Huawei Global Business Model Relied on Bribes and Corruption
In Algeria, it was banned from bidding for public contracts after one of its executives was convicted of bribery.
In Zambia, it was probed over allegations of bribery involving a multi-million-dollar contract to build cell towers in rural areas.
In the Solomon Islands, it was accused of offering millions of dollars to the ruling party in exchange for an undersea fiber optic cable contract.
In all three cases – and half a dozen others in recent years – the alleged perpetrator was Huawei Technologies, the Chinese telecom behemoth facing scrutiny from Western nations over allegations of intellectual property theft and espionage.
Saying it poses a national security threat, the U.S., Australia and New Zealand have banned the company from building new, state of the art 5G telecom networks. Other Western countries are debating over a similar ban.
Security concerns about Huawei and other Chinese telecom equipment providers are mounting after U.S. prosecutors last month charged the company founded by a former People’s Liberation Army officer with violating U.S. sanctions on Iran, purloining trade secrets from T-Mobile and encouraging its employees to steal intellectual property.
The focus on national security concerns about Huawei has eclipsed a little reported aspect of the company’s operations: Huawei’s involvement in corrupt business dealings.
The company has denied the allegations of corruption and said it has strong safeguards against corporate graft.
In a statement on its website, Huawei says it has a “zero-tolerance” policy on graft.
“Huawei believes that corruption severely damages fair market competition and is a threat to the development of our society, economy and enterprises,” the statement said.
But experts who have studied Huawei’s business practices say the company’s statements are contradicted by its conduct.
“The unfortunate reality of Huawei’s activities on the (African) continent is that they have a proven track record of engaging in corruption and other dodgy business dealings,” said Joshua Meservey, an Africa expert at the Heritage Foundation and author of a recent report on Chinese corporate corruption.
With business operations in more than 170 countries and annual revenues of $108 billion, Huawei is the world’s largest supplier of telecom equipment. Last year, the multinational company beat Apple to become the No. 2 manufacturer of smartphones and tablets in the world.
In December, Huawei’s chief financial officer, Meng Wanzhou, was arrested by Canadian authorities and she is being held for possible extradition to the U.S. for violation of U.S. sanctions on Iran.
Huawei has rejected the charges. In a recent letter to the U.K. Parliament made public last week, Huawei refuted allegations of espionage, saying if the company engaged “in malicious behavior, it would not go unnoticed – and it would certainly destroy our business.”
In developing countries in Asia and Africa, the company’s corrupt business practices are a matter of great concern among industry officials and civil society activists.
In the last 12 years, Huawei and its smaller Chinese rival ZTE have been “investigated or found guilty of corruption” in as many as 21 countries, according to Andy Keiser, a former House Intelligence Committee professional staffer.
These include a dozen African countries such as Algeria and Ghana as well as the Philippines, Malaysia, Norway, Papua New Guinea, Mongolia, the Solomon Islands and China itself, according to Keiser.
“ZTE and Huawei have developed dubious reputations around the world,” Keiser testified before Congress last June.
The transaction cost of Huawei’s corrupt business deals runs in the billions. RWR Advisory Group, a consulting firm that tracks Chinese investments around the world, estimates that Huawei has entered into more than $5 billion worth of business deals involving allegations of bribery and corruption.
The charges against Huawei range from outright bribery to making illegal donations to political parties in exchange for contracts and other business advantages.
The Algerian case involved an elaborate scheme in which Huawei and ZTE executives allegedly paid $10 million in bribes to a former state telecom operator executive and a businessman in exchange for winning contracts.
In 2012, an Algerian court convicted the former executive and another businessman of receiving bribes. The two Algerians were sentenced to 18 years in prison.
Three executives of the Chinese firms also were tried in absentia and sentenced to 10 years in prison for their role in the scheme.
The government fined Huawei and ZTE and banned them from bidding on public contracts for two years.
In Ghana, Huawei has confronted accusations of illegally funding the ruling party, a charge Huawei and other Chinese companies have faced in other countries.
In 2012, an opposition group disclosed what it claimed was evidence that Huawei had made illegal campaign contributions to the ruling National Democratic Congress in exchange for a $43 million tax exemption.
Alliance for Accountable Governance (AFAG) produced invoices and other documents showing the Chinese telecom company had paid for millions of dollars worth of campaign paraphernalia for the ruling party’s 2012 election campaign.
In return, the group alleged, the government awarded “one of the juiciest contracts to be doled out by the government” – a $150 million contract to build an e-government platform.
Huawei and the government denied the charges.
In the Solomon Islands, Huawei has faced similar accusations. In 2017, a Parliamentary committee accused the government of awarding Huawei a contract to build a submarine fiber optic link to Australia after Huawei offered a $5.25 million campaign donation to the ruling party.
“The committee is of the view that this is the main reason for the government to bypass procurement requirements in favor of the company Huawei,” a parliamentary report said.
Huawei dismissed the allegations.
“As a global business entity, Huawei does not involve itself in politics. Huawei forbids all of its global subsidiaries from making any form of political donation, including in places where this practice is legal,” the company said in a statement.
Bribery allegations have also plagued Huawei projects in South Africa, Nigeria, and Pakistan. But the company appears to have weathered the allegations, positioning itself as a major player in building 5G networks around the world.
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As of last February, Huawei had signed 25 memorandums of understanding with telecom operators around the world to trial 5G equipment, according to a Reuters survey of public announcements.
In recent years, Huawei has also found itself at the receiving end of a Chinese government crackdown on domestic corruption. In 2017, the head of Huawei’s consumer business group for China was detained on suspicion of taking bribes.
To root out corruption among its employees, Huawei says it has implemented policies including requiring executives to take a loyalty oath. But the safeguards are “of limited value if the material incentives for employees don’t reflect those priorities,” said Alexandra Wrage, president of anti-bribery business organization TRACE International.
“This danger can be compounded when an enterprise maintains financial and political backing from the government, which is often seen as fostering a greater tolerance for risk in pursuit of growth,” Wrage said.