Huawei & North Korea: Reading between the lines of EDNY’s new indictment

HUAWEI, WHICH WAS PREVIOUSLY INDICTED FOR eleven counts of conspiracy, bank fraud, wire fraud, violations of Iran sanctions, and money laundering (plus criminal forfeiture counts) now finds itself hit with a superseding indictment for sixteen counts of similar allegations by prosecutors in the Eastern District of New York, or EDNY. I’ve always been impressed with the quality of EDNY’s work. It’s a plucky, underrated little office that sits resentfully in the shadow of its more prestigious and prideful neighbor in Manhattan, the Sovereign Southern District of New York, and compensates by trying harder.

The most significant difference between the two indictments for readers of this blog is this language:

Sharp-eyed readers will note that Huawei’s use of “A9” as its code for North Korea was first unearthed by the Washington Post‘s Ellen Nakashima, who reminds us that journalists who write about North Korea sanctions don’t have to be lazy or ignorant of the subject. Consequently, Nakashima did first-rate reporting as a matter of both law and fact. When she found evidence of the North Korean investments, she asked me what sanctions this conduct might have violated. I wish I could have given her a more satisfying answer. Given the years when the transactions occurred, and uncertainty about the specific dates, it wasn’t clear to me that Huawei had violated any North Korea sanctions regulations at all. The prosecutors in EDNY were obviously uncertain, too, and so they charged fraud instead–specifically, bank fraud and wire fraud. Their theory is that Huawei’s American bankers asked it if it did any business in Iran or North Korea, and Huawei lied to fraudulently obtain financial services and access to the U.S. financial system.

Anti-anti-North Korean academics and pro-North Korean apologists are fond of arguing that “years” or “decades” of tough sanctions, alternatively, had no effect on the North Korean regime, or had barbarous effects on the North Korean people (they switch between these arguments with shameless fluidity). Both arguments can’t be true, and as I’ve pointed out ad nauseam, neither argument is true.

In fact, between 2008 and 2016, almost the entire period when EDNY accuses Huawei of investing in North Korea, our North Korea sanctions were probably too weak to support criminal charges, unless the investor was particularly unlucky (hold that thought). In 2010, President Obama had signed Executive Order 13551, which authorized him to freeze the assets of persons involved in North Korean proliferation, arms trafficking, and money laundering. In 2011, he signed Executive Order 13570, which authorized him to freeze the assets of persons who imported goods, services, and technology from North Korea. In 2015, he signed Executive Order 13687, which theoretically allowed him to freeze the assets almost any North Korean person (which he didn’t). But the President hardly used these authorities to designate anyone during the duration of his presidency. By 2014, he had designated just 43 entities for sanctions violations involving North Korea. (Anthony Ruggiero arrived at slightly different figures at different times, but supported my broader contention in his testimony to several committees of Congress.)

What’s more, few of the designations were significant. The most significant ones were the designations of North Korea’s Foreign Trade Bank and a few other banks, for financing proliferation in violation of Executive Order 13382. Before 2016, U.S. sanctions against Belarus and Zimbabwe (to say nothing of U.S. sanctions against Iran, Syria, Cuba, or Burma) were far stronger than our sanctions against North Korea.

Perhaps more importantly, the UN Commission of Inquiry had released its report, which made investment in North Korea toxic to the reputation of any investor. As I’ve previously noted, then, a bank that facilitated investments in North Korea was exposed to enough sanctions and boycott risks that banks would have had obligations to their shareholders to ask their customers due diligence questions about their transactions with North Korea. And when they asked Huawei those questions, the prosecutors say Huawei lied to obtain access to the U.S. financial system. This disparity between the Iran and North Korea sanctions regulations in effect at the time shows in the indictment’s counts. It almost certainly explains why it charges multiple violations of the Iran sanctions regulations at 31 CFR Part 560 and no violations of North Korea sanctions–none.

And because anyone who invests in North Korea is, ipso facto, unethical, and unethical people being what they are, Huawei also allegedly lied to FBI agents about things that may not even have been crimes, thus exposing themselves to additional criminal liability.

. . . .

Huawei also took inconvenient precautions to conceal its dealing with North Korea, which will help prosecutors prove that its conduct was willful–that is, with the knowledge that it was doing something illegal. Ironically, Huawei’s lawyers’ best argument might be that they were concealing their conduct because they knew it was ethically toxic.

It’s possible, of course, that the feds have, or are developing, evidence of North Korea sanctions violations. It’s clear from the indictment that this investigation has been ongoing for more than a decade. Unfortunately, the indictment is short on specifics about what North Korean partners Huawei dealt with, for what specific purposes, and when. Adding to our curiosity is the fact that the indictment contains redactions. This suggests that the FBI may be withholding the names of cooperating targets, or that more shoes may yet drop–either in EDNY or in other districts.

The public record offers some tantalizing suggestions. Although the feds allege that Huawei had “numerous” investments in North Korea, Nakashima’s story discussed Huawei’s assistance to Koryolink in setting up a censored wireless network. (If this were to happen today, it would trigger a mandatory designation and forfeitures under NKSPEA 104(a)(4)) Koryolink’s other foreign partner was, of course, Orascom Telecom, then headed by Naguib Sawiris. A 2016 report by George Turner for Finance Uncovered added two interesting facts to this story–that Sawiris is a U.S. person (and therefore, subject to U.S. jurisdiction) and that Koryolink set up a North Korean subsidiary called Orabank to handle its revenue. Orabank was a joint venture with … the Foreign Trade Bank.

To be clear, I have no evidence that Huawei dealt with the Foreign Trade Bank, either directly or indirectly, but this could yet become an example of how any number of parties might get unlucky. Also, there is no rule that says prosecutors in different districts can’t charge the same defendant with different crimes that are properly venued in those districts. Just ask Michael Avenatti. Even if the last shoe has dropped, it’s hard to see how Huawei gets out of this fix without paying a king’s ransom in fines, penalties, and forfeitures that could easily break the ten-digit mark because of the evidence of willfulness.

Since May 2018, Donald Trump has enforced what looks like a sub rosa term of his Singapore deal–a freeze in significant new sanctions designations. We already see evidence that Pyongyang is adapting to the existing sanctions by laundering Bitcoin, although the effects of its self-imposed coronavirus blockade have yet to be seen. That is to say, even if Donald Trump and Steve Mnuchin are taking a break from enforcing North Korea sanctions, despite their constitutional obligation to take care that the laws are enforced, the Justice Department is not. Investors beware. You are risking more than your money.