Chinese companies retaliate against Apple following Huawei CFO’s arrest.

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Following Canada’s arrest of Huawei’s Global CFO on December 1st, several companies in China have announced new policies to encourage (and even require) the use of Huawei products instead of America’s Apple iPhone.

According to the Yahoo article – several companies in China now offer subsidies for employees exchanging iPhone handsets for Huawei and even placing a penalty on employees who purchase an iPhone for themselves. Several other companies take the boycott even further and are discouraging their employees from buying American made products such as cars.

The backlash against Apple may be due to Huawei’s position as the number 2 smartphone manufacturer in the world behind Samsung. Unfortunately for Apple, this recent backlash will only hurt their already low sales numbers in China (Huawei holds the largest share of the Chinese market for smartphones).

Huawei CFO seeks bail due to health concerns.

At a court hearing in Canada  yesterday, jailed Huawei CFO, Wanzhou Meng, argued she should be released due to fears for her health while incarcerated. Since her arrest, the 46 year old has been treated for hypertension.

As bail is usually not granted if someone is a flight risk, Wangzhou claimed through an affidavit that she is not a flight risk as she has “longstanding ties” to Canada and even owns properties in Vancouver.

However, it is unlikely Canada will release her on bail as an extradition hearing will determine whether she be extradited to the United States to face trial for allegedly misleading banks about Huawei’s control of a company in Iran. In addition to Wanzhou facing charges; the US could also put the banks at risk for violating US sanctions and incurring penalties.

Summary of information we have about the Huawei CFO Arrest.

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Below is a summary in bullet point of news we know about the arrest of Huawei’s CFO as reported by multiple sources:

  1. Who is Meng Wangzhou?
    1. 46 year-old global CFO of Huawei
    2. Daughter of Huawei founder.
    3. She faces extradition to the US.
    4. She also goes by Cathy or Sabrina
  2. When was the arrest?
    1. December 1, 2018
    2. The arrest warrant was issued on August 22nd.
  3. Where did they arrest the CFO?
    1. The arrest took place in Vancouver’s airport as she traveled from Hong Kong to Mexico.
  4. Why did they arrest the CFO?
    1. The arrest stems from 2013 statements made by Meng Wanzhou. In 2013, she told financial institutions Huawei had no connection to a Hong-Kong based company called Skycom.
  5. Why is Skycom Tech Co. Ltd. under investigation by the US?
    1. Skycom is suspected of selling Hewlett-Packard computer equipment to Iran’s largest mobile-phone operator.
    2. There is an embargo in place and selling HP equipment to Iran is in violation of US sanctions.
    3. Meng’s lawyer claims Huawei already divested itself from Skycom and left the Skycom board.
    4. US authorities also believe Huawei operated Skycom as an “unofficial subsidiary” to conduct business in Iran.
    5. Meng previously served on the board of Skycom from February 2008- April 2009 according to Skycom filings with Hong Kong’s Companies Registry.
    6. Several past Skycom directors may also have connections to Huawei.
  6. Tell me more about the court case?
    1. Eastern District of New York.
    2. US authorities will like allege Meng played a role in fraud by telling banks there was no link between Huawei and Skycom.
  7.  Why arrest the CFO in Canada?
    1. The US does not have an extradition treaty with China
    2. Canadian authorities consider her a flight risk because of her wealth.
  8.  What is China’s response?
    1. The Chinese government has demanded Meng’s immediate release.
    2. China has asked Ottawa and Washington to clarify their reasons for the detention.
    3. The arrest has sparked anger on Chinese social media with users calling for boycott of US goods.
  9.  Who is Huawei?
    1. Huawei was founded in 1987 by Zhengfei Ren, a prominent business figure in China.
    2. Huawei is the world’s second-largest maker of smartphones (behind Samsung) and one of the world’s largest makers of telecommunication equipment.
    3. Huawei and ZTE are considered by some US officials as a threat to national security due to the potential for spying on US companies or agencies that use their equipment.

Check back for more news as they develop.

Huawei CFO arrested in Canada for violating U.S. sanctions on Iran.

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According to Bloomberg – Huawei’s CFO, Wanzhou “Sabrina” Weng was arrested in Canada on December 1st over Huawei’s potential violations of U.S. sanctions on Iran. Sabrina Weng is the deputy chairwoman and daughter of Huawei founder Zhengfei Ren.

The arrest prompted China’s embassy in Canada to demand Sabrina be released and for the US and Canada to “rectify wrongdoings” and to “to clarify the grounds for the detention, to release the detainee and earnestly safeguard the legitimate rights and interests of the person involved”.

It is not known when or if Sabrina will be expedited to the US.

Check back for more updates as they are available. If you have any questions about your company’s compliance with US export controls and or want to ensure your company is in compliance with all the sanctions and laws regarding exporting, contact David Hsu at 832-896-6288 or by email at dhsu@givensjohnston.com.

Senate passes amendment to undo Trump’s ZTE deal.

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ZTE logo, credit: Wikipedia

As has been widely reported, the Senate passed “H.R. 5515: National Defense Authorization Act for Fiscal Year 2019” with an amendment that would undo Trump’s ZTE deal. The full text of the bill can be found here.

The actual amendment is included in Section 6702 of the bill. A copy and paste of only Section 6702 can be found at the bottom of the post. The amendment would reinstate the ZTE ban. As you are aware, the US Department of Commerce issued a denial order in April of this year banning ZTE from buying software and hardware from any US supplies for 7-years. Without access to Qualcomm chips, google Android software and other US components, ZTE would be effectively out of business. Evidence of this has also been reflected in ZTE’s stock price – which has already declined by 23% following yesterday’s passage of the Senate bill with the ZTE amendment.

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Tom Cotton official Senate photo and author of ZTE amendment

It has been reported that Trump will meet with legislators on Wednesday, June 20th to work out a deal removing this language. As the Senate bill moves to reconciliation in the House, it will be an important meeting as Trump will be able to make a deal with Republican lawmakers prior to reconciliation taking place. As the committee members involved in reconciliation are chose from Republican leadership in the House and Senate, Trump is hoping a deal can be made to remove the amendment.

In the meantime, we will have to just wait and see. A denial order against ZTE only hurts US companies that supply chips, components and software to one of the largest phone manufacturers in the world. Additionally, the ZTE deal allows US oversight of a Chinese-based telecommunications company – this would never happen if ZTE closes and opens up as a new company.

If you have any questions how this may impact your business or any questions regarding export compliance, contact David Hsu at 832-896-6288 or by email at dhsu@givensjohnston.com.

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For your reference, below is the amendment reinstating ZTE’s ban (if approved):

SEC. 6702. PROHIBITION ON MODIFICATION OF CIVIL PENALTIES UNDER EXPORT CONTROL AND SANCTIONS LAWS AND PROHIBITION ON CERTAIN TELECOMMUNICATIONS EQUIPMENT.

(a) Prohibition On Modification Of Penalties.—

(1) IN GENERAL.—Notwithstanding any other provision of law, no Federal official may modify any penalty, including a penalty imposed pursuant to a denial order, implemented by the Government of the United States with respect to a Chinese telecommunications company pursuant to a determination that the company has violated an export control or sanctions law of the United States until the date that is 30 days after the President certifies to the appropriate congressional committees that the company—

(A) has not, for a period of one year, conducted activities in violation of the laws of the United States; and

(B) is fully cooperating with investigations into the activities of the company conducted by the Government of the United States, if any.

(2) REINSTATEMENT OF PENALTIES OR SUSPENDED ORDER.—

(A) IN GENERAL.—If, before the date of the enactment of this Act, any penalty imposed pursuant to the order of the Acting Assistant Secretary of Commerce for Export Enforcement entitled “Order Activating Suspended Denial Order Relating to Zhongxing Telecommunications Equipment Corporation and ZTE Kangxun Telecommunications Ltd.” (83 Fed. Reg. 17644), and dated April 15, 2018, is reduced or eliminated, or that order is suspended, on such date of enactment, that penalty shall be reinstated to the penalty in place before such reduction or elimination, or that order shall be reinstated, as the case may be.

(B) ADDITIONAL MODIFICATIONS.—Any modification to a penalty imposed pursuant to the order described in subparagraph (A) on or after the date of the enactment of this Act shall be subject to the requirements of paragraph (1).

ZTE and Huawei banned for sale to US military personnel.

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In addition to my blog post from April 19, 2018, ZTE has once again made news according to a Washington Post May 2nd article. In the Washington Post article, the Pentagon instructed the military from selling ZTE and Huawei branded phones from U.S. military bases.

The Defense Department cited security risks posed by the devices made by Huawei and ZTE writing:

“Huawei and ZTE devices may pose an unacceptable risk to Department’s personnel, information and mission” and that “it was not prudent for the Department’s exchanges to continue selling them to DoD personnel.”

Besides phones, modems and other wireless products manufactured by ZTE and Huawei are also included in the ban.

Under the direction of the President, the move by the Pentagon was an attempt to limit the use of wireless equipment manufactured in China that may contain technology used to spy or hack US citizens and military personnel.