Huawei says that its ties to the PLA doesn't mean it will spy for China

Former director of the U.S. Central Intelligence Agency (CIA) Michael Hayden drew the ire of Chinese smartphone and telecommunications equipment maker Huawei Technologies Comp. (SHE:002502) when he suggested to the Australian Financial Review that Huawei passes information on foreign contracts to the Chinese government.

I. Former CIA Director Says Huawei Passes Info to the Chinese Gov't

Mr. Hayden -- currently a director at Motorola Solutions Inc. (MSI), a U.S. rival of Huawei in the telecommunications equipment business -- was asked to comment on an Australian government contract, which Huawei was barred from competing for in 2012 due to "national interests".  He is quoted as saying:

At a minimum, Huawei would have shared with the Chinese state intimate and extensive knowledge of the foreign telecommunications systems it is involved with.

Michael Hayden
Former CIA director Michael Hayden [Image Source: Reuters]

Huawei spokesperson Scott Sykes blasted this commentary, saying his company was a "proven and trusted" equipment seller.  In an email to Bloomberg he attacks Mr. Hayden's assertions, writing:

These tired, unsubstantiated, defamatory remarks are sad distractions from real-world concerns related to espionage, industrial and otherwise.

Accusations of spying have been a thorn in the side for the Chinese OEM as it has tried to expand its reach outside its home country.  At the root of the suspicions is the fact that company founder Ren Zhengfei has served as an officer in China's People's Liberation Army (PLA) before retiring in 1983.  He founded Huawei in 1987, but kept close ties to the PLA, allegedly scoring an exclusive contract to equip their "elite cyberwarfare unit".  Mr. Zhengfei tried to assuage fears of spying by in Oct. 2011 agreeing to share the chief executive post with a panel of three executives who rotate at six-month intervals.

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

The accusations from Mr. Hayden are an interesting twist on the general internal rhetoric that has reportedly leaked out from the Obama administration.  Reuters, reported that an 18-month U.S Intelligence review, completed in Oct. 2012 on behalf of the White House, found no direct evidence that Huawei had spied on U.S. companies.  Further, there was no word on the report asserting that Huawei passed general information on current contracts to the Chinese government.  That unreleased report is rumored to have warned, though, that Huawei could be inclined to spy in the future due to its PLA ties.  

Huawei was banned in 2011 from offering proposals to supply a U.S. National Emergency Response system, and was grilled last year by a House panel that suggested a nationwide ban on its products.

Huawei router
Huawei's routers are reportedly riddled with security holes -- some of which some analyst claim are deliberate back doors. [Image Source: The Hacker News]

According to Reuters sources Huawei was barred from participating in that emergency system as it was considered too risky for the government use due to a poor security track record.  Huawei routers have been found to have numerous glaring vulnerabilities in their firmware and supporting software.  Some have alleged that Huawei bakes the vulnerabilities in to help PLA hackers, but the Oct. '12 report stopped short of making that claim.

II. UK Scrutinizes Huawei Contract

Huawei's biggest contract with a western nation -- the UK Cyber Security Evaluation Centre (aka. the "Banbury Cell") -- will be subjected to a careful security review by the U.K. Cabinet Office.  In a press release the administration writes:

We take threats to our critical national infrastructure very seriously and need to be responsive to changes in a fast-moving and complex, globalised telecommunications marketplace.

We have robust procedures in place to ensure confidence in the security of UK telecommunications networks.

However, we are not complacent and as such we have agreed to the main recommendation of the report to conduct a review of Huawei's Cyber Security Evaluation Centre (the 'Banbury Cell') to give assurance that we have the right measures and processes in place to protect UK telecommunications.

The announcement of that review this week follows concern expressed last month in a report [PDF] by UK Parliament’s Intelligence and Security Committee examining Huawei's ties to PLA hackers.  In that report, the Parliamentarians advise staffing the center with agents from the Government Communications Headquarters (GCHQ), Britain's NSA counterpart, rather than Huawei staff.  It also advised an end to allowing Huawei to "self-police" about the center's security, writing:

While we recognise that there are some benefits associated with the current staffing arrangements for the Cell, these do not, in our opinion, outweigh the risks of Huawei effectively policing themselves.

Huawei has said it will cooperate with the inquiry.  The UK market is one of Huawei's largest foreign markets and was the chosen site for the launch of the P6 Ascend smartphone last week (in London).  Huawei is a major supplier of telecommunications equipment of the UK based wireless carrier BT Group plc (LON:BT.A), the world's oldest telecommunications company.  The pair signed a major equipment deal in 2005 and have been close ever since.

Huawei offices
Huawei is being targeted by a UK gov't investigation. [Image Source: AFP]

In the U.S. Huawei's status remains murkier.  Huawei is eyeing selling its smartphones in the U.S.  But authorities may block that move due to both the security concerns and allegations that Huawei funneled electronics from U.S. firms to Iran.  Huawei claimed it was unaware of the shipments to Iran, but Reuters poked many holes in that assertion of innocence.

Huawei is the world's second largest telecommunications company, behind only Sweden's Ericsson AB (STO:ERIC.A, ERIC.B).  Huawei globally employs 155,000.  Of those employees, 74,000 have an ownership stake in the company.  The company is 98.7 percent employee owned.

Sources: Australian Financial Review, Bloomberg, UK Parliament’s Intelligence and Security Committee [PDF], BBC News

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