Canada Arrests Huawei CFO at Request of US Prosecutors

As reported by the Associated Press, Meng Wanzhou also known as Cathy Meng, CFO of Huawei Technologies, has been arrested in Canada. The request is at the request of US prosecutors in New York. To note, it is not pronounced “wa-way”, a much more accurate pronunciation would be “hwa-way”.

The arrest happened during the meeting between Donald Trump and Xi Jinping at the G20 summit in Buenos Aires on December 1st. News of the arrest was released on Wednesday, December 5th, by Canadian authorities.

There is a publication ban in effect at the request of Meng herself, so details are sparse. The arrest is in relations to the United States allegations that Meng is responsible for trying to bypass the American embargo against Iran.

This puts Huawei further into the spotlight, as the US has been making a concerted effort to denounce Huawei being allowed to develop 5G networks around the world.

The timing of arrest landing on the same date of the meeting between Trump and Xi may seem peculiar, but it most likely has to due to the fact that Meng’s destination was not Canada. Meng was only in Canada to transfer to another flight and destination, meaning authorities only had a short time to act on this information.

Release of this information by Canadian authorities four days after the arrest signals the purposeful timing of the news so as to not affect meeting between Xi and Trump. It is very likely Xi was aware of this arrest soon after it happened. As the arrest was done at the request of the New York Eastern District Attorney’s office, it is unclear if the Department of Justice had notified Trump before his meeting with Xi.

Meng is in effect, corporate royalty in China. Being the daughter of Huawei’s founder in effect puts her in the realm of South Korean chaebols. Chaebols are very large corporate organizations run by a single family, such as Samsung, the largest chaebol.

The arrest of somebody this important has garnered strong protest from Chinese authorities and for good reason. A statement from the Chinese embassy in Ottawa said, “The Chinese side has lodged stern representations with the U.S. and Canadian side, urged them to immediately correct the wrongdoing and restore the personal liberty of Ms. Meng Wanzhou.”.

A meeting was also cancelled by a Chinese delegation with with the Canadian Commons foreign-affairs committee. Although the reason for this cancellation is unconfirmed, it is potentially linked to the arrest of Meng.

Depending on the outcome of Meng’s bail hearing on Friday, December 7th, as well as with the subsequent outcome of the extradition process, this could spell trouble for foreign executives working in China. Former Canadian ambassador to China, David Mulroney, has stated U.S. and Canadian executives working in China could be facing retaliatory actions from the Chinese government.

Chinese authorities have a reason to be upset. Per the extradition treaty between Canada and the United States, Article 2 clearly states:

Persons shall be delivered up according to the provisions of this Treaty for any of the offenses listed in the Schedule annexed to this Treaty, which is an integral part of this Treaty, provided these offenses are punishable by the laws of both Contracting Parties by a term of imprisonment exceeding one year.

Meng is currently being accused of bypassing American sanctions, not UN or Canadian sanctions on Iran. The courts will need to determine if she has actually broken Canadian laws. This could be an issue for Meng as Canada has been known to ignore extradition appeals even from its own citizens.

The investigation into the attempt to bypass the Iranian embargo, as reported by Reuters in 2013, is related to the attempted sale of Hewlett-Packard equipment to the Telecommunication Company of Iran (TCI). TCI is state-owned and the largest mobile network operator in Iran. The sale was being negotiated by Skycom Tech Co Ltd, a Hong Kong based company.

The relationship between Skycom and Huawei are very much intermingled.

Meng not only served on the board of Skycom, at one point she was also the secretary of a management firm that held 100% of Skycom’s shares. Other links between Skycom and Huawei appear on or through information from Iranian managers who have worked with Skycom employees in Iran. These links between Huawei and Skycom go much further and very much indicates Skycom to be a pseudo-subsidiary of Huawei.

Huawei has responded to these allegations by stating that neither Skycom or Huawei ended up providing this equipment.

Whether or not this sale was completed is potentially irrelevant. Canada’s sanctions on Iran are in line with the United Nations ban.

Most of the banned items are from the International Atomic Energy Agency’s Information Circulars, INFCIRC/254/Rev.12/Part 1 and INFCIRC/254/Rev.9/Part 2a.

Depending on the type of equipment that was being sold, the result could be a non-issue. HP does produce some banned items, such as mass spectrometers so there is the potential this alleged sale would mean Skycom broke Canadian laws. The issue then becomes how involved Meng was in the process.

News of the arrest has already caused shares to tumble in in US and Asian markets. Coming off the news of the 90-day truce in the trade war between the US and China had previously bolstered the markets over the last few days.

Potential repercussions of this arrest are definitely already brewing under the surface. If Meng is extradited to the US, retaliatory actions through Meng’s father and the Chinese government are expected.

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