Earlier this month, DOJ released a superseding indictment in its federal case against one of the world’s largest telecommunications corporations, Huawei Technologies Co., Ltd. (“Huawei”), in the Eastern District of New York (“EDNY”). This new indictment largely expands on previous charges filed in the Western District of Washington and the original EDNY indictment, consolidating allegations of bank and wire fraud, sanctions violations, trade secret theft, and obstruction issues. The indictment also includes a rare charge for a group of corporate defendants: conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act (“RICO”), a charge more often associated with organized crime than corporate malfeasance. With these new charges, DOJ has once again signaled its focus on pursuing Chinese businesses that it believes violate normal trade practices, evidence that the Department of Justice is committed to the goals it set forth in its China Initiative (the “Initiative”).

The RICO Charge

In addition to consolidating the charges and defendants from the earlier indictments, DOJ has now charged Huawei and its subsidiaries with RICO violations. This is a rare occurrence, as RICO typically targets individuals, not whole corporate entities. Corporate entities, such as Huawei and its subsidiaries, are included in the statute’s definition of “persons” that can participate in a RICO conspiracy. However, criminal charges are much more typically brought against the natural persons involved in the acts than the corporate entities they work for. Under RICO, DOJ must prove inter alia the existence of an enterprise that engaged in a pattern of racketeering activity. In essence, this means proving that the business of Huawei and its subsidiaries was regularly supported by criminal acts. Characterizing the Huawei group’s business in this manner is a significant step, and gives insight into the degree to which the United States government believes Huawei’s alleged misconduct permeated the organization as a whole.

A RICO charge requires the government to demonstrate that Huawei and its subsidiaries engaged in at least two acts of “racketeering activity” within a span of ten years. The statute, 18 U.S.C.A. § 1961, lists 35 offenses that qualify as racketeering activity; of these, DOJ has charged Huawei and its subsidiaries with wire fraud, financial fraud, theft of trade secrets and criminal copyright infringement, money laundering, and acts of obstruction.

DOJ’s use of RICO may relate to the law’s unique power to charge a number of connected crimes by different parties together under the unified characterization of “racketeering” by a criminal enterprise. RICO was designed for this purpose, as it holds the participants in a criminal enterprise liable for all of the crimes committed in furtherance of the racketeering conspiracy. Here, this allows DOJ to tag Huawei with liability for the crimes of its subsidiaries and vice versa, in much the same way that the Department has previously pursued members of the mafia and other organized crime groups.

The China Initiative

The Initiative, which V&E reported on previously here and here, was launched in 2018 as a result of numerous reports condemning Chinese business practices as unreasonable.¹ Theft of trade secrets by Chinese corporations has been a particular focus of the Trump administration, and the Initiative reflects this. Upon the public release of the Initiative, John C. Demers, the Assistant Attorney General of the National Security Division, did not parse words:

China wants the fruits of America’s brainpower to harvest the seeds of its planned economic dominance. Preventing this from happening will take all of us, here at the Justice Department, across the U.S. government, and within the private sector. With the Attorney General’s initiative, we will confront China’s malign behaviors and encourage them to conduct themselves as they aspire to be one of the world’s leading nations.

In many ways, the string of indictments against Huawei reads as a checklist of the components listed in the Initiative. For instance, one of its first components is to: “[i]dentify priority trade secret theft cases, ensure that investigations are adequately resourced; and work to bring them to fruition in a timely manner and according to the facts and applicable law.” The Initiative also calls for DOJ to: “[i]dentify opportunities to better address supply chain threats, especially ones impacting the telecommunications sector, prior to the transition to 5G networks.” The indictment alleges theft of trade secrets from multiple U.S. corporations and portrays Huawei as a major threat to the telecommunications industry. From Huawei’s supposed bad faith dealing with U.S. corporations to its attempts to improperly procure trade secrets from multiple sources, the indictment makes clear that DOJ sees Huawei as a major threat in the lead up to the 5G transition.

Likewise, the Initiative calls for DOJ to: “[d]evelop an enforcement strategy concerning non-traditional collectors (e.g., researchers in labs, universities, and the defense industrial base) that are being coopted into transferring technology contrary to U.S. interests.” Huawei is indeed accused of infiltrating corporate research labs and attempting to use a professor at a PRC research university to gain access to an unnamed U.S. company’s proprietary technology. The alleged scheme includes a secret contract between Huawei and the unnamed professor to develop a prototype software for memory hardware. In turn, the professor allegedly reached out to the unnamed U.S. corporation for access to a prototype board of the company’s proprietary chip under the guise of research-related purposes. At no point was the company informed of the professor’s relationship with Huawei, and the superseding indictment alleges that this was a purposeful arrangement between Huawei and the professor.

The Huawei investigation also embodies the commitment of resource to pursuing these types of cases. The Initiative calls for DOJ to provide resources that will: “[e]quip the nation’s U.S. Attorneys with intelligence and materials they can use to raise awareness of these threats within their Districts and support their outreach efforts.” The DOJ’s press release for the superseding indictment cites involvement by at least a dozen different agencies and U.S. Attorneys Offices across the country. This includes not only the attorneys from EDNY and WDWA, where indictments have been filed, but also the Northern and Eastern Districts of Texas, the Northern District of Illinois, and the Northern District of California. Personnel from the FBI, Homeland Security, Department of Commerce’s Office of Export Enforcement, Defense Criminal Investigation Service, DOJ’s Money Laundering and Asset Recovery Section, and the National Security Division’s Counterintelligence and Export Control Section.

Needless to say, this is quite a bit of firepower and is precisely what the Initiative seems to contemplate.

In response to the superseding indictment, Huawei issued a statement labeling it “political persecution.” Huawei claims that these latest charges do not reveal anything new—rather, they are based on civil disputes that have already been resolved: “The US Department of Justice is reintroducing previously resolved civil cases as criminal cases. This is selective, politically-motivated enforcement of the law.” Huawei also disputed DOJ’s claim that its success is related to the theft of intellectual property, pointing to its “huge” investment in research and development as the key to its successes.

Given the immense resources the U.S. government has dedicated to this investigation and prosecution, it is clear that the current administration is intent on policing what it views as unlawful business practices in the global market, particularly by Chinese corporations. Huawei is the first major target of the publicly announced Initiative (and the Initiative seems to have been drafted with the Huawei case in mind), but it is unlikely to be the last Chinese business to face heightened scrutiny. It is still an open question whether DOJ’s approach of using RICO as an overarching charging scheme will be a successful framework for accomplishing the varied goals of the China Initiative.

¹ The announcement of the China Initiative explicitly cites to two documents as part of the genesis for the Initiative: the U.S. Trade Representative’s report in March 2018, and a June 2018 report from the White House Office of Trade and Manufacturing Policy. Both reports contain claims that Chinese businesses have engaged in “unreasonable” businesses practices in the U.S. and abroad.