In court documents unsealed Jan. 28, a grand jury this month returned a 10-count indictment by two affiliates of Chinese telecommunications conglomerate Huawei Technologies for theft of trade secrets, wire fraud, and obstruction of justice.

The indictment, returned by a grand jury on Jan. 16, details Huawei’s efforts to steal trade secrets from T-Mobile USA and then obstruct justice when T-Mobile threatened to sue Huawei in U.S. District Court in Seattle. The alleged conduct described in the indictment occurred from 2012 to 2014 and includes an internal Huawei announcement that the company was offering bonuses to employees who succeeded in stealing confidential information from other companies.

According to the indictment, Huawei in 2012 began a concerted effort to steal information on a T-Mobile phone-testing robot, dubbed “Tappy.” To build their own robot to test phones before they were shipped to T-Mobile and other wireless carriers, Huawei engineers violated confidentiality and non-disclosure agreements with T-Mobile by secretly taking photos of “Tappy,” taking measurements of parts of the robot and, in one instance, stealing a piece of the robot so that the Huawei engineers in China could try to replicate it.

After T-Mobile discovered and interrupted these criminal activities and then threatened to sue, Huawei produced a report falsely claiming that the theft was the work of rogue actors within the company and not a concerted effort by Huawei corporate entities in the United States and China. As e-mails obtained during the investigation reveal, the conspiracy to steal secrets from T-Mobile was a company-wide effort involving many engineers and employees within the two charged companies.

As part of its investigation, FBI obtained e-mails revealing that in July 2013, Huawei offered bonuses to employees based on the value of information they stole from other companies around the world and provided to Huawei via an encrypted e-mail address.

Second indictment

Additionally, a grand jury in New York returned an indictment alleging 13 additional crimes committed by Huawei, its CFO, its affiliate in Iran, and one of its subsidiaries in the United States, Whitaker announced on Jan. 28. The criminal activity alleged in this indictment goes back at least 10 years and reaches the highest echelons of the company.

As early as 2007, Huawei employees allegedly began to misrepresent the company’s relationship with its Iranian affiliate, Skycom, Whitaker said. Huawei employees allegedly told banking partners that Huawei had sold its ownership interest in Skycom, but these claims were false. In reality, Huawei sold Skycom to itself.

By claiming that Skycom was a separate company—and not an affiliate that Huawei controlled—Huawei allegedly asserted that all its Iran business complied with U.S. sanctions. “These alleged false claims led banks to do business with the company and, therefore, to unknowingly violate our laws,” Whitaker said. “One bank facilitated more than $100 million worth of Skycom transactions through the United States and in just four years.”

Financial fraud charges

The Department of Justice announced criminal charges against Huawei and Skycom for bank fraud and conspiracy to commit bank fraud, wire fraud and conspiracy to commit wire fraud, violations of the International Emergency Economic Powers Act (IEEPA) and conspiracy to violate the EEPA, and conspiracy to commit money laundering. Huawei and Huawei USA are charged with conspiracy to obstruct justice related to the grand jury investigation in the Eastern District of New York. The Justice Department is also charging Huawei CFO Wanzhou Meng with bank fraud, wire fraud, and conspiracies to commit bank and wire fraud.

Huawei allegedly lied about other relationships, as well. “In 2017, when one bank decided to terminate its global banking relationship with Huawei over concern about risk, the company allegedly told other banks that Huawei was distancing itself from the bank—not the other way around,” Whitaker added. “Huawei allegedly did this in an attempt to, among other things, manipulate those other banks into expanding and maintaining their banking relationships with Huawei.”

Huawei also allegedly lied to the federal government and attempted to obstruct justice by concealing and destroying evidence and by moving potential government witnesses back to China, according to the Justice Department.

In December 2018, Canadian authorities arrested Huawei’s CFO in Vancouver. The United States is currently seeking her extradition.

The indictment, unsealed Jan. 28, is assigned to U.S. District Judge Ann Donnelly of the Eastern District of New York. The government’s investigation remains ongoing.

Enforcement implications

In November 2018, the Justice Department announced the creation of a new “China Initiative,” whose aim will be to “identify priority Chinese trade theft cases, ensure that we have enough resources dedicated to them, and make sure that we bring them to an appropriate conclusion quickly and effectively,” then-Attorney General Jeff Sessions stated in prepared remarks announcing the new initiative.

Looking ahead, from a legal and compliance standpoint, Chinese companies and individuals should be on high alert that the U.S. government has had enough and that the likelihood of facing civil and/or criminal liability for the misappropriation of U.S. trade secrets is higher than ever.