DOJ Deal with Huawei CFO Highlights Tensions

Last week the US Department of Justice (DOJ) announced that it had entered into a deferred prosecution agreement (DPA) with Huawei CFO, Meng Wanzhou, resulting in her release from house arrest in Vancouver, allowing her to return to China.

Such a move is not remarkable on its own – such pre-trial settlement agreements are par for the course in federal prosecutions in the US – but when considered against the backdrop of the escalating tensions between the US and China, it can be seen as calling into question traditional notions of the rule of law in the US.

Over the last few months, China has on multiple occasions either expressly or tacitly placed conditions[i] on its cooperation with the US on addressing climate change, managing fall-out from the bungled US withdrawal from Afghanistan, restraining the renewed North Korean nuclear threat, or various other areas of possible coordination.

While US complaints[ii] about China’s conduct are generally well known, China has its own list of grievances, which have not been widely reported outside of China. In July, China presented the US with two lists[iii] of grievances, one setting out alleged US wrongdoings, including sanctions on Chinese leaders and restrictions on Chinese student visas, and the other listing individual cases of concern, including suppression of Chinese enterprises (presumably a reference to the chip ban[iv] on Huawei), harassment of Chinese students, obstruction of Confucius Institutes, monitoring of Chinese media outlets as foreign agents, and the prosecution of Meng.

In short, the Chinese position is that if the US wants China’s assistance on any of the issues on the table, then the US needs to ratchet down what China sees as coordinated full-scale attacks on China’s interests. The fact that Meng was the only person mentioned specifically by name on the Two Lists provides an indication of the level of importance of her case to the Chinese side.

Officially, the US position is that it is inappropriate for China to use any of the grievances on its Two Lists as, in US climate czar John Kerry’s words, a “geostrategic weapon[v],” and the issues of cooperation on Afghanistan, climate change or North Korean nuclear proliferation should be addressed on their own merits.

Weaponizing the Rule of Law?

Moreover, the US presents the actions it has taken against China, Huawei and Meng (including her original arrest and now her release) as the untainted outcomes of the disinterested application of the principles of the rule of law, and so such matters cannot be traded in a game of transactional diplomacy.

China finds such arguments patently unpersuasive, and Chinese officials undoubtedly will perceive the recent resolution of the DOJ case against Meng as reflecting geopolitical concerns raised by the Chinese side at a time when the US is seeking to build on various areas of potential cooperation with China in an effort to defuse the continuing diplomatic stalemate between the two global powers.

That would be consistent with China’s long-held view. In a statement released by the Chinese Foreign Ministry in July, China’s Vice Foreign Minister Xie Feng derided the US reference to “rule of law” as nothing more than a hypocritical bullying tactic. “The United States has abandoned the universally-recognized international law and order and damaged the international system it has helped to build.” In its stead, according to the Foreign Ministry statement[vi], the US “is trying to replace it with a so-called ‘rules-based international order,’” which essentially is “the law of the jungle” where “might is right and the big bully the small.”

The bulk of the grievances raised by China on the Two Lists relate to the US’ unilateral imposition of economic sanctions, either in the form of direct sanctions, as in the case of the restrictions on Chinese officials, or secondary sanctions, which underpin the original criminal charges against Huawei and Meng. All of these are examples of the extra-territorial application and enforcement of US laws in respect of conduct by non-US persons.

Even the ban on Huawei purchases of semiconductor chips based on US-origin technology incorporates extra-territorial elements, as the ban on chip sales to Huawei applies not just to US companies but also to downstream sales[vii] by non-US companies, effectively cutting off Huawei from the entire global supply chain for semiconductors incorporating restricted US technology.

The US is able to impose[viii] such sanctions by threatening to cut off access to the US market, to US-sourced technology and to the US dollar-dominated global financial system. Given the US’ dominant position globally, companies which run afoul of US foreign policy priorities run the risk of “financial excommunication” (in the words of The Economist[ix]) or a technology ban, which may in some cases amount to a corporate “death penalty” as a practical matter.

The US media and political class as a rule never question the legitimacy or appropriateness of US sanctions, and any push-back on the part of China is viewed as evidence that China rejects international norms.

But what is seldom if ever acknowledged in the US is that China is not alone when it comes to objecting to what many around the world see as overreach on the part of the US, particularly in respect of unilateral secondary sanctions on an extra-territorial basis.

In fact, many leading US and European scholars denounce US secondary sanctions as violating the norms of international law and as a blatant abuse of raw geopolitical power, as illustrated by the titles of the following small sampling of academic papers critical of US unilateral sanctions: The United States of Sanctions: The Use and Abuse of Economic Coercion[x] (Daniel Drezner, Professor of International Politics at the Fletcher School of Law and Diplomacy at Tufts University); Secondary Sanctions: A Weapon Out of Control?[xi] (Tom Ruys, Professor of Public International Law, Ghent University, and Cedric Ryngaert, Professor of Public International Law, Urrecht University); Economic Sanctions: Too Much of a Bad Thing?[xii] (Richard Haas, President of the Council on Foreign Relations); Enforcing US Foreign Policy by Imposing Unilateral Secondary Sanctions: Is Might Right in Public International Law?[xiii] (Patrick Terry, Dean of the Faculty of Law at the University of Public Administration in Kehl, Germany).

On these issues, it is the US, not China, which stands apart from the rest of the world, and the imposition of unilateral sanctions by the US, far from being an example of commitment to the rule of law, is at its core nothing more than the exercise of unprecedented geopolitical power.

As such, the China position is that linkage of its grievances to US requests for coordination is entirely consistent and appropriate given the political underpinning of US actions. In other words, all is fair in economic statecraft, which cannot be detached from diplomatic relations generally. The deferred prosecution deal in the Meng case will only tend to reinforce the Chinese stance in this regard.

Questioning US bona fides

Of course, Chinese officials likely frame these issues in such stark transactional terms in large part because that is consistent with their own realpolitik approach to international diplomacy. Some foreign experts have characterized the geopolitical modus operandi of the Chinese side as the persistent and patient probing for points of leverage.

In other cases, however, critics claim that China is willing to manufacture leverage. For example, when China detained two Canadian nationals, Michael Kovrig, a former diplomat, and Michael Spavor, a businessman, only nine days after Meng’s arrest in Canada, many in the West saw this as a form of direct retaliation, a charge China has denied. Similarly, when Kovrig was sentenced in August to 11 years in prison[xiv], China critics saw this as a not-so-subtle message to Canadian authorities just as the hearings in the Meng extradition case were coming to conclusion.

The fact that China released the two Canadians only hours after the case against Meng was resolved reinforces the view of many Canadian commentators that the Two Michaels were merely “political pawns”[xv] in a brutal game of “hostage diplomacy.”[xvi] However, similarly, for China and its sympathizers, Meng’s arrest was seen as a “kidnapping”[xvii] for political advantage. Both sides have taken the position that their own actions were legally justified, while challenging the legitimacy and good faith of the actions of the other side.

Officials in the US and Canada have uniformly rejected any attempt to equate the cases, citing to the fact that Meng has been afforded the full panoply of procedural protections in her extradition proceedings (and is now has been able to negotiate a favorable deal for her release), while the Two Michaels have been afforded minimal to no due process in their trials in China by Western standards.

But was the original arrest of Meng in fact a pristine example of the dispassionate exercise of prosecutorial authority by the DOJ, wholly untainted by political considerations?

The Financial Times, noting that it is extremely rare for corporate executives to be charged personally in a sanctions violation case, called the arrest of Meng “provocative.”[xviii] Moreover, given the overall pressure campaign undertaken against Huawei by US authorities over many years, and the favorable competitive positioning of Huawei in 5G technology globally, the FT further suggested that the arrest of Meng risked being interpreted as “the use of American power to pursue political and economic ends rather than straightforward law enforcement.”

Moreover, based on evidence adduced by Meng’s legal counsel in the extradition proceedings, the bank fraud charges no longer appeared to be as solid as originally presumed. Although extradition proceedings do not go directly to the question of guilt or innocence, the Canadian court would have been required to find that the allegations were sufficient to constitute a crime before it could order Meng to be handed over to US prosecutors.

In the most recent hearings prior to the withdrawal of the extradition request by the US as part of the DPA terms, Associate Chief Justice Heather Holmes of the British Columbia Supreme Court, who presided over the extradition proceedings, aggressively questioned[xix] Canadian government lawyers (acting on behalf of the US as the Requesting State), striking directly at the very heart of the US government’s underlying theory of the case, characterizing the case as “unusual” in a number of key respects, and challenging the assertion that the charges fall squarely within the “four corners of the law.”

The fact that the DOJ replaced the original plea bargain offered at the end of last year with a deferred prosecution agreement suggests that the DOJ may have come to the view that the case against Meng was weak. The disparity in the nature of the penalties is also telling: Under the original plea deal, Meng reportedly would have been required to plead guilty, while under the DPA entered into with Meng, she did not have to plead guilty, she only had to admit to an innocuous statement of facts, she was not required to pay a fine, and at the end of the term, which expires at the end of next year, the charges are to be dismissed.

The weaker the case is perceived to have been, and the lower the penalty actually imposed under the deal that was reached, the greater the risk that the original decision to file charges against her may be viewed as having been tainted with political bias.

Testing the limits of transactional diplomacy

China is not alone in its transactional approach to international diplomacy. Shortly after the arrest of Meng and then detention of the Two Michaels, Canadian ambassador to China, John McCallum, stated that it would be “great” for Canada if the US dropped its extradition request for Meng, and further indicated that any deal between the US and China should include the release of the Two Michaels. He was promptly sacked[xx] for failing to toe the party line of uncompromised adherence to the principles of the rule of law, even though it is clear that he gave voice to what everyone else in Canada was thinking.

Nor is former Ambassador McCallum the only high-profile Canadian to have expressed support for a political rather than a judicial resolution to the case. Former Canadian Justice Minister Allan Rock, called on the Canadian government to step in[xxi] prior to the conclusion of the pending extradition proceedings to order Meng’s release. Rock noted that an extradition proceeding “has a political aspect to it and the minister of justice controls the process under the Extradition Act. He can turn it on. He can turn it off.”

Rock’s suggestion that the current Justice Minister could intervene prior to the conclusion of the pending extradition proceedings was considered highly controversial and unlikely to be implemented in practice. However, as we have now seen, the process could be terminated at any time by the DOJ by a withdrawal of the request for extradition in connection with an agreed pre-trial disposition of the case.

This is precisely what China demanded in their Two Lists presented to the US in July, and this is what the US now has done – and according to reports[xxii], the Canadian ambassador to China actively lobbied the Biden administration over a period of several weeks in April in an effort to achieve this outcome.

Thus, it appears clear that just as the original DOJ decision to prosecute Meng was not made in a vacuum, the decision to enter into a deferred prosecution deal also was made by reference not only to a reassessment of the relative strength or weakness of the case, but also to the impact of the case on the overall trilateral China-US-Canada relationship.

Many Chinese officials and academics will certainly underestimate the importance of the concept of the rule of law and the related level of independence of prosecutors in the West, and may be too quick to see things only through the lens of political leverage. For example, even taking into account the broader geopolitical context, the DOJ in all likelihood would not have been induced to reach this result at this time had the case against Meng not started to unravel.

But by the same token, US politicians and pundits tend to understate the intentional or unintentional influence of political factors in the application of the rule of law, and too often tend to conveniently ignore the universal objections to US exercise of raw geopolitical power, even when it is done through the mechanisms of the rule of law.

Notwithstanding the highest ideals and best efforts in Western democracies to achieve equity and fairness through scrupulous adherence to proper process and principles, in practice, Lady Justice is, of necessity, not always entirely blind.

In order to proceed further down the path towards resolution of the mutual grievances which currently plague the US-China relationship, both sides will need to have a clearer understanding of the relative merits of not only the other side’s position, but also its own.

The deferred prosecution deal with Meng, and the release of the Two Michaels, represents a good start – even as this reflects the natural tensions between geopolitical realities and traditional notions of the concept of the rule of law.

[i] https://www.lexology.com/library/detail.aspx?g=3847fd24-3734-4b8b-aa5b-b45935d89656

[ii] https://www.state.gov/deputy-secretary-shermans-visit-to-the-peoples-republic-of-china/

[iii] http://www.xinhuanet.com/english/2021-07/26/c_1310087197.htm

[iv] https://www.cnn.com/2020/08/17/tech/huawei-us-sanctions-hnk-intl/index.html

[v] https://www.nytimes.com/2021/09/02/world/asia/climate-china-us-kerry.html

[vi] https://www.fmprc.gov.cn/mfa_eng/wjbxw/t1895017.shtml

[vii] https://asia.nikkei.com/Spotlight/Huawei-crackdown/New-ban-on-Huawei-blocks-access-to-non-US-chipmakers

[viii] https://www.lexology.com/library/detail.aspx?g=84f1f477-ad07-4063-9964-c6a030779bb7

[ix] https://www.economist.com/finance-and-economics/2021/04/22/sanctions-are-now-a-central-tool-of-governments-foreign-policy

[x] The United States of Sanctions | Foreign Affairs

[xi] https://academic.oup.com/bybil/advance-article/doi/10.1093/bybil/braa007/5909823

[xii] https://www.brookings.edu/research/economic-sanctions-too-much-of-a-bad-thing/