This is the first time HSBC’s internal probe has been made publicly available.
As per an internal probe by HSBC Holdings PLC into Huawei Technologies’ dealings with a suspected front company in Iran found that China’s Huawei maintained close financial ties to the firm after purportedly selling the unit.
The HSBC investigation, in late 2016 and 2017, came in the wake of the bank trying to get the U.S. Department of Justice (DOJ) to dismiss criminal charges against its misconduct for non-compliance of U.S. sanctions.
HSBC’s findings, which so far has not been made public, were presented to the DoJ in 2017. The dossier now forms part of its criminal case against Huawei’s chief financial officer, Meng Wanzhou.
Meng Wanzhou is accused of conspiring to defraud HSBC and other banks by misrepresenting Huawei’s relationship with Skycom Tech Co Ltd, a suspected Iranian front company.
While Huawei has maintained Skycom to be its local business partner in Iran, according to the United States, Skycom is Huawei’s unofficial subsidiary used to conceal Huawei’s Iran business dealings. Both companies are defendants in the U.S. case, wherein the DoJ has charged them with bank and wire fraud, as well as violating U.S. sanctions on Iran.
According to U.S. authorities, Huawei used Skycom to obtain U.S. goods and technology that have been embargoed by the U.S. for Iran and used it to transfer money out of country via the international banking system. As a result of Huawei’s deceptive business practices, large banks, including HSBC, cleared transactions related to Skycom worth more than $100 million through the United States in violation of economic sanctions Washington had imposed on Iran.
Huawei declined comment.
As per HSBC’s spokesman Robert Sherman, “Information provided by HSBC to the Justice Department was provided pursuant to formal demand, including grand jury subpoena or other obligation to provide information pursuant to a Deferred Prosecution Agreement or similar legal obligation.”
He went on to add, “The U.S. Department of Justice has confirmed that HSBC is not under investigation in this case.”
A spokesman for the Justice Department declined to comment.
Meng continues to maintain her innocence.
HSBC’s probe documents financial details regarding Huawei’s relationship with Skycom as well as its relationship with Canicula Holdings Ltd, the company Huawei claims to have sold to Skycom in 2007. All three firms have previously had bank accounts at HSBC, with the Skycom and Canicula accounts part of what the bank internally called the “Huawei Mastergroup.”
HSBC’s investigation found multiple ties between the three firms suggesting that Huawei controlled both Skycom and Canicula long after the purported sale. Case in point: Canicula’s address was shown as “c/o Huawei Technologies.”
Further, HSBC’s investigation also found documentations to show that Huawei financed Canicula’s purchase of Skycom; Huawei lent Canicula around 14 million euros in a deal the documents show didn’t close until December 2009. Canicula repaid Huawei a year later using funds from Skycom.
In 2012, after HSBC asked Huawei to close the Skycom and Canicula accounts, Huawei employees assisted the bank. On Huawei’s request, the balance funds, in the Skycom account, were transferred to a Huawei bank account, show HSBC’s probe report.
Incidentally, HSBC’s move to Skycom and Canicula accounts, came in the wake of reports from Reuters in 2012 and 2013 which tied Huawei, Skycom, Canicula and Meng together. Reuter’s report have also been cited in the HSBC documents as well as in the DoJ’s indictment.
Reuter’s had reported that Skycom had offered to sell Hewlett-Packard computer equipment, an embargoed item, to Iran’s largest mobile-phone operator in 2010 in a deal worth around 1.3 million euros. Between February 2008 to April 2009, Meng had served on Skycom’s board of directors.
According to the DoJ’s indictment, banks relying on Huawei’s false statements continued to do business with Huawei and Skycom in the belief that Skycon was Huawei’s local partner.
According to HSBC’s probe, in August 2013, at Huawei’s request, Alan Thomas, the bank’s then deputy head of global banking for the Asia Pacific region, met with Meng. HSBC’s documents show that Meng later provided Thomas with a PowerPoint presentation, in English, which stated that Huawei had sold its shares in Skycom and that she was no longer on its board. The presentation described Skycom as a Huawei “business partner” in Iran.
This presentation containing “numerous misrepresentations” plays a pivotal role in the U.S. case against Meng.
Thomas, who retired in 2017, declined to comment.
In the months following this meeting with Meng, HSBC weighed its option vis-a-vis Huawei as a customer, shows the documents. Concluding that its reputational risks were acceptable it maintained its relationship with Huawei. However according to the indictment, HSBC told Huawei around 2017 that it was terminating the relationship.
Further, HSBC’s probe also uncovered financial transactions by Canicula that referenced Syria or involved a Syrian bank. Incidentally, there have been media reports on Canicula operating in Syria and connecting it to Huawei. Like Iran, Syria is also subject to U.S. sanctions.
HSBC also told the Justice Department that British engineering recruitment company, Matchtech Group Ltd was also linked to Skycom in Iran. Networkers International Ltd’s subsidiary had contracted with Skycom and Huawei, and had received payments in U.S. dollars from Skycom, totalling to $7.6 million, show HSBC’s documents.
Networkers terminated its Iran-related contract with Skycom in October 2016.
Matchtech is now known as Gattaca plc. Gattaca’s spokesman declined comment.