A federal judge has denied a motion by Huawei Technologies, a Chinese tech company that has sparked concerns in the U.S. over alleged national security risks, to dismiss charges in a sprawling indictment brought by the U.S. Attorney's Office for the Eastern District of New York.
The order ensures that a significant case involving allegations of bank fraud, sanctions violations and intellectual property theft will proceed to trial, unless Huawei settles with the U.S. before a trial.
On Tuesday, U.S. District Court judge Ann M. Donnelly rejected arguments from Huawei and its affiliates that challenged the legal sufficiency and constitutional basis of the charges. The decision means U.S. financial institutions will continue to watch closely as the government prepares for a trial estimated to last four to six months for the prosecution's case alone, according to a court filing.
The ruling follows a series of intricate legal battles since the initial indictment in August 2018, which first accused Huawei of scheming to defraud financial institutions and skirt U.S. sanctions related to its business in Iran.
Subsequent indictments, the latest of which came in February 2020, expanded the scope, adding charges like racketeering conspiracy and conspiracy to steal trade secrets, drawing in more Huawei entities as defendants.
Core allegations relevant to financial institutions
The indictment details multiple alleged schemes, directly impacting U.S. banks and their operations.
Prosecutors accuse Huawei of repeatedly misrepresenting its ownership and control of Skycom Tech, a company operating in Iran, falsely claiming Skycom was merely a "business partner" rather than a subsidiary it controlled, according to the indictment.
Prosecutors claim Huawei intended to mislead financial institutions, including HSBC, about its compliance with applicable U.S. sanctions laws, specifically the International Emergency Economic Powers Act, or IEEPA.
Huawei allegedly used a financial institution — the court filings suggest this is HSBC — to process over $100 million in U.S.-dollar clearing transactions related to its Iran-based business, despite assuring the bank it would not. Huawei CFO Wanzhou Meng's 2013 presentation to the bank reportedly contained "numerous misrepresentations" on these points, according to the allegations.
After HSBC terminated its banking relationship with Huawei in 2017 due to "risk concerns," according to the indictment, Huawei allegedly lied to another bank (referred to as "Financial Institution 4"), claiming Huawei initiated the termination with HSBC due to service dissatisfaction.
This alleged deception aimed to "secure and expand its banking relationships" with this unnamed bank, enabling Huawei to receive "income indirectly in the form of cost savings and the value of continued banking services," according to the indictment.
The charges include conspiracy to violate IEEPA by tricking U.S. banks into providing banking and other financial services to Iran without the required licenses. This specifically included Skycom, on behalf of Huawei, allegedly employing at least one U.S. citizen in Iran to provide telecommunications services without a license. These alleged IEEPA violations also contribute to a money-laundering conspiracy charge.
Prosecutors allege that Huawei and a U.S. subsidiary learned of the U.S. government's investigation in 2017 and "made efforts to move witnesses with knowledge about [Huawei's] Iran-based business to [China], and beyond the jurisdiction of the U.S. government, and to destroy and conceal evidence" in the U.S. related to this business, according to the charges.
Huawei's failed dismissal arguments
Huawei mounted several significant legal challenges in its motion to dismiss.
For example, Huawei contended that several fraud counts were impermissibly extraterritorial — meaning they regard conduct or behaviors by Huawei that can't be prosecuted in the U.S. because they happened abroad. The company said these allegations involved foreign statements, foreign parties and only incidental U.S. wires, lacking a sufficient domestic connection.
The judge stated in her order that extraterritoriality is typically a question for trial but she found that the indictment "adequately allege[s] a domestic application of the wire and bank fraud statutes," citing allegations of fraud schemes calculated to harm "American citizens and interests" through American subsidiaries and U.S.-dollar clearing transactions.
The decision paves the way for a highly complex and lengthy criminal trial.
