Front Burner - Spying, industrial espionage and the arrest of Huawei's CFO

Episode Date: December 7, 2018

"It's incredibly hard to overstate the significance of this arrest." CBC's economics reporter Peter Armstrong breaks down why Canada's arrest of Huawei's chief financial officer Meng Wanzhou for extradition to the U.S. is such a big deal.

Hey there, I'm David Common. If you're like me, there are things you love about living in the GTA and things that drive you absolutely crazy. Every day on This Is Toronto, we connect you to what matters most about life in the GTA, the news you gotta know, and the conversations your friends will be talking about. Whether you listen on a run through your neighbourhood or while sitting in the parking lot that is the 401, check out This Is Toronto, wherever you get your podcasts. This is a CBC Podcast. Hello, I'm Jamie Poisson. Imagine this scenario.

The chief operating officer of Facebook, Sheryl Sandberg, is in, I don't know, Japan. Then all of a sudden, Facebook's number two is arrested at the behest of the Chinese government. And it's not exactly clear what she's being arrested for. This would be a huge story, right? Well, if you swap out some of the names and places, that's basically what just happened. Canada may now be caught up in the fight between China and Washington. Huawei's CFO has been arrested in Canada at the request of U.S. authorities. It took place on the same night as the high-stakes dinner between President Trump and Chinese President Xi Jinping.

Canadian officials have arrested Meng Wanzhou for extradition to the U.S. She is the chief financial officer of the Chinese tech giant Huawei, and she's also the daughter of the company's founder. Markets tumbled after this story broke. Global markets plunged today in response to how seriously the Chinese government is going to treat the arrest.

Asia's markets felt the shock news of the arrest first, only for Europe to follow with a two-year low. And it's all happening in a much larger context. Canada wants a trade deal with China, and there's a looming trade war between China and the U.S. Today, on FrontBurner, the CBC's economics reporter Peter Armstrong is here to help us break it all down. It could be the thing that tips the relationship between the United States into something that is a lot harder to fix. And if that relationship doesn't fix itself, global economic growth will slow, and that is something that could push us into recession.

Peter, hello. Hi, good morning. So can we start with what happened yesterday with Huawei's CFO? Well, and you have to actually go back to what happened on Saturday, right? To piece this all together. And we don't really know, right? And we're just starting to put this whole quilt of patchwork together. And in this whole story that is so interesting, where there is so much to talk about in a world of espionage and counter, you know, intelligence. It's so interesting. It's so interesting, but we actually know very little about that catalyst, about that moment in Vancouver's airport on Saturday when she was arrested by Canadian authorities. And we can now piece together the Department of Justice has said that she is, you know, she's being sought for extradition to the U.S.

But that whole sort of chain of events and where are we now is still pretty murky because it's all under publication. Are we hearing any leaks anywhere? You know, what she might have been arrested for? Yeah. And there's been some really good reporting. Steve Chase from The Globe and Bob Fein from The Globe, they broke the story and were able to pin it down that it had something to do with violations of the American sanctions against Iran. It should be noted that if a company evades our sanctions regime and secretly continues sanctionable commerce in the Islamic Republic, the United States will levy severe, swift penalties on it. I promise you that doing business with Iran and defiance of our sanctions will ultimately

be a much more painful business decision. Now, you have to sort of go back even further to April of 2018. So April of this year, Bloomberg was reporting that the U.S. Justice Department in the U.S., that they had been investigating specifically Huawei sending U.S. technology to Syria, Iran, and North Korea. The Justice Department has joined two other U.S. agencies investigating Huawei for possible violations of Iran's sanctions. Basically, they're saying you stole technology and intellectual property, repurposed it and sold that to rogue nations. And that's a violation of U.S. sanctions.

I want to get a sense of who Meng Wanzhou is. So at the top of the show, we talked about Sheryl Sandberg. So help me understand who Meng Wanzhou is. It's a really good analogy that I don't think even goes far enough. I mean, the role that this woman plays and who she is within the company that this is, it's incredibly hard to overstate the significance of this arrest. She is the daughter of the founder of Huawei, but she's also seen as kind of like a national champion for this broader and really enthusiastic movement

for China to become more self-sufficient. I was watching Twitter and Canada's former ambassador to China just called this news huge, capital letters huge. Can we dive in a little bit to what this company is and what it does? It's a fascinating tale, and its origin story really does help us kind of understand how we got to where we are here. Ren Zhengfei founded this company, Huawei, in 1987. He's a former engineer in the Chinese army. He started by reselling electronics, but he then quickly moved to trying to convince the Chinese government what they needed to do was build out China's telecom infrastructure. And at that point, 1987, they're starting pretty simple.

We're talking like telephone exchange switches. He took a small loan reportedly. He's denied this, but he reportedly took a small loan from a Chinese government-backed bank. And then he started meeting with people in the party and people in the government saying that, listen, telecoms and understanding them and controlling them on our own without any foreign companies involved in these is as important to the future of China as the military is. He got his first really big contract building out the sort of national telecommunications network for, you guessed it, the People's Liberation Army. And he had convinced

by that point, the Communist Party, that this was critical. Get those foreign companies out of here. Let's do it on our own. And what he was doing, instead of going out and buying foreign pieces of equipment, he'd go out and look at those foreign pieces of equipment, take it back to the lab, reverse engineer it, which the Americans like to call intellectual property theft, and build it out on their own. Then by 1996, Chinese government was beginning to restrict access for any foreign company to come in and be involved in the Chinese telecommunications network. And Huawei was already by that, being promoted and seen as and heralded as some kind of a national champion. So that's where they start. They build up to a point

where they're selling more phones now than Apple. They're about to take on Samsung. They're doing like $102 billion in sales. That's more than Boeing makes. So it's grown into this massive company from very humble beginnings. And that reverse engineering or intellectual property theft was a key part of that. I mean, technically, this is the biggest private company in China. But I want to sort of put quotation marks around the word private. And I want to come back to this, this Huawei's relationship with the Chinese state, because we're going to get there.

Can we talk about Huawei's role in Canada? This is a global company, but what is Huawei doing in Canada? It's doing a lot. Like, it's kind of everywhere. Hockey Night in Canada's main sponsor right now, when you see Ron and the guys talking hockey, it's Huawei. Saturday headlines presented by Huawei smartphones with Nick Kiprios, Chris Johnston, Elliot Friedman, and Elliot Yarmour-Yonger. And sure, they sell phones, and they're doing pretty well. I mean, they're now selling more phones than Apple.

Not Canada, but they are selling more phones. But what they really do is they build infrastructure. They build out the telephone and telecom networks that are being used by Bell, Telus, SaskTel, WinMobile, Rogers. They're a key supplier of parts. And this relationship in Canada has been going on for a long time. I mean, Dalton McGinty, when he was premier of Ontario, gave six and a half million dollars to entice Huawei to come and be more involved in Ontario's telecommunications infrastructure. I don't really understand the concerns being raised south of the border. And of course, here in Ontario, I met with Huawei representatives in China. We secured an expansion of an existing investment in Ontario that's created, I think, a few hundred

jobs. Those jobs are very important to us. Saskatchewan Premier then Brad Wall flew out to China to go just to oversee the signing ceremony when they agreed to a deal with SaskTel. We're very comfortable in this particular arrangement. And all of that was happening, but now the

thing that these guys are doing, and they're spending all kinds of money to be the leaders of 5G networks. 5G will become a powerful technological platform, inspiring many new applications, new business models, and even new industries. Which is, you know, you're dealing right now with 3G and then LTE, the next generation. So smart cars, the Internet of Things, all that stuff is going to happen on 5G. The idea behind 5G, and correct me if I'm wrong, is that a lot of it is taking place in the cloud as opposed to through cables.

And so you get a much, much faster Internet connection. And this is why— And more reliable and that, you know, like you can't have a car that's going to lose its signal while it's driving down, you know, the 401. 5G-enabled driverless cars will enable ultra-low latency communication between car, people, and infrastructure, allowing them to operate smoothly over great distances without limitations. Yeah, this is the future of the Internet. This is the future of the Internet. And the people, the company that is best positioned to build it right now is Huawei. So they've spent all this money not just building up their R&D to be ready for that,

but to be building out in countries like Canada where they're really involved. And they have R&D centers literally everywhere. Jamie, it's nuts. I mean, I printed up a list here. They're in China, obviously. The United States, Canada, the UK, Pakistan, Finland, France, Belgium, Germany, Colombia, Sweden, Ireland, India, Russia, Israel, Turkey. They're in China, obviously, the United States, Canada, the UK, Pakistan, Finland, France, Belgium, Germany, Colombia, Sweden, Ireland, India, Russia, Israel, Turkey. They're everywhere doing this. That is stunning. And just the scope of what they're doing is stunning. So you've given us this really great overview of how Huawei became this global telecom juggernaut.

And you've also really painted this picture of how it got there, which is with help inevitably from the Chinese state. And we've also talked a little bit about Huawei's involvement in Canada and the work that they're doing all over the world. Now, this has raised a lot of concerns. And let's talk about those. So, I mean, the easiest concern is if you've got a company that's building the parts and then building the parts that connect to everything, like they're building up the network, how hard would it be to have some backdoor code in there that's hidden that allows for espionage on, say, people or, say, on other companies? Or that it's so intimately interwoven with the existing system that they get access to every other company and their technology. I mean, Cisco, Motorola, Nokia, T-Mobile, they're all involved or have been involved at some point or another with allegations that Huawei went in and stole

their source code. It wasn't long ago that Nortel was a Canadian giant. Brian Shields was Nortel's top cybersecurity official, while he says cyber hackers literally stole the company, bit by bit. The information was flowing over there. Clearly it was on behalf of Huawei and ZTE. It gave them a strategic advantage. So it's not just that they're spying on you,

which is a big part of the allegations, that this is a company that could provide important insight to the Chinese state about the American consumer, the Canadian oil industry, whatever it may be, but also that it's a company that's providing or that is taking intellectual property from existing, sometimes North American companies and bleeding that technology back to China, where they're reverse engineering it into their own sort of profits. And that's why that origin story of how they got here kind of comes into play. You just mentioned that there are allegations that Huawei has stolen intellectual property.

Is there any evidence of that or that the company is spying on people? There's all kinds of allegations but no proof that they've ever spied on people, on me and you. On the corporate side, though, there are all kinds of allegations and some court findings that they did, in fact, spy on these companies and steal from them.

The T-Mobile case was one of those. And T-Mobile was awarded like $4.5, $4.8 million. Not a ton of money, but it was mostly the finding there. And Cisco has come out and said that they stole from them. Motorola has said the same. Nokia has said the same thing. There's been enough talk and enough allegations that it's impossible to ignore, especially if you're a regulator, especially if you're in the intelligence community, and especially if you're building out a network of your own. So there's potential here for two things.

The first is wide-scale spying. Right. And the second is stealing intellectual property. Right. So what have other countries done about Huawei? Mostly banned them. Pretty simple, right? Australia banned Huawei and this other Chinese company ZTE from building up their

5G network. Australia hit Chinese telecom giant Huawei with a partial sales ban. They blocked the company from selling 5G technology. Authorities cited risks of hacking and foreign interference. I think that officially came down in August, but they've been in a fight with them for a while. New Zealand has done the same. The UK came up with a really particular agreement in which you can bring this technology and this equipment in, but we get to sort of pour over it and look at source code and make sure that nothing nefarious is going on. The US has said they banned the sale of Huawei phones on military bases. They've banned Huawei itself from being involved in the building of any government sort of involved infrastructure

and telecommunications networks. A lot of countries have taken that kind of action. And it's interesting if you go back and see, we're talking about Australia, we're talking about New Zealand, talking about the United States, we're talking about the UK. Canada is the fifth in the Five Eyes intelligence community. So our allies in this fight are deeply concerned and have taken action to say, no, we're not going to allow you to do this. Mr. Speaker, our allies have spoken, security experts have spoken. Will the Prime Minister commit to ensuring our next generation

network is secure and ban Huawei? Mr. Speaker, this government takes very seriously the safety and protection of Canadians, including in cybersecurity and in all related matters. That is why we work with the extraordinary professionals in our security and intelligence services. So we just went through all these countries that have banned Huawei. But before you also went through a list of countries that have R&D centers. So if it's banned, why? Well, banned from building up critical infrastructure. And as I say, what they have in all of those countries that I listed, they have R&D centers. R&D centers are allowed.

Research and development. And they're spending billions of dollars. And isn't that great? What a lot of people see that as is a portal through which they are there and on the ground and have a relationship. So when 5G comes and 5G is happening now, that those companies will, those countries will turn to Huawei to build up their network? So we know that Canada is one of the five eyes countries. And right now, just Canada and Britain are the only countries that haven't banned Huawei infrastructure in their countries. But I know that back in October, Canada was getting a lot of pressure from US Senators Marco Rubio and Mark Warner. They were urging Trudeau to block Huawei from their networks.

And despite all of this, as we talked about earlier, the company remains very active here. So how has the federal government explained all of that? Well, the federal government, and it's interesting because this spans over two governments, right? You can go back to Stephen Harper's government in 2012. One of his spokespeople said that the Harper government actually invoked national security exceptions to exclude Huawei from telecommunications plans that were underway at the time. When I was in government, we were increasingly concerned about the penetration of Huawei and ZTE into Western democratic telecommunications networks. into Western democratic telecommunications networks. 2016, the Canadian government denied visas to three Chinese citizens, Huawei executives,

over concerns that they were involved in, quote, espionage and government subversion, which, you know, those are not light charges. And so there has been activity here, and there has been a clamoring from the intelligence community to do something about this. Ray Boisvert, who's formerly the number three, I think, at CSIS, has said, you guys, this could be a disaster. These guys, even if we think they might be able to use this critical infrastructure to spy on us, that should be enough to disqualify them right there. There are just too many lines of code. There's just too much information and data available to be able to give any company

like Huawei a clean bill of health and say, we've verified their systems and it's fine. They can be part of our network. And so why aren't we disqualifying them? It's a good question. I don't know that I know the answer. And I think everything that's happening right now will certainly push us to a point where we're going to get a better answer than we have so far. But for right now, this company is not building government stuff, but it is building the vast networks of the private networks that drive our telecommunications system in this country. So Meng Wanzhou gets arrested on Saturday, and this is the same day that President Donald Trump is sitting down with Xi Jinping of China to talk about this impending trade war that the U.S.

Where they're trying to negotiate a truth to this trade war. And depending on who you believe, Donald Trump came out saying, we've got a truth, we're going to work this out, Everything's going to be just fine. We'll be discussing trade. And I think at some point we are going to end up doing something which is great for China and great for the United States. While they were having that meeting is when all of this was going on. So what kind of complications does the arrest of Meng Wanzhou add here? What kind of complications does the arrest of Meng Wanzhou add here?

Well, she is a prominent Chinese citizen. She is the forefront. She is the face of Xi Jinping's effort to try to grow more self-sufficient in the technological world. When you talk about that in China, she's the face of it. It's her dad's company that's doing it, but she's the public face of it. It's her dad's company that's doing it, but she's the public face of it. So this like overwhelmingly well-known, celebrated executive on one of the key files that is such – that is so key to the trade irritant that is causing this trade war of intellectual property theft. While they're sitting down to work out a truce, Canada is arresting this woman and with the intention to extradite her to the United States. So that tells us that maybe we're more likely to have a trade war than less likely, which is what it felt like coming out on the weekend. And the impact of that on the global economy, not just the markets, but on all of us, is that if China starts putting up walls and gets into a proper trade war with the U.S.

If China starts putting up walls and gets into a proper trade war with the U.S. and the U.S. starts putting up walls of its own, all of a sudden global economic growth begins to slow. So are you saying, Peter, that it's possible that this high profile arrest could be what tips us into a recession? I'm saying that it could be the thing that tips the relationship between the United States into something that is a lot harder to fix. And if that relationship doesn't fix itself, global economic growth will slow. And that is something that could push us into a recession. Well, happy Friday. Come with all the good news. Thanks. Thanks so much for taking the time to chat with us today.

I'm just glad to be here. That's all for today. FrontBurner comes to you from CBC News and CBC Podcasts. The show is produced by Chris Berube, Elaine Chao, and Shannon Higgins, with sound design by Derek Vanderwyk. Our music is by Joseph Chabison of Boombox Sound. The executive producer of Frontburner is Nick McCabe-Locos. And I'm your host, Jamie Poisson. Thanks for listening. For more CBC Podcasts, go to cbc.ca slash podcasts. It's 2011 and the Arab Spring is raging.

A lesbian activist in Syria starts a blog. She names it Gay Girl in Damascus. Am I crazy? Maybe. As her profile grows, so does the danger. The object of the email was please read this while sitting down. It's like a genie came out of the bottle and you can't put it back. Gay Girl Gone. Available now.