In-depth: China, Strategic Corruption and the tug of war over Huawei’s Meng Wanzhou
The use of strategic corruption between states has the potential to cast domestic law enforcement bodies as agents in foreign policy and international disputes. International public policy must demand that justice is upheld in terms of due process rather than political bargaining.
By Robert Hanratty, Associate.
On 3 June 2021, President Biden issued a National Security Study Memorandum in which he established countering corruption as a core United States national security interest. Corruption, it says, “corrodes public trust; hobbles effective governance; distorts markets and equitable access to services; undercuts development efforts; contributes to national fragility, extremism, and migration; and provides authoritarian leaders a means to undermine democracies worldwide.” Moreover, it threatens United States national security, economic equity and democracy itself.
To meet those challenges, the president directed that a strategy be developed to bolster the ability of the US to promote good governance and prevent corruption; combat illicit finance; hold corrupt individuals accountable; enhance anti-corruption norms; work with international partners to counteract strategic corruption by foreign leaders and state-owned enterprises; assist with implementing transparency, oversight, and accountability measures; and promote partnerships with the private sector and civil society to advocate for anti-corruption measures.
The fight to counter corruption is generally treated as a law enforcement challenge or an issue relating to good government and has been marginalised in public and academic discussions relating to foreign policy. Corruption has been represented as something hindering political and economic development but not rising to the level of national strategy. If corruption and illicit finance have, however, developed to such an extent as to represent potential tools of political warfare, then defence strategies must move to the centre of international public policy. Defining corruption and illicit financing in terms of national security also emphasises a new horizon in conceptualising the role of the Department of Justice (“DOJ”), extending its ambit to that of foreign policy actor responsible for combatting states and private individuals who would seek to threaten the United States’ vital national interests.
Against that background, the recent Deferred Prosecution Agreement (DPA) entered into between the DOJ and Meng Wanzhou, the Chief Financial Officer of Chinese telecoms company, Huawei, is surprising. Meng was arrested in Vancouver International Airport in December 2018 at the request of the United States and pursuant to an extradition treaty between the US and Canada. US prosecutors alleged she committed bank fraud and wire fraud in 2013. Her arrest and detention have been the subject of legal, diplomatic, and political wrangling between China, Canada, and the United States.
Huawei and the United States
The American foreign policy establishment is currently obsessed with identifying the correct strategy to resist Chinese influence in global affairs. It is particularly wary of large Chinese companies gaining a foothold in western markets, because it often sees them as representing an arm of the Chinese state. Much attention has focused on Huawei, which the US views as a tool of Chinese intellectual property theft and espionage across digital and telecommunications platforms. Despite Huawei’s insistence that it acts independent of Chinese Communist Party influence, the US has lobbied hard to curb the company’s influence, especially in its efforts to provide next generation 5G networks around the world. In May 2019, the US Commerce Department added
Huawei to the US trade blacklist, a move that banned the company from purchasing components from US companies without US government approval and which made it impossible for the company to sell those of its products wholly reliant on US suppliers. The then Commerce Secretary, Wilbur Ross, said the decision would “prevent American technology from being used by foreign owned entities in ways that potentially undermine U.S. national security or foreign policy interests.”
Chinese officials have gone to great lengths to defend Huawei, including threatening retaliatory action against British companies operating in China following the UK’s decision to phase Huawei out of UK networks by 2023. That level of protection is exceptional because it is granted irrespective of allegations of illegality or wrongdoing, giving the impression that China sees Huawei liability for its own acts on a par with state immunity.
United States v Meng Wanzhou – DPA
Meng was freed on 24 September 2021 after spending three years under house arrest in Canada. The case against her related to her involvement in Skycom Tech. Co. Ltd (“Skycom”), a company operating primarily in Iran and which in 2007 was wholly owned by a subsidiary of Huawei, Hua Ying Management (“Hua Ying”). In November 2007, Hua Ying transferred its shares in Skycom to another entity that Huawei controlled, Canicula Holdings (“Canicula”). At the time of that transfer, Meng was the Secretary of Hua Ying. According to the DPA, Skycom was a Huawei controlled entity: Skycom’s Board members were Huawei employees, individuals employed by Skycom believed they worked for Huawei, and Skycom was owned by Canicula, an entity controlled by Huawei. Thus, between 2010 and 2014, Huawei controlled Skycom’s business operations in Iran and a significant number of Skycom decisions were made by Huawei.
In December 2012, Reuters reported that Skycom had offered to sell embargoed equipment from a US computer equipment manufacturer in Iran, in potential violation of US export controls law. In a statement to Reuters in December 2012, Huawei claimed that Skycom was one of its “major local partners” in Iran and that “Huawei’s business in Iran is in full compliance will all applicable laws and regulations including those of the UN, US and EU,” a commitment which they also required their partners to follow. A subsequent Reuters article in January 2013 reported that Meng served on the Board of Directors of Skycom between February 2008 and April 2009 and identified other connections between Skycom directors and Huawei. In response, Huawei repeated the assertion that Skycom was only a partner of Huawei, acting in line with industry best practice on trade compliance regarding Iran. Following the media articles, certain financial institutions providing international banking services to Huawei, made enquiries to the company as to the extent of its business in Iran and its compliance with applicable US sanctions laws.
On 22 August 2013, Meng delivered an in-person presentation to one of those financial institutions, during which she stated that Huawei’s relationship with Skycom was “normal business cooperation.” She described Skycom as “a partner”, “a business partner of Huawei” and “a third party Huawei works with in Iran.” According to the DPA, those statements were untrue, because as Meng knew, Skycom was not a business partner or third party working with Huawei. Rather, Huawei controlled Skycom, a fact that would have been “material” to the financial institution when deciding whether to provide banking services to Huawei. In her presentation, Meng also stated that Huawei had once been a shareholder of Skycom but had divested itself of all shares. Again, that assertion was untrue, because as Meng knew, Huawei had sold its shares to an entity controlled by Huawei, namely Canicula. It again would have been material to the financial institution to know that Skycom was transferred from one Huawei-controlled entity to another.
Finally, in her presentation, Meng also stated that Huawei “operates in Iran in strict compliance with applicable laws, regulations and sanctions” and that there had been “no violation of export control regulations [by] Huawei or any third party Huawei works with.” Those statements were also untrue because Huawei’s operation of Skycom, which caused the financial institution to provide prohibited banking services for Huawei’s Iran-based business while Huawei concealed its link to Skycom, was in violation of the US Treasury Department sanctions relating to Iran. Moreover, between 2010 and 2014, Huawei caused Skycom to conduct approximately $100 million worth of transactions through the financial institution that cleared through the United States, at least
some of which supported its work in Iran in violation of US law. After the presentation delivered by Meng, the financial institution decided to continue its relationship with Huawei.
Under the terms of the DPA, Meng agreed to the accuracy of the accompanying Statement of Facts, including details of having made knowingly false statements. The DOJ thus agreed to defer prosecution of the charges against her for a period of four years beginning on the date of her arrest in Canada (“the deferral period”), withdraw the extradition request to Canada, and ultimately move to dismiss the indictment if she complied with the terms of the agreement during the deferral period. Those terms included an undertaking not to make any statement contradicting the agreed facts. While breach of the agreement releases the DOJ from its undertakings and allows it to pursue a prosecution of Meng, the outcome of the case appears to be favourable to her: although the deferral period of the DPA is four years, it was agreed to run from the date of Meng’s arrest rather than the date of entering the agreement, meaning that only fourteen months remained at time of signing; Meng avoided having to enter a guilty plea with the attendant potential negative professional consequences; she did not have to pay any financial penalty; and nor does she have to cooperate in the DOJ’s ongoing prosecution of Huawei. (Typically, a DPA involves at least one of the latter two stipulations.) Moreover, a DPA with an individual, as opposed to the corporate, is still very much the exception, so it is somewhat anomalous that Meng was able to achieve one at all.
Chinese reaction to Meng’s arrest
Meng’s arrest was greeted with anger in China. According to Professor Wang Jiangyu of the City University of Hong Kong, there was a belief that the case was engineered and manipulated by the US and that it was a political rather than a legal case. The Chinese foreign ministry said at the time of Meng’s release, “[This] is a political frame-up and persecution against a Chinese citizen, an act designed to hobble Chinese high-tech companies as represented by Huawei.” Meng’s case was seen, thus, as one strand of a developing cold technology and trade war, in which one side had unjustly arrested an important individual working for the other.
The first reaction of then President Donald Trump, moreover, did not help dispel a belief in China that Meng’s arrest was politically motivated and that her fate would not be decided on due process grounds alone. In an interview with Reuters two weeks after Meng’s arrest, Trump said he would intervene in the case if it would serve national security interests or help achieve a trade deal with China.
In December 2018, shortly after Meng’s arrest, two Canadian citizens, Michael Kovrig and Michael Spavor, were detained in China on charges of espionage. Kovrig had been working as an analyst with the International Crisis Group, while Spavor worked arranging cultural exchanges. Both were tried in secret but maintained their innocence, and western governments accused China of engaging in “hostage diplomacy”, arbitrarily arresting the men to gain leverage in Meng’s Canadian extradition proceedings. China denied that Kovrig and Spavor’s arrests were linked to Meng’s detention, but their cases moved in rhythm with that of Meng, and key stages coincided with her extradition proceedings. Moreover, although Spavor had been recently sentenced to 11 years in prison, following conclusion of the DPA both were released by China without any legal reason.
Why did the DOJ agree the DPA?
The DPA between Meng and the DOJ is believed to be the first ever agreed with a defendant remaining outside US jurisdiction throughout the proceedings. While the White House press secretary, Jen Psaki, rejected the suggestion that the DPA was related to the release of Kovrig and Spavor, or that their release constituted in any way a prisoner swap for Meng, she did admit that in a call between President Biden and President Xi Jinping on 9 September 2021, Xi brought up the case of Meng, while President Biden, in turn, pressed for the release of the two Canadians. That followed a concerted diplomatic push by the Canadian government to pressure the US government and resolve the case as quickly as possible, including Canada’s ambassador to China returning from Beijing and spending several weeks in Washington DC, apparently lobbying for US government action to resolve the case through some kind of settlement.
The agreement also followed two years of Canadian effort to build global support for its campaign to secure the release of the two men, culminating with the launch of a Joint Declaration Against Arbitrary Detention in State-to-State Relations, which was endorsed by 58 countries, the EU and the UN, launched by Canada in February 2021 and supported by the US Secretary of State, Antony Blinken. While the declaration made no explicit reference to the two Canadian citizens, the US was likely cognisant of the mounting diplomatic pressure to achieve their release and come to a pragmatic solution in the face of Chinese intransigence. The US may also have wished to avoid the spectre of a protracted and politicised case while the proceedings passed through the Canadian appeals process.
While the DOJ will be pleased by the fact that Meng (and potentially thus Huawei itself) admitted to criminal conduct, a criminal prosecution of one of China’s leading executives would have been a weighty rejection of Chinese business practices and China’s effort to garner influence internationally. Indeed, the fact that the DOJ has stated its continued intention to prosecute the company to the fullest extent, casts more uncertainty as to why it allowed the DPA with the culpable individual to proceed, especially considering the ostensible merits of the case against Meng. In that respect, it is notable that the DPA was agreed while a corruption saga involving prominent Chinese businessmen with links to President Biden’s son, Hunter, continues. It raises questions as to whether the Chinese government were able to use that matter to leverage concessions from the American administration in respect of Meng’s case.
CEFC China energy and strategic corruption
A recent article in Foreign Affairs defined corruption as taking three discrete forms. Bureaucratic corruption, it states, “is the pervasive conversion of ordinary public service into a ‘bid for service.’” For example, in many countries, passing a building inspection requires paying a bribe, which is a type of corruption that hinders economic development by allowing well connected insiders to profit at the expense of genuine growth. Grand corruption, by contrast, occurs when business leaders or major criminals directly pay top government officials in exchange for favours. That might include a preferential position, or control of a key economic sector, which can be plundered – oil & gas, telecommunications and natural resources are the most obvious sectors for exploitation to occur. The final type of corruption – strategic corruption – is different. Whilst the element of greed persists, “the corrupt inducements are wielded against a target country by foreigners as part of their own country’s national strategy.”
In recent times, it would appear that Beijing has actively engaged in strategic corruption to advance its own interests. While Huawei itself has been accused of procuring numerous overseas business opportunities through corrupt payments, the case of the Chinese energy conglomerate, CEFC China Energy, is the most notable recent example of strategic corruption. According to the New York Times, the company was virtually unknown up until 2017, but leapt onto the global stage when it proposed buying a $9 billion stake in Rosneft, the state-controlled Russian oil giant, raising questions as to the source of such funds and the company’s connection with the Chinese state. CEFC’s chief executive, Ye Jianming, cultivated relationships with foreign leaders and struck deals worth billions of dollars in Russia, Eastern Europe and Africa, ostensibly on behalf of the company but always aligned with China’s geopolitical ambitions to expand influence overseas through strategic investments. According to Martin Hala, an academic who tracked Ye’s networking efforts, “It’s been clear for some time that [CEFC] is not just a Chinese commercial company, that they had some intelligence ties.” CNN also stated of Ye’s company that at is height, “[it] aligned itself so closely with the Chinese government that it was often hard to distinguish between the two.”
In November 2017, US authorities arrested a CEFC executive named Patrick Ho, on charges of bribery and money laundering. Ho was the Home Secretary of Hong Kong from 2002 to 2007 and had extoled the benefits of the Chinese Belt and Road Initiative (BRI), an international infrastructure plan intended to link China to Africa, Asia and Europe. By paying bribes, Ho ingratiated himself with foreign leaders to advance CEFC’s business opportunities around the world. In 2014, Ho offered a $2 million cash bribe to Idriss Déby, the President of Chad, in an effort to obtain valuable oil rights from the Chadian government. In 2016, he caused a $500,000 bribe to be paid to an account designated by Sam Kutesa, the Minister of Foreign Affairs of Uganda. He also schemed to pay a $500,000 cash bribe to Yoweri Museveni, the President of Uganda. Those payments were designed to open the oil & gas markets to Chinese business and advance the development of the BRI. US prosecutors also accused Ho of working on behalf of CEFC to facilitate arms transactions in Africa and the Middle East, and of brokering business with Iran in violation of US sanctions by helping move sanctioned Iranian money out of China. Ho was not separately indicted in relation to contravening sanctions against Iran, but in March 2019, he was sentenced to three years in prison for involvement in the schemes in Chad and Uganda.
Ho’s arrest triggered the collapse of CEFC and Ye Jianming. Ye was reportedly detained by Chinese officials in March 2018 following a report in the Chinese financial news agency, Caixin, that the finances of CEFC were a precarious stack of loans against other loans. Ye has not been seen since, and aside from indirect mentions of having potentially bribed Chinese officials, there is still little to reveal whether he will be charged in China, the extent of his cooperation with the authorities there and indeed why it is taking so long to bring a case against him. Questions have been raised, however, as to his influence within the current US administration, in particular his business relationship with the president’s son, Hunter.
Hunter Biden and CEFC
In December 2020, federal authorities in the US began investigating Hunter Biden’s business dealings, with federal prosecutors in Delaware, working alongside the IRS Criminal Investigation agency and the FBI, issuing subpoenas and seeking interviews. In a statement on 9 December 2020, Hunter Biden said he was taking the matter very seriously but that he “was confident that a professional and objective review of these matters will demonstrate that I handled my affairs legally and appropriately.”
According to CNN, US investigators appear to be focused on Hunter Biden’s business activities related to China, and specifically that after the then vice-president Joe Biden left office in 2017, Hunter Biden worked on securing a deal with CEFC to invest in US energy projects. At least one of the matters under investigation is a 2017 gift of a 2.8-carat diamond that Hunter Biden received from Ye Jianming following a Miami business meeting. In a 2019 interview with The New Yorker, Biden said, “he had been given the diamond by the Chinese energy tycoon Ye Jianming, who was trying to make connections in Washington among prominent Democrats and Republicans.” Two of Biden’s associates, who accompanied him to the meeting, “surprised him by giving Ye a magnum of rare vintage Scotch worth thousands of dollars.” At dinner that night Hunter and Ye discussed the possibility of Ye making a large donation to the World Food Program USA, which Hunter is a board member of. The conversation turned to business and Hunter offered to use his contacts to help identify investment opportunities for CEFC in liquified natural gas projects in the US. After dinner, Ye sent the diamond (estimated to be worth $80,000) to Hunter’s hotel room with a card thanking him for the meeting. In interview, Hunter was adamant that the diamond could not have been meant as a bribe, because as his father was not in office, there would have been no point. His explanation, however, conflicted with his reasoning in emails purportedly found on his laptop and unrelated to CEFC, but which, if true, included the summation that he could get a lucrative break if third-parties, “really are smart enough to understand our long term value.”
Following the meeting with Ye, Hunter began negotiating a deal for CEFC to invest forty million dollars in a liquified natural gas project in Louisiana. Ye also spoke to Hunter about the investigation into Patrick Ho, and Hunter, a qualified lawyer, agreed initially to represent Ho and to determine whether he was in legal jeopardy in the US.
According to a CNN report, the existence of the investigation presented an immediate test of President Biden’s promise to maintain the independence of the Justice Department, with the disclosure of the federal investigation coming while the president was assembling his cabinet, including picking an attorney general who would have oversight of the investigation. The probe was initiated when the FBI took possession in late 2019 of a laptop purportedly belonging to Hunter Biden – the laptop had been left for repair with a computer repair shop in Delaware. Allegations from President Trump’s personal lawyer, Rudi Giuliani, towards the end of the presidential campaign included suggestions that the laptop contained evidence against Hunter Biden. The laptop reportedly includes emails from Hunter to Ye on 18 June 2017 requesting Ye to wire him £10 million in order to fund the establishment of his company SinoHawk Holdings, which would then partner with CEFC on projects relating to infrastructure, energy, financial services and other strategic sectors. In another email, sent on 2 August 2017, Hunter purportedly stated that his original agreement [with CEFC] was for consulting fees based on introductions alone at a rate of £10m per year for three years, but “[T]he Chairman [Ye] changed that deal after we me[t] in MIAMI TO A MUCH MORE LASTING AND LUCRATIVE AGREEMENT to create a holding company 50% percent [sic] owned by ME ad 50% owned by him,” a proposal which Hunter said would be “so much more interesting to me and my family.”
The authenticity of the laptop remains undetermined, however: the FBI reportedly opened an investigation into it being planted as a possible smokescreen prior to the election and the New York Post, which broke the story, has come under criticism for reporting unverified information. However, Tony Bobulinski, who describes himself as one of Hunter Biden’s former business partners and who was copied onto some of the emails relating to China, insists that the emails relating to Hunter’s business in China are true.
Following Ho’s arrest and Ye’s detention in China, the Louisiana deal fell through. Hunter characterised what happened to Ye and CEFC as bad luck, telling The New Yorker, he did not consider Ye a “shady character at all.” Ye, however, continues to be held by Chinese authorities who may have identified his potential to incriminate Hunter Biden in respect of the extant investigation into his business affairs in China.
Although the case against Meng was not one of corruption, it can be positioned as an important part of the ever-developing geopolitical struggle between China and the United States. Meng’s false statements were made not simply to achieve a revenue boon for Huawei, but also had the intention of circumventing US sanctions on Iran and of corrupting the US legal regime designed to subdue the Iranian nuclear programme. Arguably the case has rewarded Chinese belligerence and sets a dangerous precedent in respect of western justice systems cowing to hostage diplomacy. Finally, although any connection between CEFC, Hunter Biden and the DPA between the DOJ and Meng remains supposition, questions remain as to why such a unique and ostensibly favourable agreement to Meng was entered into by the DOJ, in a case where law and international affairs collide.
 Zelikow, Edelman, Harrison and Ward-Gventer, ‘The Rise of Strategic Corruption – How States Weaponize Graft’, Foreign Affairs, July/August 2020.
 https://edition.cnn.com/2020/12/09/politics/hunter-biden-tax-investigtation/index.html; https://www.reuters.com/article/china-corruption-cefc-idUSL4N1WS26I
 Zelikow, Edelman, Harrison and Ward-Gventer, ‘The Rise of Strategic Corruption – How States Weaponize Graft’, Foreign Affairs, July/August 2020.
 https://www.heritage.org/global-politics/report/chinese-corruption-africa-undermines-beijings-rhetoric-about-friendship-the; https://www.voanews.com/a/huawei-alleged-corruption-and-bribery/4781242.html.
 Amulic, Andrea, ‘Humanizing the Corporation While Dehumanizing the Individual: The Misuse of Deferred-Prosecution Agreements in the United States’, Michigan Law Review, Vol. 116, Issue 1 (2017). Found at: https://repository.law.umich.edu/cgi/viewcontent.cgi?article=1669&context=mlr
 White House Briefing Room, Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest. (3 June 2021). Found at: https://www.whitehouse.gov/briefing-room/presidential-actions/2021/06/03/memorandum-on-establishing-the-fight-against-corruption-as-a-core-united-states-national-security-interest/
 White House Briefing Room, Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest. (3 June 2021). Section 1: Policy.
 Zelikow, Edelman, Harrison and Ward-Gventer, ‘The Rise of Strategic Corruption – How States Weaponize Graft’, Foreign Affairs, July/August 2020. Found at: https://www.foreignaffairs.com/articles/united-states/2020-06-09/rise-strategic-corruption