By Stu Woo and Aruna Viswanatha
WASHINGTON -- The Justice Department is investigating whether
Huawei Technologies Co. violated U.S. sanctions related to Iran,
according to people familiar with the matter -- opening a new
avenue of scrutiny amid wider national-security concerns over the
Chinese cellular-electronics giant.
It's unclear how far the Justice Department probe has advanced
and what specific allegation federal agents are probing. A Huawei
spokesman declined to comment.
Such a probe raises the stakes for Huawei, which is facing a
series of moves by Washington to diminish its already-limited
business dealings in the U.S. It could also have knock-on effects
for its much larger business overseas, particularly in Europe.
Investors sold down shares in some of Huawei's suppliers,
including a group of small optical-technology firms like Lumentum
Holdings Inc., after The Wall Street Journal first reported the
probe. Qualcomm Inc., which supplies Huawei with chips, was also
down modestly midday Wednesday. Analysts said a worst-case scenario
could entail Huawei becoming vulnerable to the same sort of export
restrictions its rival ZTE Corp. now faces, stemming from a similar
probe.
Amid the heightened scrutiny in Washington, some allied
countries, where Huawei has big business, have grown more wary.
Washington's broader assault on Huawei has exacerbated tensions
with Beijing, which is already wrangling with the U.S. over trade.
The Trump administration has also recently cited Huawei, the
world's largest maker of cellular-tower electronics and other
telecommunications equipment, as a threat to American leadership in
the race to develop the future of mobile communication. Huawei is
also the world's No. 3 maker of smartphones, behind Apple Inc. and
Samsung Electronics Co.
The criminal investigation into Huawei follows administrative
subpoenas on sanctions-related issues from both the Commerce
Department and the Treasury Department's Office of Foreign Assets
Control, according to these people.
The Justice Department's interest hasn't been previously
reported, and the existence of a criminal probe represents a more
serious level of potential misconduct. The Commerce and Treasury
departments can impose administrative penalties and regulatory
sanctions on the company.
If investigators conclude the company intentionally violated
U.S. export laws, however, Huawei could face additional criminal
penalties, the imposition of a corporate monitor or the prosecution
of individuals who may have been involved in the alleged illicit
activity, among other potential consequences.
Last year, Huawei's smaller Chinese rival, ZTE, agreed to pay
$892 million in penalties imposed by the Justice, Commerce and
Treasury departments related to sanctions busting. The company
pleaded guilty and admitted it violated a law that controls the
export of sensitive goods, by shipping U.S. telecom equipment to
Iran. Last week, the Commerce Department said ZTE broke that deal's
terms and added a harsher sanction: It banned U.S. companies from
selling components to ZTE.
That punishment has slammed ZTE, which relies on American
suppliers to make both telecom equipment and smartphones. The
Commerce Department said Friday it would let ZTE present evidence
in an informal appeal.
Representatives of the Justice, Commerce and Treasury
Departments declined to comment. The New York Times reported early
last year that the Treasury Department had sent Huawei a
sanctions-related administrative subpoena back in December 2016,
following a separate Commerce Department inquiry into Huawei.
The criminal sanctions investigation adds to American pressure
against Huawei. A 2012 congressional report concluded both Huawei
and ZTE could become a tool for state-sponsored spying or sabotage,
and Washington has taken additional steps since late last year to
further curb them.
Washington sees itself battling China for control of an
increasingly digital world. U.S. officials say Beijing could order
Huawei and ZTE to take control of the telecom equipment they make
to disable communications, spy or launch other cyberattacks.
Huawei and ZTE have denied they are a threat. A Huawei spokesman
said the company is employee-owned and that no government has ever
asked it to spy on or sabotage another country. He said Huawei
poses no greater risk than its rivals, given they share a global
supply chain.
Huawei in 2017 led the worldwide telecom-equipment market with a
27% share, while ZTE ranked fourth, with 10%, according to
research-firm Dell'Oro Group. Largely because of the 2012
congressional report, the Chinese companies' U.S. market share is
less than 1% for cellular and landline networks, compared with 48%
each for Finland's Nokia Corp. and Sweden's Ericsson AB.
"That pleases me, although it's not zero," said Sen. Tom Cotton
(R., Ark.), who has led bipartisan Congressional efforts to curtail
Huawei and ZTE. "And that's where I'd like to get it."
President Donald Trump in December signed a bill that bars
Huawei and ZTE equipment from U.S. nuclear-weapon infrastructure,
while Mr. Cotton and lawmakers in both the House and Senate have
sponsored legislation to ban the U.S. government and its
contractors from using electronics from the two companies.
Congressional aides said they want to fold the legislation into the
next annual defense spending bill, to ensure it gets passed
quickly.
National-security advisers also cited Huawei's dominance in the
telecommunications-equipment industry in advising Mr. Trump to
block Broadcom Ltd.'s $117 billion hostile-takeover bid for
Qualcomm Inc. Neither chip maker is Chinese, but security officials
fear that weakening Qualcomm, which competes with Huawei for
wireless-technology patents, could further strengthen Huawei.
Last week, a bipartisan group of senators led by Mr. Cotton sent
a letter to the Agriculture Department, which runs a program called
the Rural Utilities Service that provides grants and loans to
improve telecommunications infrastructure. The senators asked the
department to consider blocking the use of those funds for Huawei
and ZTE equipment. A representative for the Department of
Agriculture had no immediate comment.
The Federal Communications Commission last week adopted a
similar measure and proposed banning the use of subsidies from an
FCC rural-telecommunications fund on Huawei and ZTE gear.
Write to Stu Woo at Stu.Woo@wsj.com and Aruna Viswanatha at
Aruna.Viswanatha@wsj.com
(END) Dow Jones Newswires
April 25, 2018 14:07 ET (18:07 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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