Good morning. David Meyer here, filling in for Alan from Berlin.
The Justice Department’s criminal charges against Huawei and its CFO, Meng Wanzhou, were not exactly unanticipated—but they’re still a bombshell in the current context.
The days of threats are coming to an end, replaced by firm accusations from which the U.S. cannot easily step back. Huawei and Meng stand accused of complex, Iran-related sanctions-busting activities that involved bank fraud and obstruction of justice. Huawei is also accused of stealing trade secrets from T-Mobile, and the DOJ says it has the emails to prove the allegations. Huawei and Meng deny everything.
As Yale Law School’s Robert Williams told CNBC, it’s not accurate to say that the charges are “directly tied” to the U.S.-China trade negotiations, as “that’s just not the way the U.S. law enforcement system works.”
Fair enough, but in effect this is anything but a separate matter. Intellectual property theft is a central issue in the talks, for one thing. And Meng’s arrest in Canada, where she faces extradition to the U.S., has already made Beijing apoplectic. Even if the DOJ’s case against her is rock-solid, the argument coming from the other side is that this is all part of the game.
Witness this statement from Meng’s lawyer, Reid Weingarten, which was obtained by Fortune‘s Eamon Barrett: “The U.S. Government and China have an extremely complex, multifaceted relationship. Our client, Sabrina Meng, should not be a pawn or a hostage in this relationship.” China says the charges are “unfair and immoral” and the country has asked the U.S. to withdraw the Meng extradition request. “We strongly urge the U.S. to stop the unreasonable suppression of Chinese companies including Huawei,” the country’s foreign ministry said.
So the issue is certain to feature during the U.S.-China trade talks, which resume tomorrow in Washington. But to what end?
It wasn’t so long ago that the Trump administration stepped in to stop the Commerce Department from putting ZTE—another major Chinese telecoms equipment firm—out of business over its violation of a DOJ settlement. Trump claimed he was doing so in order to save Chinese jobs, though many saw the move as part of wider trade negotiations. (Congress pushed back but eventually caved.)
That case was also about Iranian sanctions-busting, and ZTE, like Huawei, has freaked out Western intelligence communities due to its equipment’s perceived espionage potential (side note: another Australian telco just abandoned a Huawei-powered network rollout.) Could Trump try the same thing again? If he did, the pushback at home would be much harsher since the Republicans no longer control the House, and we’re talking about an active criminal case this time.
It’s difficult to see how the affair could be made to go away in exchange for concessions from Beijing. That makes it a serious complication to what was already a fraught situation, with the deadline for the trade-war ceasefire now little more than a month away.
More news below.
| David Meyer | |
| @superglaze | |
| david@dmeyer.eu |
Top News
Venezuela Sanctions
The U.S. has imposed sanctions on PDVSA, Venezuela's state oil company. The move is designed to pressure President Maduro to hand over power to opposition leader and self-declared president Juan Guaidó. Also note: U.S. National Security Advisor John Bolton was photographed with a notepad on which he had scribbled about sending 5,000 troops to Colombia, so the pressure may not end up being purely economic. New York Times
Corruption Perception
The U.S. has dropped six places in the global corruption-perception stakes, as published by Transparency International. The least corrupt countries are Denmark and New Zealand. The U.S., under the Trump administration, is now down at number 22 (in between France and the UAE)—the first time it's been out of the top 20 since 2011. Venezuela, incidentally, is a joint number 168 with Iraq. Bloomberg
Trump on Schultz
President Trump seems to want Howard Schultz to run as an independent in the 2020 elections. Trump tweeted that the former Starbucks chief "doesn't have the guts" to run against him, then reportedly told attendees at a fundraiser that he was trying to goad Schultz into the race, because that would help get the president re-elected. CNBC
FaceTime Eavesdropping
Apple's FaceTime video-chat service has a terrible bug that allows users to eavesdrop on other users. While it fixes the problem, Apple has disabled FaceTime's group-calling functionality. In some circumstances, the bug turned on people's microphones without their knowledge. TechCrunch
Around the Water Cooler
PG&E Bankruptcy
Pacific Gas and Electric has finally filed for Chapter 11 bankruptcy protection. The utility faces liabilities of as much as $30 billion for wildfires in Northern California. State Senator Bill Dodd on the filing: "It’s extremely disappointing and underscores the need for change at PG&E in both its leadership and culture. Wildfire victims shouldn’t have to deal with the uncertainty this causes, which in many respects re-victimizes them." CBS San Francisco
Brexit Flight
Bank of America is the latest big firm to be moving staff out of the U.K. ahead of what now looks very likely to be a hard Brexit. It's reportedly shifting 400 traders and sales and support staff to Paris and Frankfurt, with most going to France. Bloomberg
Uber Protest
Madrid is seeing its biggest-yet protest by taxi drivers against Uber and other ride-hailing services. Anti-riot police with a fleet of tow trucks had to clear hundreds of taxis from a central Madrid traffic artery this morning. There was a taxi strike last week in Barcelona, which ended when regional authorities proposed new restrictions on ride-hailing services. Reuters
Fingerprint Collection
An Illinois Supreme Court ruling about a six-year-old boy and his thumbprint could create major headaches for Google and Facebook, which are currently facing lawsuits over the same state law, the Biometric Information Privacy Act. As Fortune's Jeff John Roberts writes, "if Facebook and Google ultimately lose the cases, the financial consequences could be enormous." Fortune
This edition of CEO Daily was edited by David Meyer. Find previous editions here, and sign up for other Fortune newsletters here.
