Congressional Committee Finds Huawei And ZTE To Be Threats To National Security By Shannon Doyle

by King & Spalding

On October 8, 2012, the House Permanent Select Committee on Intelligence (“the Committee”) published a report declaring two Chinese telecommunication equipment manufacturers, Huawei Technologies Company and ZTE, to be threats to national security.

Huawei was founded in 1988 by Ren Zhengfei, a former officer in the Chinese military. The company recently became the world’s largest manufacturer of telecommunication equipment. ZTE is the world’s fourth-largest mobile phone manufacturer. ZTE was founded in 1985 by a group of state-owned enterprises associated with China’s Ministry of Aerospace. Concerns over Huawei and ZTE’s close ties with the Chinese government and military have caused issues for the companies in recent years. Huawei attempted to acquire 3Leaf Systems in 2010, but it withdrew from the purchase following a recommendation by the Committee on Foreign Investment in the United States (“CFIUS”) that the deal be unwound because of national security concerns. ZTE faced criticism earlier this year after selling networking equipment to the Government of Iran to be used in a surveillance system that monitors phone and internet communications.

Huawei published an open letter to the U.S. government in February 2011 requesting a full investigation into its corporate operations in order to convince the U.S. government that there should be no security concerns with the company or its equipment. The Committee initiated a formal investigation in November 2011 in order to collect additional evidence, after finding “significant gaps in available information” at the preliminary stage.

The Committee published its report following an eleven month review of both open-source information available on the two companies and a review of classified information. The report claims that Huawei and ZTE “cannot be trusted to be free of foreign state influence.” The Committee stated that neither company fully cooperated with the investigation, due to their failure to supply detailed information about their formal relationships or regulatory interactions with Chinese authorities or the role of each company’s Chinese Communist Party Committee. According to the Committee, the limited answers provided by Huawei and ZTE were not supported by sufficient internal documentation or other evidence. While the lack of cooperation alone did not prove wrongdoing, it factored into the Committee’s decision that “the risk associated with Huawei’s and ZTE’s provision of equipment to U.S. critical infrastructure could undermine core U.S. national-security interests.”

The Committee made several recommendations as a result of its investigation. Notably, the Committee “strongly encouraged” U.S. businesses to consider the “long-term security risks associated with doing business with either ZTE or Huawei” and to seek other vendors for projects. Additionally, the Committee urged Congress to consider passing legislation “to better address the risk posed by telecommunications companies with nation-state ties or otherwise not clearly trusted to build critical infrastructure.”

The report has been criticized by some because of the lack of conclusive evidence in the non-confidential portion to tie Huawei or ZTE to any sort of wrongdoing. One critic accused the Committee of using “potential cybersecurity threats…to circumvent the Bill of Rights using ‘national security’ as an excuse” without considering alternative solutions, such as vulnerability testing all foreign-made equipment. Huawei has strongly objected to the report, calling it “little more than an exercise in China-bashing.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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