Photo: Julien Min Gong
The Permanent Select Committee on Intelligence issued a report on Monday, 8 October, about two Chinese telecommunications companies, Huawei Technologies and ZTE. The purpose of the Committee’s work was to assess the national security threat posed by these companies to important U.S. interests. In particular, the Committee examined the structure of the companies and their relationship to the government and military of the People’s Republic of China, and whether the ties between these entities, and the practices of the two companies in the U.S. and around the world, could pose a threat.
The answer, published by the Committee in the form of an investigative report, is a resounding “yes.”
The investigation involved both a review of open source and classified information. The Committee remained unsatisfied after these reviews, stating, among other criticism, that “neither company was forthcoming with detailed information about its formal relationships or regulatory interaction with Chinese authorities…[or] the price role of each company’s Chinese Communist Party Committee.” Likewise, Huawei in particular, “failed to provide thorough information about its corporate structure, history, ownership, operations, financial arrangements or management,” and that “most importantly, neither company provided sufficient internal documentation or other evidence to support the limited answers they did provide to Committee investigators.” The Committee also found that both ZTE and Huawei may be implicated in sanctions and export control violations involving Iran.
But from an anti-bribery standpoint, the most troubling finding rests on evidence introduced to the committee by current and former Huawei employees, who provided “credible reports…of several potential violations by Huawei officials,” including bribery and corruption. The report provides no specifics – only that employees “have alleged instances [sic] fraud and bribery when seeking contracts in the United States.” The Committee intends to refer these allegations to the Department of Justice.
Huawei released a statement critical of the report’s methodology and conclusions. So did ZTE.
Recent enforcement activity outside of the United States may provide some insight into Huawei’s operations. On 6 June 2012, employees of both Hawei and ZTE were convicted by an Algerian court of bribery related to telephone company contracts in that country. Both companies have been debarred from bidding on public contracts in Algeria for two years. In May 2012, the Zambian government paid for a trip to China by the Zambian Minister of Information and Broadcasting. But media reports allege that Huawei and ZTE also paid for the trip. The media have also reported that Nigerian legislators are investigating irregularities in tender awards to ZTE.
The TRACE Compendium contains summaries of enforcement action against both ZTE and Huawei.