Exclusive: HSBC probe helped lead to the US against Huawei CFO

NEW YORK/LONDON (Reuters) – An internal investigation by HSBC Holdings PLC Huawei Technologies’ connections to a suspected front company in Iran showed that the Chinese telecommunications-equipment maker maintain close financial ties with the firm year after apparently selling the device, documents reviewed by Reuters show.

FILE PHOTO: Meng Wanzhou, executive Board Director of the Chinese technology giant Huawei, participate in a meeting of the VTB Capital Investment Forum “Russia Calling!” in Moscow, Russia-October 2, 2014. REUTERS/Alexander Bibik/File Photo

The HSBC probe of Huawei came at the end of 2016 and 2017, the bank was an attempt to have the U.S. Department of Justice (DOJ) to dismiss the criminal charges for the bank’s own misconduct in which U.S. sanctions.

The bank’s findings, which have not been made public, were given in a series of presentations in 2017 to the ministry of justice. The department used to help the current criminal case against Huawei’s chief financial officer, Meng Wanzhou.

She is accused of conspiracy to defraud HSBC bank and other banks due to a misrepresentation of Huawei’s relationship with the suspicious of the front company, Skycom Tech Co Ltd. Huawei has said Skycom was a local business partner in Iran, while the United States has an unofficial subsidiary used to conceal Huawei’s Iran business. Huawei and Skycom are also defendants in the U.S. case, accused of bank and wire fraud, as well as violating the U.S. sanctions against Iran.

The US authorities claim Huawei used Skycom to obtain embargo of u.s. goods and technology in Iran, and moving money out of the country via the international banking system. As a result of Huawei’s deception, U.S. authorities allege, HSBC bank and other banks cleared more than $100 million of transactions related to Skycom by the United States, which may violate economic sanctions, Washington had in place at the time against doing business with Iran.

Huawei declined to comment for this story. The company has denied the charges in the case.

Robert Sherman, a spokesman for HSBC, said: “the Information provided by HSBC at the Ministry of Justice was granted on the basis of formal demand, including the grand jury, a subpoena or other obligation to disclose information pursuant to a Deferred Prosecution Agreement or other legal obligation.”

He added, “The U.S. Department of Justice has confirmed that HSBC is not examined in this case.”

A Justice spokesman declined to comment.

Meng, daughter of Huawei’s founder, was arrested in Vancouver in December. She remains free on bail, while the AMERICAN government is trying to have her extradited to the face of the bank and wire fraud. The case comes at a time of heightened trade tensions between Washington and Beijing, and in the midst of the problems by the United States that Huawei equipment could be used for Chinese espionage. The Shenzhen-based company, the world’s largest maker of telecommunications network equipment, has repeatedly denied such claims.

Mix has maintained she is innocent of the accusations against her.

Reuters reported in December that HSBC – who is named in the indictment only as “Financial Institution 1” – played an important role in the Huawei case. HSBC internal probe of Huawei is reported here for the first time.

The HSBC documents contain new financial details about Huawei’s relationship with Skycom and the company that Huawei claims that it sold Skycom in 2007, Canicula Holdings Ltd. All three companies have previously had bank accounts with HSBC, with the Skycom and Canicula accounts part of what the bank internally called the “Huawei Mastergroup.”

The HSBC probe found numerous links between the three companies that proposed Huawei controlled both Skycom and Canicula long after the proposed sale of the documents show. For example, Canicula address was “c/o Huawei Technologies.”

The probe also found that Huawei funded Canicula the purchase of Skycom, borrow Canicula about 14 million euros in a deal, the documents show did not close until December 2009. Canicula-refundable Huawei, a year later, with money from Skycom.

After HSBC asked Huawei in 2013 to close Skycom and Canicula accounts, Huawei staff are helped to the bank. At Huawei, at the request of the other funds in the Skycom account transferred to a Huawei bank account, according to the documents.

HSBC’s move to close the accounts, followed stories by Reuters in 2012 and 2013 on the Huawei, Skycom, Canicula, and Mix. The articles that are listed in the HSBC documents as well as the charges – reported that Skycom had offered to sell at least 1.3 million euros worth of embargoed Hewlett-Packard computer equipment to Iran’s largest mobile phone operator in 2010. Reuters also reported that the Mix had served on Skycom’s board of directors between February 2008 and April 2009.

The earlier Reuters coverage can be read here, here and here.

The indictment claims that the banks are in part used on Huawei’s false statements in the Reuters-stories – that it had not violated sanctions on Iran, and that Skycom was a local partner to continue doing business with Huawei and Skycom.

HSBC had its own sanctions issues. In 2012, paid $1.92 billion and entered into a five-year deferred prosecution agreement with the Department of Justice for failure to follow regulations for the prevention of money laundering and processing of transactions that violated the sanctions.

Under the deal, HSBC agreed to strengthen the sanctions and anti-money laundering programs and to work together with the Ministry of Justice in an investigation. To the conduct of its probe of Huawei, hired the law firm Latham & Watkins.

The law firm has not responded to requests for comment.

According to the HSBC documents, the researchers conducted more than 100 interviews, reviewed more than 292,000 e-mails and analyzed years of financial transactions. A minimum of four presentations were made at the Ministry of Justice between February and July 2017. The criminal prosecution against the bank were dismissed in December 2017.

The bank Huawei probe found that in August 2013, at Huawei’s request, HSBC is the deputy head of global banking for the Asia-Pacific region, Alan Thomas, a meeting with Meng. According to the HSBC documents, Mix later provided Thomas with a PowerPoint presentation in English that Huawei had sold its shares in Skycom and that they are no longer on her plate. The presentation describes Skycom as a Huawei “business partner” in Iran. The presentation – which in the United States claims contained “numerous misrepresentations” – plays a central role in the U.S. case against Mix.

Thomas, who retired in 2017, declined to comment.

In the months after the meeting with Meng, HSBC considered whether or not to keep Huawei as a customer, the documents show. The bank initially concluded that the reputation risks were acceptable, and continued to Huawei. But, according to the indictment, HSBC said Huawei around 2017 that the termination of the relationship.

The HSBC probe also discovered financial transactions by Canicula that referred to Syria or a Syrian bank. Reuters reported last month that up to 2017 Canicula used in Syria, where it was linked to Huawei. If Iran, Syria is subject to U.S. sanctions.

Two people familiar with the Canicula activities in Syria since told Reuters that Huawei used the company to circumvent sanctions.

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HSBC also said that the Ministry of Justice that he was aware of another company linked to Skycom in Iran. In August 2016, the HSBC documents say, the bank was notified by a British engineering recruitment company, Matchtech Group Ltd, which is a Matchtech daughter had contractors to support telecommunications projects in Iran from 2010 to 2016.

The subsidiary, Networkers International Ltd, had entered into a contract with Skycom and Huawei, and had received payments in U.S. dollars of Skycom, the HSBC documents. The payments of approximately $7.6 million, the documents show. Networkers ended Iran-related contract with Skycom in October 2016, Matchtech told HSBC.

Matchtech is now known as Gattaca plc. A spokesman of Gattaca declined to comment.

Reporting by Karen Freifeld in New York and Steve Stecklow in London. Additional reporting by James Pomfret in Hong Kong and Babak Dehghanpisheh in Geneva. Edited by Michael Williams and Richard Woods

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