The U.S. began a market-shaking case against Huawei Technologies Co. in a Vancouver courtroom, alleging a top executive at the Chinese telecom giant committed fraud to sidestep sanctions against Iran.

MENG WANZHOU

Chief Financial Officer Meng Wanzhou, who was arrested Dec. 1 as she changed planes in Canada, was accused of hiding ties between Huawei and a company called Skycom that did business in Iran, a lawyer representing Canada said during the court hearing Friday. Canada is presenting the case on behalf of the U.S., which wants to extradite Meng.

CONSPIRACY TO DEFRAUD

Her arrest has become a flash point in trade tensions between the U.S. and China, roiling markets and provoking outrage from Chinese officials. China’s Foreign Ministry said Saturday it had summoned John McCallum, Canadian ambassador to China, to assist in the immediate release of Meng and threatened severe repercussions for Canada if she remained in custody, according to China Daily.

Meng, 46, daughter of Huawei’s founder, is spending the weekend in jail after a decision on whether to grant bail was not reached. The case will continue on Monday.

“We will continue to follow the bail hearing,” Huawei spokesman Glenn Schloss wrote in an emailed statement. “We have every confidence that the Canadian and U.S. legal systems will reach the right conclusion.”

Meng was charged with conspiracy to defraud banks and should not be granted bail because she may flee, Crown attorney John Gibb-Carsley said during the court hearing in Vancouver earlier on Friday. Banks in the U.S. cleared money for Huawei, but unbeknown to these financial firms, they were conducting business with Skycom in contravention of the sanctions, the lawyer said.

COMPLEX LAW

In her dealings with the banks, Meng hid ties between Huawei and Skycom, when in fact Skycom employees worked for the Chinese telecom-equipment giant, Gibb-Carsley added. He noted that some Skycom workers used Huawei email addresses and employees in Iran used a different set of stationary depending on whether they were doing Huawei or Skycom work.

The Crown attorney argued against granting Meng bail because she’s so wealthy that she will easily be able to pay whatever is required and then flee. Since learning of the investigation into her alleged activities, Meng has avoided the U.S. and other Huawei executives have stopped traveling to the U.S., he added.

Meng’s defense lawyer David Martin said the evidence presented doesn’t prove she broke either U.S. or Canadian law. U.S. sanctions law is very complex, has changed over time, and there are exemptions for telecom equipment in the country’s Iran sanctions, Martin argued.

A major pillar of the U.S. case is a misrepresentation that Meng allegedly made to a U.S. bank in 2013, referred to as “Financial Institution 1.” Martin identified the firm as HSBC Holdings Plc, but he disputed the U.S. allegation that Meng misrepresented anything to that financial institution. “HSBC has rich experience in trade compliance,” he added.

Meng was arrested in Vancouver Dec. 1 at the behest of U.S. authorities. She was flying from Hong Kong to Mexico with a stop in the Canadian city. Meng spends two weeks a year in Vancouver, her family owns properties in the area, and she has a 16-year-old son at school in Boston. Martin, her lawyer, said she would never breach a court order on bail because that would embarrass her father and China.

The case has hit markets already hammered by months of rising trade tension between the world’s two largest economies. The move has especially enraged China, which called for her release. Meng is one of China’s most prominent businesswomen. She is the daughter of Ren Zhengfei, the founder of Huawei, a national champion at the forefront of President Xi Jinping’s efforts for China to be self-sufficient in strategic technologies. While the U.S. routinely asks allies to extradite drug lords, arms dealers and other criminals, detaining a major Chinese executive in this manner is unusual.

The alleged transactions involved more than $100 million between 2010 and 2014, according U.S. evidence filed with the court in Vancouver on Friday:

During a meeting with HSBC, Meng used PowerPoint slides for a presentation that included several misrepresentations.

She allegedly said Huawei operated in Iran in strict compliance with applicable laws and sanctions, although Skycom was using the U.S. financial system to conduct prohibited Iran transactions.

Meng stated Huawei’s engagement with Skycom was a normal business cooperation, when Skycom was in fact entirely controlled by Huawei.

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