Huawei’s Meng Snagged Due to US Bank Sanctions

The arrest of Huawei CFO Meng Wanzhou produced a market meltdown in the morning, with the Dow down over 700 points, with stock retracing to only small losses for the major indices by the end of the session. However, the US extradition request, which presumably will lead to her being prosecuted, will continue to be a flashpoint between the US and China.

Some tidbits:

US bank sanctions caught Huawei in their dragnet. Even though the Wall Street Journal and other reported that Meng’s executive and board roles in 2007 through 2009 with a Huawei operation that did business with Iran was one of the areas the Department of Justice had looked into. But a South China Morning Post was leaked an internal Huawei memo from October 29 where Meng and her father, founder Ren Zhengfei, were discussing costs of compliance and setting limits on them. Key section:

Meng spoke of the different types of external regulatory compliance, dividing them into “red” and “yellow” lines. She did not specify any markets when describing the different scenarios…

“Of course, beyond the yellow and red lines, there may still be another scenario, and that is where the external rules are clear-cut and there’s no contention, but the company is totally unable to comply with in actual operations. In such cases, after a reasonable decision-making process, one may accept the risk of temporary non-compliance,” she said….

“We must not bind ourselves up just because the US is attacking us,” Ren said in response to a question. “If our hands and feet are bound, then we will not be able to continue producing, then what’s the point of compliance?”

“The US has very strict compliance policies, but American companies are used to it,” Ren said. “Nobody dares to flout the law, it has become a habit, and they can still achieve high speeds. Our company has not yet formed this habit, that is why communication costs are too high.”

That looks like a smoking gun. And if that is already in the public domain, what else is out there?

Now one might ask, how could the US establish that Huawei was violating US sanctions on Iran? It appears that the US has more current evidence that that of the subsidiary mentioned above. From the Financial Times:

The US justice department has been conducting an investigation for at least two years into whether Huawei breached sanctions against Iran and has requested information on the company from its bankers, according to people familiar with the investigation. 

A federally appointed monitor working inside HSBC, the UK-based bank, also flagged concerns that Huawei was breaching US sanctions on Iran, one person said, although the lender was also co-operating with federal prosecutors of its own accord. 

Between 2012 and 2017, HSBC operated under the supervision of Exiger, a London-based financial risk consultancy, which was appointed by US authorities to monitor the bank’s financial crime controls. The arrangement was put in place after HSBC was charged with breaching US sanctions on Iran and failing to stop Mexican drug cartels from laundering money, as part of a deal that saw the bank avoid prosecution. 

The justice department has concluded that HSBC’s controls were not at fault, and the lender is being treated as a witness or victim to any offence by Huawei. “HSBC is not under investigation and is co-operating with the Department of Justice,” said one person familiar with the matter. HSBC declined to comment. 

The arrest does appear to be opportunistic. The US had a sealed indictment against Meng (and one wonders who else at Huawei), so it is credible, as the press reported today, that her arrest in Canada for extradition was opportunistic. I hope Jerry Denim or other experts on airline operations will pipe up as to how the US would have been able to identify when she might be in countries that had extradition treaties with the US and could be relied on to cooperate (as in it’s altogether too easy to feign incompetence and let the target get away). Since executives are more likely to be no-shows on flights than mere mortals due to last minute changes in plans, even if the US somehow had a head’s up on her travel plans (but how?) they wouldn’t know for sure until they had the flight manifest.

Moreover, John Bolton is the sort who’d love to collect a high profile scalp like the arrest of Meng, so it’s credible that he would find a way to go ahead whether or not the China trade negotiation team was on board.

Meng has her bail hearing in Vancouver today, so we will probably learn more about the expected process and timetable.

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80 comments

  1. Alex V

    Wondering why US dollars would ever be involved in transactions between a Chinese supplier, a UK bank, and Iranian customers… Assuming usage of correspondent banks in NYC? Would also be a reason for where the indictment was filed.

    The conspiracy theorist in me says that transactions are being routed through the US not for any practical reason, or due to customer wishes, but only to expose them to US jurisdiction for potential prosecution. An alternative to SWIFT is desperately needed.

    Reply
    1. A. A.

      The FCPA is extremely expansive: a non U.S. company doing business in the U.S. must not do business with Iran directly or indirectly if it knows or has reason to suspect the business is related to Iran.

      So if they have the evidence it all looks like a slam dunk.

      As to SWIFT, doesn’t the U.S. have access to all SWIFT transactions, even those not touching U.S. banks? They’d certainly have the Five Eyes SWIFT data.

      Plus apparently the U.S. has (or had) access to Huawei’s email traffic.

      Reply
    2. Yves Smith Post author

      Not correspondent banks. HSBC has a New York branch, as does pretty much every foreign bank with an international business. Dollar transactions clear though the US because no bank is going to run intraday balances with other banks without the end of day settlement ultimately being backstopped by the Fed. That means running over Fedwire.

      Reply
      1. Alex V

        Ah, thanks for the technical detail on why it would be cleared through the US. The Masters of the Universe really are unwilling to take any risk unless it’s socialized in some way. Still curious why they would ever let it touch US jurisdiction, but I guess the details of the case will eventually reveal that.

        Reply
  2. William Bowles

    See Voltaire Net for the reasons: Huawei’s unbreakable encryption:

    http://www.voltairenet.org/article204264.html

    “The heart of the problem is that the Chinese firm uses a system of encryption that prevents the NSA from intercepting its communications. A number of governments and secret services in the non-Western world have begun to equip themselves exclusively with Huawei materials, and are doing so to protect the confidentiality of their communications.”

    Reply
    1. laodan

      There is also this other article on Voltaire Network “Behind the US attack on Chinese Smartphones” by Manlio Dinucci. 2018-10-05

      “The struggle centred around Huawei illustrates the way in which economic and military preoccupations inter-connect. Already, many States have observed that Washington is so far unable to decode this technology. Thus, as they did in Syria, they have entirely re-equipped their Intelligence services with Huawei material, and forbid their civil servants to use any others.”

      Taking into account this story from Syria the following dismissal, by China’s Foreign Ministry spokeswoman Hua Chunying of a report in The New York Times, could be understood differently than it was initially…

      “China on Thursday denounced a U.S. newspaper report that it is listening to Donald Trump’s phone calls as “fake news,” and suggested he exchange his iPhone for a cellphone made by Chinese manufacturer Huawei”.
      in AP, 2018-10-26, “China denies spying on Trump’s phone, suggests he use Huawei”.

      Reply
    2. RepubAnon

      Given the Chinese government’s involvement with Chinese industry, I wouldn’t be too sure Huawei’s encryption can’t be broken by Chinese intelligence agencies.

      Reply
      1. Yves Smith Post author

        You may be right but I think the more likely scenario is that they have backdoors that make the encryption irrelevant. That’s the basis for the US objection to the use of Huawei products (as in it isn’t nuts), that you can circumvent software protections that way.

        Of course you can bet US tech firms do this too…

        Reply
  3. The Rev Kev

    So I turned on the local TV network to see how the story would be spun to find out what the official line would be. There was no mention of the fact in the story that Meng was just not the CFO of Huawei but also the daughter – the daughter – of the founder. More to the point, nearly every scene showing Meng was when she was on-stage with Putin somewhere so there is your guilt by association right there. They even used close-ups of the two together though the stage was full of people seated there.
    Something else in that story that I noticed. It featured the last day of the G-20 when the American and Chinese delegation were facing each other over a conference table. On the right was Trump and a bit further down was John Bolton. Now Trump has said he had no idea that this arrest was taking place but Bolton said that he know beforehand. Does it not seem strange that Bolton would not have pulled Trump aside beforehand and said ‘Hey boss, we are going to do something never done before and arrest a high-level Chinese citizen which could blow up your whole agreement. You know, just so you know.’
    With this is mind, it may be fairer to say that this was more a case of ‘Huawei’s Meng Targeted using US Bank Sanctions’. The pity is that the US Justice Department finds no trouble with targeting a corporation nearly 7,000 miles away but just can’t seem to target Wall Street which is only about 200 miles away from their headquarters. And I am afraid that I am not too impressed with that internal Huawei memo as probably most international corporations want to know where they can push the envelope. Personally I would be more interested on a memo from the Clinton Foundation listing the amounts needed to gain access the SecState and how much could be purchased for that amount. Both memos would amount to the same thing.
    This is new this development. The US has targeted individuals with sanctions but for the first time they are attempting the extraterritorial rendition of a foreign citizen in connection with sanctions violations meaning extraterritorial jurisdiction which means that American laws apply all over the world. Could you imagine if this became standard practice? The chill it would put on executive travel? The possibilities of tit for tat arrests? US tech execs have already been warned on China travel. Do they really want to go there? This is nothing less that a US declaration of war on firms competing with US business interests like they have done with Russia.
    I would be also wary of this massive ‘coincidence’ in the timing of her arrest. The US Justice Department would probably know Meng’s travel schedule better that she would – Bolton with his contacts would see to that. It may be that events in her calendar were pre-arranged for her. The Justice Department has a long history of setting up people. Canada’s involvement is simply another member of the Five Eyes group doing active participation. It has not escaped my notice that all the countries rejecting Huawe’s 5G technology – Australia, the UK, New Zealand – are also members of the Five Eyes. Not looking good.

    Reply
    1. Yves Smith Post author

      This is not a rendition. Meng’s extradition is all being done by the book. She is still in Canada, and will have a bail hearing today. She will have the opportunity to contest her extradition in Canada. Assuming she loses, she then goes to the US to face charges.

      And I’m not keen about the CT. A top Chinese tech company like Huawei which knows it’s on America’s shit list would have a very well protected Intranet. The US does not have access to Chinese telcoms to locate or steal the data of Chinese citizens. Get real.

      Reply
      1. Thuto

        I’m not sure I embrace the notion of all this being done by the book as much as you Yves. After all, even charades can have the appearance of procedural compliance and the following of by the book rules, in fact, perhaps the incentive to create the appearance of following the rules is even more pronounced in a high profile case such as this. As to whether she will have a fair opportunity to defend herself, this is a watershed moment for Canada and she’s is in the spotlight here and no matter which way it goes, the decision to extradite or not will have irrevocable implications on her international relations.

        Reply
        1. Yves Smith Post author

          This is not a rendition. Canada isn’t the UK. It’s not going to bend its court processes, particularly since Chinese have become big investors in Canada and Trump has been astonishingly rude to Trudeau. And it has an independent judiciary.

          Reply
          1. Marshall Auerback

            I was pretty unimpressed by Trudeau’s pusillanimity. He tried to give the impression that Canada was just an innocent bystander in this whole process. Get real. If there’s an extradition treaty, the US has to make a formal request to the Canadian government. The idea that the PM wasn’t consulted on this is nonsensical. Justin engaging in his own version of “cakeism”. Wants to stay on the good side of both Beijing and Washington, which is an impossible thing to do. Trudeau is already on Trump’s sh*t list, and I’m sure Xi is taking his measure of the man as well. Probably not terribly impressed with him either.

            Reply
            1. rd

              I have family and friends in Canada. Trust me, Canadians would be REALLY pissed if they thought that the Canadian judiciary was rolling over for Trump and Bolton.Trump is not making Canadian friends by running around throwing tantrums over NAFTA given that US-Canada trade is one of the most balanced trade relationships in the world with very little net trade deficit for either side.

              I think this is very much being done by the book. Is there a viable law that is not, by itself, a human rights violation? Is there credible evidence that this person broke this law? Those are the basic questions that will need to be answered in a Canadian court room to have an extradition move forward.

              Canadians want the big powers to have coherent rational laws and treaties related to trade etc. and then follow them. They also want to have rational, coherent international plans on addressing conflicts and have historically been very strong supporters of the UN and routinely have blue helmet troops all around the world on peace-keeping missions. Canada can do this safely because it has balanced relationships with most countries around the world. It will not do these types of arrests and extraditions on a whim because that would upset Canada’s role in the world.

              Reply
              1. William Bowles

                Judging from what I’ve read, the US are claiming she committed fraud by alleging that a company, Skycom that allegedly did business with Iran was not seperate from Huawei. Here’s the BBC’s take:

                “On Friday, US prosecutors told the Supreme Court of British Columbia that Ms Meng had used a Huawei subsidiary called Skycom to evade sanctions on Iran between 2009 and 2014.

                “They said she had publicly misrepresented Skycom as being a separate company.” – https://www.bbc.co.uk/news/world-us-canada-46490053

                Note the dates!!!! This is surely a setup!

                Reply
                1. Yves Smith Post author

                  Hate to tell you, it normally takes two years to develop a Federal prosecution, and they started investigating in 2016. And it would take time to find out about the misconduct. The US is not omniscient. They apparently learned via an independent monitor at HSBC.

                  Reply
        2. Lambert Strether

          > I’m not sure I embrace the notion of all this being done by the book as much as you Yves

          If Meng hasn’t been put on an executive jet, blind-folded and with a suppository, and flown to a black site, she hasn’t been rendered, a la the War on Terror.

          Details matter, and since so much of CT and allied speculation depends on closely examining detail, it’s even more important in the spuriously wise world of “connecting the dots.”

          Reply
          1. Thuto

            Please see my comment below re: “detail and accuracy of reporting” before assuming that I’m suggesting that detail is irrelevant.

            Reply
      2. Quanka

        Have to agree with Thuto here. If John Bolton is involved then by definition its NOT being done by the books, whatever the appearances may be.

        Reply
        1. Yves Smith Post author

          Bolton can’t tell Canadian judges or US judges, or the DoJ what to do. Bureaucracies do not like being pushed around by members of other bureaucracies.

          The US sanctions on Iran are so extreme that the US does not need to play games to get a conviction. This is our ball, our court, pun intended. Just based on what we see in the press, if the DoJ can’t convict Meng, they are incompetent. Go review our posts on the Standard Chartered money laundering sanctions to get a feel.

          Reply
          1. The Rev Kev

            Perhaps not Bolton personally but the US has a history of having other countries arrest travelers on their behalf and the Russians have stated that at least ten of their citizens have been detained in such place as Spain, Latvia and Greece since the start of 2017-

            https://www.reuters.com/article/us-russia-usa-travel-extradition/russia-says-u-s-hunting-for-russians-to-arrest-around-the-world-idUSKBN1FM0J2

            Assange may be the most infamous example to date. I suppose that the basic question is whether Meng’s arrest is a law & order procedure or a geopolitical power play but it is too early to tell yet.

            Reply
              1. The Rev Kev

                Got just the bridge for the swap to take place over since the old Glienicke Bridge is out. The new Kerch Strait Bridge connecting Crimea that was in the news recently. The only problem is that it is over 11 miles in length so each side would have a very long wait for their hostage to reach their side. Knowing Assange, he would probably wait till he was half way across when he would jump over the side to a waiting speedboat. :)

                Reply
            1. Lambert Strether

              > the basic question is whether Meng’s arrest is a law & order procedure or a geopolitical power play

              These aren’t mutually exclusive, since even a law and order procedure can be seized upon by opportunists making power plays. So when you say “rendered,” you heavily bias the discussion toward “power play,” without, so far as I can tell, having introduced any evidence to back it up.

              Reply
              1. The Rev Kev

                Uhh, I never used the word “rendered”. You must be thinking of someone else. Something that I will mention is twice now I have heard in the news how Meng will make a great “bargaining chip” for Trump in his dealings with China – and not just people on the street either. I do not know how widespread this idea is but in history this is know as a “hostage”.

                Reply
          2. Quanka

            Ok. When I say “not by the books” – I am not trying to say that Canadian and US judges are subject to the whims of Bolton. There are rules, they follow the rules. So let me just be clear about that point.

            “Not by the Books” refers to Bolton’s knowledge of U.S. security services and how to use the levers of power. Of course he knows of the judicial constraints around his behavior. He’s likely working behind the scenes, breaking rules, in order to get the desired outcome, whether we can see it or not.

            I guess that was my point. A shorter version is that I don’t believe the official line we’re being sold here. In fact, knowing the Bolton is involved means you should automatically discredit the official narrative, b/c he likely had a role in getting that story in front of you in the first place!

            Reply
            1. Yves Smith Post author

              Bolton has zero to do with the judiciary or how the DoJ handles prosecutions. Did you miss that the judiciary is an independent branch of government, and Federal judges are appointed for lifetime?

              Moroever, if anything, Trump criticizing Federal judges would mean if anything they’d be prejudiced against the DoJ if they thought a case was political, as in it was on weak legal grounds.

              As indicated, you can say the Iran sanctions stink, which they do, but you have no reason to say that the court handling in Canada or the US will be unfair given that those sanctions have been adopted widely in Western countries and the US has been aggressive about enforcement (see the huge fines against banks engaged in money laundering with Iran). Huawei made a commercial decision to continue to do business with Iran and put its executives, in this case Meng, at risk.

              Meng’s family has tons of money and she should be able to get the best legal representation. You should be exercised about poor and ordinary people, who can’t afford to defend themselves even when prosecuted for garden variety offenses, instead. Meng’s biggest risk to getting a fair trial in the US is not the idea that the Administration can taint the judicial process, but that jurors will be biased against a female Chinese executive.

              Reply
              1. Ape

                I remember a few decades ago federal judges in miami being convicted on taking a mere 10k$ in exchange for identifying a witness [for obvious snuffing purposes].

                Reply
          3. Quanka

            I also personally don’t trust DoJ to be able to secure any convictions. Yes its theoretically possible but they have a history of bungling prosecutions, as has been pointed out repeatedly on this site. Believe it when I see it kinda situation.

            It just seems awfully early to jump to the conclusion that Meng is going to U.S. prison. I guess we’ll know more after the first hearing.

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          4. Fazal Majid

            Bolton can shop around for an agreeable judge. Trump has been filling a great number of vacancies created by Republican Senate obstructionism of Obama appointees (it’s not just about the Supreme Court), which makes the shopping all that easier.

            I don’t see how the alleged violations of unilateral US sanctions committed by Huawei would be a crime in Canada, and thus worthy of extradition. My best guess is the request was processed as urgent because Ms. Meng was on her way to board a flight out of Canada, and was not examined with a properly jaundiced eye. In the best case, she will be released by the Canadian authorities as the alleged offense is not found to be extraditable, but the harassment and chilling effect will have been effective. Failing that China will arrest Canadian and US executives for some obscure and hitherto unenforced law regarding trade with Taiwan.

            I strongly suspect Trump is extremely angry at Bolton right now, but he is the one who hired that loon in the first place.

            Reply
            1. Yves Smith Post author

              Don’t make stuff up. This is agnotology, specifically CT.

              First, Bolton has absolutely nothing to do with the prosecution. This is being handled by the Eastern District of New York, one of the DoJ offices. The case will go to a judge in that district. Assignments to judges within a Federal district are random.

              There are 94 federal judicial districts. All but three of these districts have lifetime-appointed Article III judges. …Cases are assigned to judges randomly in appellate, district, and bankruptcy courts to ensure fairness and integrity.

              http://www.uscourts.gov/sites/default/files/journalists_guide_to_the_federal_courts.pdf

              Second, you appear to have missed that Meng was indicted under seal. It was reveled in today’s papers that she was indicted on August 22. That means the US issued a “Red Notice” to Interpol then and it took over three months to snag her:

              What is the purpose of an INTERPOL Red Notice?

              A Red Notice is a request to locate and provisionally arrest an individual pending extradition. It is issued by the General Secretariat at the request of a member country or an international tribunal based on a valid national arrest warrant. It is not an international arrest warrant.

              INTERPOL cannot compel any member country to arrest an individual who is the subject of a Red Notice. Each member country decides for itself what legal value to give a Red Notice within their borders.

              Are the individuals wanted by INTERPOL?

              No, they are wanted by a country or an international tribunal. When INTERPOL publishes a Red Notice this is simply to inform all member countries that the person is wanted based on an arrest warrant or equivalent judicial decision issued by a country or an international tribunal. INTERPOL does not issue arrest warrants.

              Who are the subjects of Red Notices?

              Red Notices are issued for individuals sought for prosecution or to serve a sentence. When the individual is sought for prosecution it means they are suspected of committing a crime but have not yet been prosecuted and so should be considered innocent until proven guilty.

              https://www.interpol.int/INTERPOL-expertise/Notices/Red-Notices

              Even before the Internet made all this easier, Interpol was in constant communication with airlines monitoring who was on the manifests of international flights in order attempt an arrest. In the old days, it was even known that Chicago was the best airport for having a hope of getting out before Interpol got you. That changed after 9/11.

              Third, the US has an extradition treaty with Canada. Meng could still not be extradited unless Canada has imposed sanctions on Iran, which it has:

              http://www.international.gc.ca/world-monde/international_relations-relations_internationales/sanctions/iran.aspx?lang=eng

              See under “Bars to extradition”:

              Failure to fulfill dual criminality

              Generally the act for which extradition is sought must constitute a crime punishable by some minimum penalty in both the requesting and the requested states.

              https://en.wikipedia.org/wiki/Extradition

              Finally, Canada is playing this by the book. Meng’s bail hearing started today and will continue Monday. She will then have her case heard. She can appeal the extradition order and remain in Canada, which Canadian papers say could take several years.

              You could have found this out on Google (save the bit about the Chicago airport) rather than misleading readers.

              Reply
      3. fajensen

        I would not dismiss the possibility. It is very, very hard to secure IT against someone with the resources of the NSA. Before Snowden we had the option of tin-foil-hattery, now, it’s more the case that we have not found the bug yet.

        The situation is that unless the Chinese builds their secured networks entirely from parts designed, fabbed and sourced from within China (which is expensive, hard work), it is even harder to be certain that they do not come with a hidden backdoor.

        An Explicit backdoor, like the Intel Management Engine (built into all recent Intel-based PC’s, Servers and Laptops), or a discrete ditto like one of those “spare”, undocumented(!), ARM Cortex M0/M3 cores one will invariably find embedded in pretty much any high-density logic like CPU’s, LAN or HDD controllers these days.

        These cores show up on JTAG-scans, the issue is coming up because JTAG is so cheap now that hobbyist electronics experimenters have it in their kitchen labs and The Internet is a sucker for a good conspiracy. Hackers are still trying to figure out what they are doing, if they are indeed doing anything. “Nobody” knows why they are there. The only hacks I know about are in the Intel Management Engine.

        The best defence available today is that the NSA simply does not care enough to risk the exposure of an access mechanism to mess with someone like us.

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    2. Thuto

      Spot on with your comment. As you point out, this event will cast a dark shadow over executive travel for a long time to come, including those American executives who will now be fearful of countermeasures.

      Reply
        1. JTMcPhee

          Whose laws, one might ask? The US says ITS laws rule the world. ISDS says corporate right to profit (by their accounting methods that discount externalities to zero) outweighs ALL national and local laws.

          And having spent some years as a lawyer, and observing several different kinds of courts in operation, I would dare to challenge the assertion that “courts have to follow rules.” Like they have done in the foreclosure mess, maybe? Like the shenanigans displayed via Chicago’s “Operation Greylord” prosecutions? Or in traffic courts in small towns in Flyover Country? how about the US bankruptcy courts, where shall we say “bad decisions” are endemic? Remember Julius Hoffman? how about Kimba Woods, who sua sponte curtailed Michael Milken’s jail term for his junk bond racket? Even FISA, of course?

          And the assertion that Canadian judges are beyond political maneuvering runs up against a whole lot of reports and studies that cast the integrity of the Canadian bar into not insignificant doubt. Look to “corruption in canadian courts” for a nice assortment, like this one, https://www.huffingtonpost.ca/jj-mccullough/canada-judicial-appointments_b_5264567.html, and this, http://www.waterwarcrimes.com/canadian-legal-and-judicial-corruption.html, for example, and other more scholarly views.

          Yes, let us wait and see how this plays out, and then we can study what history’s actors have done, judiciously as we must…

          Reply
        2. Lynne

          Good luck with that. It’s almost impossible in the US never to break the law in some way. It just takes a cop or prosecutors motivated enough. I find it hard to believe it’s not the same in China, let alone Russia or the UK, to name a few.

          Reply
          1. Geoff _S

            This law school lecture is 45mins long but really fun (it’s got 2.5 million views). You should never talk to the police – one reason being that, as Lynne says, there are SO many possible offences, that you can never be sure you are not guilty of something.

            Don’t Talk to the Police!
            https://www.youtube.com/watch?v=d-7o9xYp7eE

            Reply
            1. RMO

              “Sounds like a good reason for executives not to break laws……”

              Yeah, I remember when all those HSBC executives were arrested, tried and thrown in jail. Good times… The U.S. government really believes in the rule of law. Remember when the Chief Executive was sent to prison for life for committing “the supreme war crime” and shredding the U.S. Constitution?

              Rules are for little people… Meng isn’t big enough to be unprosecutable apparently.

              Reply
  4. Thuto

    So the US DOJ, according to “people familiar with the matter”, has been investigating Huawei for at least two years. My math tells me this is roughly since the signing of the deal between Iran and the P5+1 countries in 2016, a deal subsequently incorporated into international law by the UN. Now a bank that has run a laundry service for dirty money is suddenly thrust into victimhood and (with Uncle Sam’s boot on its neck no doubt) is “cooperating” with the investigation? You couldn’t make this more surreal if you tried.

    If this isn’t the final act in peeling off the rose tinted glasses from countries that still
    consider the US a trusted friend and loyal ally, one wonders how much more evidence they need to see it for what it really is, a duplicitous, hypocritical, tyrannical imperialist. The irony of this charade being undertaken by the department of “justice” makes this even more egregious. Expect development of an alternative system to Swift to go into overdrive after this.

    Reply
    1. Yves Smith Post author

      Did you read the post? I do not like to sound like I am partisan,, but we are stickers on accuracy and you are way way out over your skis. HSBC was sanctioned for money laundering. It wasn’t the bank but a monitor the bank was forced to have looking over its shoulder that caught the Iran activity. That sounds like the monitor caught HSBC not catching it, which meant the monitor had HSBC by the balls.

      This is what a monitor is supposed to do. Your ire really discredits you.

      You seem to have missed that all dollar transactions are ultimately backstopped by the Fed. If Huawei wanted to do business with Iran, there was no reason for them to transact in dollars. They put themselves in the US’s crosshairs by being cavalier.

      Reply
      1. thepanzer

        Yves normally I agree with you but you’ve lost the plot on this one. The fact that this is all being done by the book may be true, but even if true, is ultimately irrelevant. The core issue is exactly as Thuto and others are pointing out. The US has ordained itself as ultimate authority and arbiter for the planet, creates rules out of thin air, then selectively enforces them against people they don’t like (Russia, China, etc.) while turning a blind eye to greater sins from suppposed allies (Saudi Arabia, etc.)

        This is a forest for the trees issue. All the correct legality of process doesn’t cover up for rotteness in selective enforcement for political gain. Given that money laundering charges could jail a good portion of all the C-suites at any major bank globally on any given day, the selective enforcement against a high profile Chinese citizen puts this squarely in the “hostage diplomacy” category.

        While the Wells Fargo crowd goes unpunished this just smacks of short-sighted opportunism. We look much more like Turkey imprisoning “CIA-linked” pastors or North Korea jailing clueless western college students as a diplomacy-via-hostage-taking than a nation of just laws, order, and due process in this matter. If Jamie Dimon and the rest of the wolves of wall street face prosecution for, well anything, I’d be more inclined to agree with you. But this do as I say not as I do mentally renders all the correct legality and process fulfillment worthless.

        Reply
        1. Stephen Gardner

          Bravo. I have nothing but contempt for the thugs that rule America and attempt to rule the world. When are enough countries going to get together and push the bully’s face in the dirt? Uncle Sam needs a little humiliation. It’s high time the rest of the world fights back.

          Reply
      2. Thuto

        Yves, I’m neither calling the accuracy of your reporting into question, nor suggesting that you have partisan leanings on this matter. I’ve learned a lot from your blog precisely because you don’t track the official line on the issues you report on here so laxity on accuracy isn’t something i’d accuse you of. That said, re: Huawei CFO’s arrest, while this may very well be an open and shut case if the letter of the law were used as the sole yardstick, my sense is that there’s more to it than that, and the letter of the law is being co-opted for larger, more sinister geopolitical ends.

        Reply
        1. Michael Fiorillo

          Likewise, the letter of the law has been used to convict Manafort of crimes he no doubt did commit, but does anyone honestly believe (on this site, at least) he would have been charged in the first place, absent the imperative to connect Trump to Putin?

          Just as politics is the driver of the “law” in Russiagate, so do trade conflicts seem to be driving this legal issue, even if Meng is “guilty” of the charges.

          Reply
      3. W

        The point isn’t “Is the US acting legally/by the book in enforcing the law”, it’s “Why is the US legally enforcing the law in this case and not the million other cases equally deserving of enforcement?” When the law isn’t enforced evenly, then the law just becomes a cover story for dishing out and withholding punishment by authorities.

        Reply
        1. Yves Smith Post author

          The US has been a consistent hard ass on Iran sanctions. The only case I know of where they’ve let up is on India because India needs Iranian oil more than it needs US trade (India is pretty close to an autarky).

          The onus is on you to show that the US has been engaged in selective enforcement there. It has put every bank it found trading with Iran through the wringer, and forced firing of executives at Standard Chartered. It even went after the whitest of white shoe firms, Sullivan & Cromwell, for withholding evidence on behalf of one of its bank clients.

          Reply
      4. lawrence j silber

        Very interesting-actually mystifying. The powers that are- from their pronouncements,haven’t a clue about modern money, and in that framework the benefits of the reserve currency they print. Maybe they do, but why, for what appears a minimal foreign corporate compliance offence, would we want China, Russia, and a host of others to find enough cause to continue their effort on a replacement reserve? Why are we so hell bent on militarising the dollar? Save it for really big fish. Sure, its extremely difficult under the current political framework for the world to organise and opt away from our dollar , but the stability and leadership America has offered since the end of ww11, maybe appears diminishing. Given Trump just made a deal with Xi, at the same time his vip citizen was being targeted- obviously kind of humiliating-,as well as the administration turning a blind eye to the murderous soprano fiefdom of Saudi Arabia; from any rational standpoint prioritising human rights over crooked bank compliance issues , this looks keystone cop like! Sure we only have a little info, but it still smells of hypocritical, imperialistic, one hand doesnt know what the other hand is doing idiots in charge. Mike Hudson sees nefarious purposes,maybe hes a bit hawkish, but this just seems so obtuse given the g20 hand shakes. Going to be very interesting watching China’s response. Then again maybe this lady is a criminal.

        Reply
  5. makedoanmend

    “…the US Justice Department finds no trouble with targeting a corporation nearly 7,000 miles away but just can’t seem to target Wall Street which is only about 200 miles away from their headquarters…”

    This.

    Having power over others seems to be a standard condition of our species. How one uses or abuses power reveals the inner nature of the one(s) wielding the power. There need not be a conspiracy of the powerful, just a consensus of how power should be used so that the sum total exercises of the powerful reveal where their interests intersect. The rest of us just got get out of the way.

    If one wants to know what interesting times look like, well, we have front row seats. And its in 3-D.

    I must admit that President Trump is doing a better job than former President Obama in ramping up a new theatre of economic warfare across the globe. Former President Obama was rather crude, what with his drones. I’m thinking we have to update von Clausewitz’s dictum: “War is the continuation of politics by other means.” to something along the lines of “Economics is a continuation of war by other means.”

    The USA polity is certainly making it up close and personal.

    Reply
    1. timbers

      Indeed. The possibilities for China to retaliate are seemingly endless though they won’t have the long arm the U.S. has.

      Perhaps China should respond by trying to arrest and indicting some of the Wall Street big wigs Obama never indicted. I’m sure China could come up with reasons why fraud Wall Street committed violated Chinese law and damaged China.

      Of course, being an exporter to the U.S. I’m sure China would much rather this go away, than to retaliate.

      Reply
  6. lawrence j silber

    Very interesting-actually mystifying. The powers that are- from their pronouncements,haven’t a clue about modern money, and in that framework the benefits of the reserve currency they print. Maybe they do, but why, for what appears a minimal foreign corporate compliance offence, would we want China, Russia, and a host of others to find enough cause to continue their effort on a replacement reserve? Why are we so hell bent on militarising the dollar? Save it for really big fish. Sure, its extremely difficult under the current political framework for the world to organise and opt away from our dollar , but the stability and leadership America has offered since the end of ww11, maybe appears diminishing. Given Trump just made a deal with Xi, at the same time his vip citizen was being targeted- obviously kind of humiliating-,as well as the administration turning a blind eye to the murderous soprano fiefdom of Saudi Arabia; from any rational standpoint prioritising human rights over crooked bank compliance issues , this looks keystone cop like! Sure we only have a little info, but it still smells of hypocritical, imperialistic, one hand doesnt know what the other hand is doing idiots in charge. Mike Hudson sees nefarious purposes,maybe hes a bit hawkish, but this just seems so obtuse given the g20 hand shakes. Going to be very interesting watching China’s response. Then again maybe this lady is a criminal.

    Reply
    1. NotTimothyGeithner

      Why are we so hell bent? The U.S. hyper power status started in 1991. This is a generation where they knew nothing else, coming off 45 years where allies did what they were told.

      https://en.wikipedia.org/wiki/The_Grand_Chessboard

      Whether its throwing around terms such as “American exceptionalism” or “indispensable nation”, there is a religious fervor around the U.S. among American foreign policy elites.

      Then there is imperial rot. The tenures in the U.S. Senate are longer than the Soviet Politburo. At a practical level the Bushes and Clintons (not exactly great people) have been responsible for who gets promoted in Washington and who develops marketable connections since 1986 with Reagan’s alzheimers kicking in big time if not longer.

      Reply
    2. JTMcPhee

      In many places in the US, if I jaywalk, I am a criminal. What corporate executive is not a criminal, given the mass of laws that apply (until said criminals can bribe the legislatures into de-criminalizing the bad behaviors)? Not to mention persuading the executive branch to not prosecute, for all kinds of “political” reasons? Ask Wells Fargo and the other Banksters how that works. Selective or non-prosecution for me, “the full weight of the law,” that fraudulent notion, for thee, I guess. And none of that is in any way new.

      Speaking of Chinese criminals, I would add an anecdote. I have not been able to find the episode, but one of the formerly investigative programs (20-20 or 60 Minutes, I believe) took part in a sting of a Chinese corp that sells counterfeit medicines. This was maybe 8-10 years ago. A very pretty if somewhat English-challenged young woman met with a bunch, maybe 10, men and women who she thought were buyers for distributors and Pharma corps in the US and I believe Canada. This meeting took place in a West Coast S city as I recall.

      She offered that her company produced counterfeit meds using “latest technology” that from the shape and color and texture and markings of the pills and package inserts, right down to the packaging, holograms and all, could not be distinguished from the original. The products were touted as being biologically inactive and “safe.” She averred that her company could deliver any quantity, from cartons to container loads, at very reasonable and attractive price.

      But that is a little different case from what appears at this point (barring correction as the “case” develops) from the Huawei matter.

      Reply
    3. John k

      Not easy for another entity to take over the reserve currency.
      China Germany etc want a trade surplus with us, so they must accept and store dollars. Very similarly. Many individuals want to save dollars because they don’t trust their own currency. And some countries actually use dollars as their currency.
      So the desire to accept or save dollars in exchange for their goods means the dollar is the reserve currency. This won’t change until something else becomes more attractive to savers and mercantilists.

      Reply
      1. Stephen Gardner

        Maybe true but our idiot ruling class is overplaying their hand and making the dollar toxic. And when enough other nations come to the conclusion that they can’t afford to use the dollar they will find a way. We Americans will suffer but most of us will deserve it. Most of us have considered ourselves better than other nations and thought it fine that our rulers starve and murder the residents of those nations. Other nations have done evil but few have so loudly proclaimed their virtue as they slaughtered others “for democracy and freedom”.

        Reply
  7. cbu

    I agree that “done by the book” is irrelevant here. Selective enforcement is the issue. Wall Street crooks have committed greater sins yet none of them is really punished.

    Anyone could have written an “internal memo” like that. Proving its authenticity is a different matter. After all, the biggest “smoking gun” I have ever seen in my life was the “evidence” of Iraqi WMD.

    Another interesting aspect of the case is that as I suspected, it might be difficult to prove that Huawei sold Iran some specific American technologies that still have valid patents in effect.

    Reply
    1. Stephen Gardner

      Intellectual property is a scam. The people who invent usually get a plaque and a bonus. The executive class gets the wealth through their excessive salaries. The sacred cow of patents and intellectual property must be butchered. It has become more trouble than it is worth.

      Reply
  8. Synoia

    I personally know IBM and others breached the US arms control export laws by exporting Cryptography to Apartheid South Africa, and believe that Shell Oil has broken nearly all environmental laws in the Niger Delta for decades.

    Where is the equity?

    Reply
  9. Eclair

    Fascinating discussion, Yves and commenters.

    Is this what happens when a government is sliding rapidly down the slope of loss of legitimacy?’ We become acutely aware of the selective enforcement of its laws; a situation that our poor and black and brown citizens have known for decades.

    We have even become aware that the laws themselves are … not always enacted for the public good, but for the enrichment of certain small segments of the population.

    This is not a good place to be. I mean this state of mind, not the NC site, which, as always, provides the opportunity for much thoughtful and creative discussion.

    Reply
  10. Carolinian

    Don’t forget that the US ambassador to Germany threatened secondary sanctions against Germany if they went ahead with Nordstream2. Trump then walked that back. But as for this latest move, we know that Bolton at least was informed of the impending arrest so it’s fair to say that such a sensitive action would not have happened without some form of White House approval–even if it wasn’t Trump himself. It’s probably not a CT therefore to say that there’s more going on here than a prosecutor making a routine request. The administration hawks are firing a shot over the bow of anyone who defies them on Iran (the place “real men” go to). Given what we know about Bolton’s Iran obsession it may not even have much to do with China.

    And this bully boy approach to the rest of the world isn’t only coming from Trump’s neocons since sanctions bills are a bipartisan favorite of our Congress. Apparently being bribed on domestic matters isn’t enough (unless you consider foreign policy to only be about MIC profits). Doing the bidding overseas actors and their supporters taps a whole other vein.

    Reply
    1. Lambert Strether

      > But as for this latest move, we know that Bolton at least was informed of the impending arrest so it’s fair to say that such a sensitive action would not have happened without some form of White House approval–even if it wasn’t Trump himself. It’s probably not a CT therefore to say that there’s more going on here than a prosecutor making a routine request.

      What Bolton says (I hate to quote the Guardian):

      Bolton said he was not sure if Trump knew of the arrest in Canada when the president sat down to a steak dinner with China’s Xi Jinping in Buenos Aires to discuss ways to avert a trade war between the two countries.

      “You know, I don’t know the answer to that,” Bolton said. “I knew in advance, but this is something that’s, that we get from the justice department and these kinds of things happen with some frequency. We certainly don’t inform the president on every one of them.”

      The Canadian prime minister, Justin Trudeau, said on Thursday he was also made aware of the arrest before it took place. I hate to quote the Guardian, but:

      “The appropriate authorities took the decisions in this case,” he told reporters. “We were advised by them with a few days’ notice that this was in the works but of course there was no engagement or involvement in the political level in this decision because we respect the independence of our judicial processes.”

      > It’s probably not a CT therefore to say that there’s more going on here than a prosecutor making a routine request

      Sure, but “more going on here” doesn’t strike me as adding a lot of value. I find the immediate refocusing from the facts of the case to speculation on who did what to whom why, along with moral-drawing about selective prosecution (“water is wet”) more than a little disturbing. IIRC, the Bearded One remarked: “Reality is more cunning than any theory.” Calling things that are not rendition, rendition, and drawing Kremlinological conclusions from seating arrangements at international conferences does not seem to me to conform to that theory. Determing the actual facts of the case, as opposed to theorizing about them, strikes me both as more fun and more useful.

      Reply
      1. JTMcPhee

        One hopes that one might also look not only at “the facts,” but at jurisprudence and jurisdiction. As in, how does the Empire have the legitimate, er, “right” to “impose sanctions” based on “proscribed conduct” under what, a claim that “what we say, goes”?

        My shadowed recollection of the discussion in law school is that the US is on pretty thin ice (albeit backed up by military threat and dollar hegemony) when playing the sanctions game.

        “Jurisdiction is the first question,” I learned in Civil Procedure. Interesting that so many here seem to presume the US has the jurisdictional reach to outlaw and punish behavior the Elite determines to be “trading with the enemy,” where the substantive acts alleged are what, extra-territorial to the US (though of course not the claimed and inchoate boundaries of the Empire.) Seems there is some agreement that the use of “sanctions,” which are riddled with ad hoc exemptions, transgresses what little there is of normative content in that “international law” which is mostly justification for the power relationships of state actors. https://www.paulcraigroberts.org/2018/10/04/international-court-of-justice-rules-us-sanctions-on-iran-are-illegal/

        Yes, look at “the facts,” but a “case” is made up of facts and law, to be applied on a foundation of territorial, personal and subject-matter jurisdiction. And beyond that, yes, the US has written and adopted “laws” that assert jurisdiction over all kinds of persons, places and things, but the grounding of so many of those laws is simple assertion of a “right” and the existence of “power” to make the claim of authority and (selectively) enforce it.

        Here’s a big-ass law firm’s “analysis” of how the US can just “pass a law” (the International Emergency Economic Powers Act, the claim of jurisdiction over the planet) and then the president can just issue executive orders to load on the sanctions (or grant exemptions), the deep analytical conclusion being that “it stands to reason” that all this can be done. No citation of authority, like “international law,” for the claimed power to act to damage the people and economies of other nations. “We do it because we can.” For me, at least, highlighting “facts” that get emphasized by the prosecution, which has leaped over the jurisdictional and source-of-authority questions, to get the mopes to agree that a “violation” has occurred, and then applying some trappings of “due process” as cover for the initial bald assertion of power, does not cut it.

        The Iran sanctions, and other exercises, come pretty close to or in effect are embargoes, which are actually acts of war, without the niceties of actually declaring a state of war and having to get the nation’s population behind the hostilities. Not clear to me how the Empire has any kind of “God-given right” to be making these grabs for authority over the rest of the world. Other than “gunz and dollars,” of course.

        Reply
        1. Carolinian

          Thanks for the expert analysis. Those of us who are not lawyers (me, above) are just offering what we hope will be some reasonable speculation. Of course this being the Trump administration it’s possible there’s no plan behind this latest move at all.

          Reply
        2. Lambert Strether

          > Not clear to me how the Empire has any kind of “God-given right” to be making these grabs for authority over the rest of the world. Other than “gunz and dollars,” of course.

          I’m alright until I get to this last sentence, since it’s reductionist. The reason there are agencies like Interpol is exactly to avoid “gunz.” Yes, there’s such a thing as soft power, and no, it’s not the same as hard power (even if, in the last analysis, it rests on hard power.)

          Reply
        1. Lambert Strether

          Here’s what he writes:

          Meng Wanzhou was taken hostage to be used as leverage in China trade talks. The ‘leverage’ could also be used to push Huawei into providing the NSA with back doors to its equipment. This is the policy style of Somali pirates or Saudi clown princes. The ruthlessness of this blackmail operation is breath taking. It is typical of neo-conservative behavior to use such extreme measures.

          I grant that the neocons are stupid lunatics. But these ideas seems to be stupid and lunatic even for them. Does anybody think that Xi could possibly permit this?

          Reply
    1. Lambert Strether

      On Huawei, b writes that “They can no longer easily hack the equipment [Huawei] sells.” However, he links to Voltaire.net, which doesn’t link to anything at all. This seems pretty sloppy.

      Reply
  11. Harrold

    Flights that over fly US airspace are required to submit their manifests and passenger names are bounced against the National Crime Information Center databases by CBP.

    I would venture that her flight overflew Alaskan airspace and that is how they found out she was on board.

    Reply
  12. Jan Krikke

    By the book… By which book was informing Bolton but not Trump?

    De-dollarization was in the air for a while, but this may very well be remembered as a turning point.

    Reply
    1. Yves Smith Post author

      Please don’t straw man. The “by the book” was with respect to the extradition process in Canada.

      As for informing Trump, you ought go know that that’s a matter of custom, which was made clear by the various press reports, and not formal rules like treaties and court procedures.

      Reply
  13. UserFriendly

    I seem to remember China signing the JCPOA releasing Iran from sanctions. Just because the US unilaterally withdrew for absolutely no evidence I don’t see why that should effect China. Weren’t European firms trying to find a way to still do business with Iran?

    Reply
    1. Yves Smith Post author

      China was using banks that were subject to sanctions.

      And Meng is being prosecuted for business dealings before the JCPOA went into effect (2008-2014) when the JCOPA was signed in 2015.

      Reply

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