diplomacy. It has been suggested that the interests of the United States, advanced by the hawkish Trump administration, are more about blocking Chinese economic and technological dominance, and less about national security. On December 17, 2018, Reuters reported that US government officials have pressured Deutsche Telekom, the majority owner of T-Mobile US, to stop using Huawei equipment. (See: Czech cyber watchdog calls Huawei, ZTE products a security threat. Reuters. December 17, 2018)

Nevertheless, a deep concern persists over the potential of a supply chain attack. A supply chain attack is a cyber-attack where malicious modifications are made to a piece of hardware or software before it reaches its final destination such as the core network of a telecommunication company. The relationship between companies and their suppliers is one based on trust and supply chain attacks exploit that trust. The Target security breach and the Stuxnet computer worm are examples of a supply chain attack. As Matthew Braga, a senior technology reporter at CBC recently said, “5G technology would make an especially enticing target.” (See: Matthew Braga. If Huawei were a security risk, how would we find out? CBC News. January 30, 2019)

According to Erice Geller, a cybersecurity reporter at Politico, three sources have said that President Trump is expected to sign an executive order this week “banning Chinese telecom equipment from US wireless networks” to be announced at the Mobile World Congress in Barcelona scheduled for February 25-28, 2019. Current speculation is that Canada will also block Huawei from its 5G networks. Two members of the Five Eyes alliance, Australia and New Zealand, have already moved to ban its equipment. (See: Eric Geller. Trump likely to sign executive order banning Chinese telecom equipment next week. Politico. February 7, 2018; and, Josh Wingrove. Huawei likely faces 5G ban in Canada, security experts say. Financial Times. February 6, 2019)

Back on the extradition front, Canada’s new Minister of Justice, David Lametti, said he will only “weigh in at the end” when the plight of the three Canadians and Ms Meng’s extradition require “a political decision that takes account of foreign affairs”. See: Tonda MacCharles. Decision whether to extradite Huawei’s Meng Wanzhou will take political factors into account, new justice minister says. The Toronto Star. February 7, 2019)

Meanwhile, Ms Meng remains under house arrest in her Vancouver home. And Mr. Schellenberg? He’s somewhere in China, on death row.

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