By Margot Patrick and Eva Dou 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (December 10, 2018).

Two large British banks are among those ensnared in the controversy over Huawei Technologies Co., which escalated over the weekend after the Chinese government warned Canada it would face "severe consequences" if it didn't release the Chinese telecommunications giant's finance chief.

Canada this month arrested Meng Wanzhou at the behest of U.S. authorities, who are seeking her extradition over allegations she misled banks about Huawei's business dealings with Iran to skirt international sanctions against that country. Ms. Meng, 46 years old, is in the midst of hearings in Vancouver that are expected to reconvene Monday and lead to a decision on bail.

HSBC Holdings PLC and Standard Chartered PLC were among the institutions told by Huawei in recent years that it wasn't doing business in Iran through a Hong Kong company called Skycom Tech, according to people familiar with the matter. For the two lenders, it was a crucial assurance since both were under court oversight for their own U.S. sanctions violations involving Iran, and couldn't risk further missteps.

A spokesman for Huawei declined to comment Sunday.

Ms. Meng's arrest, which roiled financial markets last week, draws Canada into a rift between the U.S. and China that has so far been mostly about trade. In a statement Saturday, the Chinese Foreign Ministry accused Canada of "severely violating the legal, legitimate rights of a Chinese citizen," but didn't name Ms. Meng, instead referring to a Huawei "principal."

A Canadian Foreign Ministry spokesman had no comment beyond Foreign Minister Chrystia Freeland's remarks to reporters Friday that there was no political interference in the decision to detain Ms. Meng.

China's Foreign Ministry separately summoned the American ambassador on Sunday to demand the U.S. drop its arrest warrant for the Huawei executive, according to a Foreign Ministry statement. The statement stopped short of the kind of warning given to Canada.

U.S. lawmakers for years have accused Huawei, the world's biggest maker of telecom equipment, of spying and criticized its links to the Chinese government. Those fears have accelerated recently with the U.S. and China locked in a race over 5G, the next-generation wireless technology that is considered strategically important.

Huawei has repeatedly said it is owned by its employees, operates independently from the government and that its equipment is safe.

Coming as it did just as the two countries struck a trade detente in Argentina, news of Ms. Meng's detention in Canada en route from Hong Kong to Mexico fueled market fears that the progress on trade talks would be undercut.

Trump administration officials on Sunday sought to draw a distinction between Ms. Meng's arrest and the continuing trade talks, indicating they didn't believe the Huawei matter would derail negotiations on tariffs, intellectual-property transfer and other economic issues.

"It's my view that it shouldn't really have much of an impact," U.S. Trade Representative Robert Lighthizer said on CBS. "It is totally separate from anything that I work on." White House economic adviser Larry Kudlow said on Fox he thought Messrs. Trump and Xi would distinguish between a "trade lane" and a "law-enforcement lane."

The U.S. Justice Department is alleging that Ms. Meng lied to banks about Huawei's ties to Skycom, which operated in Iran. Her statements, the U.S. alleges, and those of other Huawei representatives, meant the banks potentially violated sanctions by clearing hundreds of millions of dollars of transactions.

To comply with banking and anti-money-laundering laws, banks must collect information from clients on their business and financial activities, and do additional due diligence and monitoring of high-risk clients. But in a twist to the usual narrative, the banks in this matter haven't been accused of any wrongdoing and are instead portrayed as victims in court filings.

The court filings in Canada allege that at least three other global banks were misled by Huawei employees and representatives about the relationship between Huawei and Skycom.

One filing describes an August 2013 meeting and presentation by Ms. Meng to an executive at one bank -- identified Friday as HSBC by Ms. Meng's lawyer. Ms. Meng came to the meeting with an English interpreter and a PowerPoint presentation written in Chinese, and made a series of statements.

In an English translation delivered to the HSBC executive soon after, Ms. Meng stated in the presentation that Huawei complied with international sanctions laws and had sold shares it previously held in Skycom. The relationship was one of "normal business cooperation," Ms. Meng stated, according to the filing.

Her lawyer said Friday the idea Ms. Meng engaged in fraud would be "hotly contested."

As a fast-expanding telecom giant, Huawei's access to global banks was paramount in helping it supply equipment across dozens of countries' telecom networks. For the banks, the growing Chinese client produced a steady stream of fees. Dealogic data shows HSBC and Standard Chartered were two of Huawei's biggest financing partners, with top roles on most of its $17 billion in loan and bond sales in the past decade. Citigroup Inc., Australia & New Zealand Banking Group Ltd., DBS Group Holdings Ltd. and Bank of China were among the other main arrangers. The banks didn't immediately return requests for comment or couldn't immediately be reached.

Canadian prosecutors said the alleged conspiracy between Ms. Meng and other Huawei representatives to mislead banks was driven by the company's need to move money out of sanctioned countries through the international banking system.

In the court filings, authorities alleged that the misrepresentations by Huawei to banks "violated their internal policies, potentially violated U.S. sanctions laws and exposed the banks to the risk of fines and forfeiture." Banks carried out transactions for Huawei through New York and Europe, exposing them to "serious harm" and decisions made without knowing Huawei's true risk, the filings said.

On Monday, a Canadian judge is expected to consider if Ms. Meng is a flight risk. At the end of Friday's hearing, her lawyer David Martin told the judge he would call witnesses Monday to testify about electronic monitoring devices that he proposed Ms. Meng would wear if released. The judge could rule on Ms. Meng's bail after that.

Ms. Meng's bail hearing is separate from the extradition process to the U.S. Filings and legal wrangling over transferring her to U.S. authorities could take several months.

--Aruna Viswanatha and Jay Greene contributed to this article.

Write to Margot Patrick at margot.patrick@wsj.com and Eva Dou at eva.dou@wsj.com

 

(END) Dow Jones Newswires

December 10, 2018 02:47 ET (07:47 GMT)

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