Employees at Iranian partner company reportedly carry Huawei badges

new piece from Reuters details a bid to sell embargoed telecommunications equipment to Iran.  More than 13 pages of the bid were stamped "Huawei confidential".  But Huawei Technologies Comp. (SHE:002502) informed Reuters that it did not produce the document, but rather that the "bidding document" came from one of its "major local partners," Skycom Tech Co Ltd.

I. Huawei Blames Contractor For Trying to Funnel Iran U.S. Electronics 

The bid offered an estimate €1.3M ($1.7M USD) worth of equipment to Mobile Telecommunication Comp. of Iran (MCI).  The document references HP server, disk-arrays, and switches models, stating that they could be applied to providing service to the Iranian telecom's 20m+ pre-paid customers.  The total bid was valued at €19.9M ($26.3M USD).

The U.S. Federal Bureau of Investigations is currently conducting a criminal probe into whether ZTE sold U.S.-made Cisco Systems, Inc. (CSCO) telecommunications equipment to Iran.  A similar probe is ongoing regarding sales of Hewlett-Packard Comp. (HPQ) equipment to Iran.

Iranian woman on phone
MCI, a major Iranian telecom, was approached by Huawei's "partner".
[Image Source: Google Images, original author unknown; 
Fair Use clause TITLE 17 > CHAPTER 1 > § 107]

Huawei is the world's second largest telecommunications equipment maker.  The company was founded by Ren Zhengfei, a former officer in China's People's Liberation Army (PLA).  China enjoys a close trade relationship with Iran, buying much of its exported oil.

Ren Zhengfei
Ren Zhengfei, founder and CEO of Huawei, is a former PLA officer. [Image Source: CFP]

However, Huawei and other Chinese telecommunication integration firms are contractually forbidden from reselling electronics from U.S. companies like HP or Cisco to Iran -- doing so could jeopardize their relationship with their U.S. OEMs.

In a comment Huawei stated:

Huawei's business in Iran is in full compliance with all applicable laws and regulations including those of the U.N., U.S. and E.U. This commitment has been carried out and followed strictly by our company. Further, we also require our partners to follow the same commitment and strictly abide by the relevant laws and regulations.

In a followup comment, when asked whether Huawei sold the existing HP servers owned by MCI (referenced in the document), a spokesperson insisted it was not Huawei adding:

We would like to add that the existing hardware equipment belongs to the customer. Huawei does not have information on, or the authority to check the source of the customer's equipment.
HP servers
Huawei insists it hasn't sold HP servers to MCI. [Image Source: HP]

HP issued a tersely worded statement, remarking:

HP has an extensive control system in place to ensure our partners and resellers comply with all legal and regulatory requirements involving system security, global trade and customer privacy and the company's relationship with Huawei is no different.  HP's distribution contract terms prohibit the sale of HP products into Iran and require compliance with U.S. and other applicable export laws.

II. A Spotty Record

This is the second time in recent months that Reuters has reported on such an illicit sales attempt.  In the previous report Reuters found that another Iranian partner of Huawei tried to illegally funnel antennas from U.S. antenna-maker CommScope Inc. to MTN Irancell, Iran's second largest mobile service provider.  The deal was reportedly eventually rejected.

The Reuters report questions Huawei's ability to shift the blame to Skycom.  It cites sources as stating that Skycom employees carry Huawei branded badges and that former employees put Huawei-Skycom on their resume.  In other words, it sounds like Skycom is more than a mere partner to the Chinese firm.

Huawei offices
U.S. officials are frustrated with the Huawei's apparent brazen disregard for its laws.
[Image Source: AFP]

A recent U.S. House of Representatives' Intelligence Committee draft report [PDF] called for a ban on smartphones and telecommunications equipment from ZTE and Huawei.  The report has not been finalized.  Even if such a ban were put in place, the effect on either firm would likely be minimal, as their U.S. sales remain low.  Both companies, however, have complained about the proposal, and have argued they did not trying to intentionally funnel forbidden electronics to Iran.  

A separate White House report found no direct evidence that Huawei was spying on the U.S. for the Chinese government -- another concern.  It did, however, state, that future spying could potentially occur, given Huawei's close relationship with the Chinese government.

Source: Reuters

"Paying an extra $500 for a computer in this environment -- same piece of hardware -- paying $500 more to get a logo on it? I think that's a more challenging proposition for the average person than it used to be." -- Steve Ballmer

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