Meng Wanzhou, Huawei’s chief financial officer, was arrested in Vancouver on 1 December 2018 and the US is seeking her extradition. What is known as of 6 December, China’s reaction and the effect on markets.
Meng Wanzhou, Huawei’s chief financial officer and deputy chair and the daughter of its founder, Ren Zhengfei, was arrested on Saturday 1 December 2018 in Vancouver, Canada, while changing flights, according to the company. On 5 December the Canadian Department of Justice confirmed the arrest and that the United States is seeking her extradition. A publication ban on details is in force, requested by Meng herself, and a bail hearing is set for Friday 7 December.
What is known
No formal charges have been made public. Huawei says that Meng was provisionally detained at the request of the United States to face unspecified charges in a New York court, that the company is not aware of any wrongdoing on her part and that it trusts the Canadian and US legal systems to reach a just conclusion. According to press reports citing unnamed sources, the case relates to alleged violations of US sanctions on Iran, in an investigation that Reuters had already described in April. The US Department of Justice declined to comment.
The presumption of innocence applies: Meng has not been tried or convicted, and it will be for the courts to assess the facts. Extradition is a judicial procedure in Canada that can take a long time.
The trade truce and China’s reaction
The arrest coincided with the working dinner that US President Donald Trump and Chinese President Xi Jinping held on 1 December in Buenos Aires, on the sidelines of the Group of Twenty (G20) summit. According to the White House, the US would keep the tariffs on $200 billion of Chinese goods at 10%, rather than raising them to 25% on 1 January 2019, while the two sides negotiate for 90 days; if there is no agreement, they would rise. News of the arrest emerged on the night of Wednesday 5 December and revived doubts about the truce.
The Chinese embassy in Ottawa said that Meng has not broken any American or Canadian law and that the detention violates her human rights, and said it had lodged formal protests with both governments. On 6 December, Chinese Foreign Ministry spokesman Geng Shuang criticised Canada and the US and demanded her release. That day Canadian Prime Minister Justin Trudeau said his government had been informed a few days in advance and that the competent authorities had decided without political interference.
Markets fell sharply on 6 December, in an already nervous week. In Asia, the Nikkei closed down 1.91%, the Hang Seng 2.47% and the Shanghai Composite 1.68%, with technology suppliers among the hardest hit; in Europe, the Stoxx 600 index fell by more than 3% at one point in the session. Investors feared the case could complicate the trade negotiations, although other factors were already weighing on stock markets.
What to review
Huawei operates in telecommunications, semiconductors, mobile phones and cloud services, and the US already restricts sales of Huawei and ZTE equipment on its territory on national security grounds. According to press reports, the investigation points to shipments of US-origin products and to the use of the global banking system to evade sanctions, a reminder that US rules can reach operations carried out outside its territory.
Companies with customers, suppliers or partners in China or in sanctioned countries can check that they screen them against sanctions and export-control lists, review the sanctions and compliance clauses in their contracts, and find out how much of their technology supply chain depends on a single supplier.
One individual case once again mixes justice, trade and technology; the 90-day truce period, counted from 1 December, runs out in early March.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
