Investigators zeroing in on China’s ZTE, Huawei

NEW YORK – With multiple investigations already underway in the U.S. and Europe targeting illegal sales to Iran by Chinese telecom giants ZTE and Huawei, reports surfaced in Friday (July 13) that the FBI is now probing whether ZTE sold U.S. computer equipment to Iran in violation of U.S. trade sanctions.

Citing a report on the Web site Smoking Gun, Reuters reported that a list of ZTE gear that was part of a $120 million contract included hardware and software made by Microsoft, HP, Oracle, Cisco, and Dell. The U.S. companies are not allowed to sell gear to Iran under U.S. export restrictions.  

A Justice Department spokesman declined Friday to comment on the probe. Calls to the Commerce Department’s Bureau of Industry and Security, which enforces U.S. export controls, were not returned. The agency’s Web site lists several enforcement actions related to illegal technology exports to both China and Iran.

Separately, the House Intelligence Committee has been investigating possible threats posed to U.S. national security by ZTE and Huawei. Lawmakers are concerned that the Chinese government could access Huawei or ZTE telecom equipment and track phone calls and e-mails or hack U.S. networks and disrupt a communications. Among the subjects being considered in the congressional probe are questions about work the two Chinese companies have done in Iran and their funding arrangements with the Chinese government.

The committee did not return phone calls for comment on the status of the probes.

Meanwhile, European Union investigations into Huawei and ZTE are largely focused on illegal government subsidies to the companies. The EU is said to be slowly gathering evidence regarding an anti-dumping case. Officials suspect Huawei and ZTE are using illegal government subsidies to sell products in the EU below cost in a bid to trump competitors by charging lower prices for equipment being marketed to service providers.

China, however, has maintained that the companies are innocent. Last month, Beijing called the EU's claims "groundless." Earlier this week, China threatened to retaliate for the EU probes by launching its own investigation into the business dealings of EU countries in China. Beijing cited EU’s subsidies given to European agriculture, automotive, renewable energy and telecoms companies.

The possibility of dueling trade probes underscores a combination of economic, trade and security issues that are coming to a head. The view here and in Europe is that China’s telecom gear vendors are making the most of government subsidies. The key national security concern is that equipment from Huawei and ZTE might contain trap doors that would allow the Chinese military to spy on U.S. and European communications.

Huawei’s founder and CEO, Ren Zhengfei, was an engineer in the People’s Liberation Army before setting up the company in 1987.

Both Chinese companies appear to be well aware of the growing perception problems they face in the West– both political and marketing -- as they target global markets. Huawei said this week it had hired Donald “Andy” Purdy, former chief cyber security strategist at U.S. military contractor CSC, as its chief security officer. According to the Washington Post, Huawei in recent years “has mounted an aggressive effort to change its image. It has hired lobbyists, consultants and a public relations firm in Washington.”

ZTE, China’s second largest telecom equipment vendor, holds a 4.2 percent global market share in the worldwide mobile device sales (in units) to end users, and is ranked in the first quarter as the number four – after Samsung, Nokia and Apple , according to Gartner.

Compared to Huawei – privately held and traditionally more focused on China’s domestic market, ZTE is publicly traded and it has been more aggressive in cultivating business abroad.  In recent years, however, both Huawei and ZTE have been rapidly growing their presence in the global market.