How the Principles of the Rule of Law Extend Fundamental Protections to Non-U.S.
Companies and Executives Subject to Extraterritorial Jurisdiction
When Meng Wanzhou was arrested in Vancouver in December 2018, it attracted global attention. Due to the aggressive assertion of extraterritorial jurisdiction by U.S. prosecutors, Ms. Meng found herself under house arrest in Canada fighting extradition to the U.S. to face charges of bank fraud. But the same principles of the rule of law which resulted in the charges being brought against her, also extended to her the full panoply of rights and protections under law. As will be illustrated below, her counsel are asserting all of the rights and protections so extended to her.
The Next Battle – The Abuse of Process Claims
The first line of defense (as noted in part two) presented by counsel to Ms. Meng was a challenge to the request for extradition on the grounds that the underlying charge of bank fraud consisted of alleged misstatements and omissions relating to potential violations of U.S. sanctions against Iran. Canada has no similar sanctions regime in place, so counsel argued that the fundamental element of “double criminality” was not satisfied. The court disagreed, but that set the stage for the next battle – challenging the underlying fairness of the proceedings.
In this phase of the proceedings, Ms. Meng’s legal counsel have presented a four-prong attack.
• The first prong (or branch) focuses on the politicization of the prosecution as evidenced by the statements made by President Trump (as referenced by Ambassador McCallum in his original comments, for which he was later sacked).
• The second branch challenges the manner in which the arrest was made, highlighting years of alleged harassment of Chinese executives to conduct illegal searches.
• The third branch claims that U.S. prosecutors have made material misstatements and omissions in the record of the case.
• The fourth branch challenges the assertion of U.S. jurisdiction over her as the alleged conduct had no connection to the U.S.
All four prongs may be grouped under the general heading of abuse of process, which is conduct which offends the Canadian sense of fair play and decency, compromises the fairness of the proceedings or undermines the integrity of the judicial process.
In an interview, Professor Lisa Silver of the University of Calgary Faculty of Law, who has extensive experience with criminal law matters, noted that under controlling precedents a stay of the extradition proceedings on grounds of abuse of process is only granted in ‘the clearest of cases.” Professor Silver declined to express a view on the merits of the applications filed on behalf of Ms. Meng; however, she observed that as a general matter in presenting such a defense, counsel for the accused is speaking both to the court and to the Minister of Justice, who will make the final determination.
As such, although the extradition proceedings do not involve a trial on the underlying merits, counsel for the accused may elect to make use of certain of the relevant facts of the underlying case in order to support its argument on the abuse of process claim. In that way, the extradition proceedings may in some instances include a preview of portions of the future defense to be presented at trial should extradition ultimately be granted.
The abuse of process arguments presented by counsel for Ms. Meng in this case do provide such a preview and as such merit closer analysis. The facts supporting the second branch relating to the circumstances surrounding the arrest of Ms. Meng have already been described in part two in this series, and the fourth prong of her defense is essentially self-explanatory and will be addressed directly in part four of this series.
Accordingly, in this article we will review only the first and third branches of the abuse of process claims. These branches also relate more closely to, and help illustrate more clearly, some of the broader themes addressed in this series. It is also important to note that while the court has not admitted all of the evidence presented by counsel for Ms. Meng for purposes of the extradition proceedings, which are more limited in scope, a review of the evidence and the related arguments also help to provide a fuller context of the arguments to come.
First Branch – Ms. Meng is Being Used As a “Bargaining Chip”
Based on a review of court submissions, the arguments raised by counsel for Ms. Meng in respect of the first branch of abuse of process claims assert that Ms. Meng in essence is being held as a “bargaining chip” in a high stakes game of geopolitical poker between the U.S. and China. Counsel specifically cited to a series of statements by President Trump’s:
• In an interview on December 12, 2018, less than two weeks after Ms. Meng’s arrest, he stated that he “would certainly intervene” if he thought it was necessary in order to conclude “the largest trade deal ever made.”
• In January 2019, President Trump stated that while the Huawei case had not been discussed with the Chinese side yet, it “will be discussed.”
• In February 2019, when a reporter asked if he would consider dropping the criminal charges against Ms. Meng as part of the ongoing trade deal discussions, he responded, “[W]e’ll be talking to the U.S. Attorneys. We’ll be talking to the Attorney General. But we’ll make the decision.”
• Further, in June 2019 following the G20 Summit, President Trump again linked the Huawei case to the U.S.-China trade deal, stating “Huawei is a complicated situation. . . . We’re leaving Huawei toward the end. We’ll see where we go with a trade agreement.”
President Trump’s stated willingness to intervene in the Huawei case was seen as being in line with his apparent interventions in other high-profile cases. In the application to the court, lawyers for Ms. Meng also cited to the president’s statements and actions in connection with the Roger Stone and Michael Flynn cases.
Michael Gottlieb, a partner in the D.C. office of the white shoe firm of Willkie Farr & Gallagher and former Special Assistant to the President and Associate White House Counsel to President Barack Obama, also submitted an affidavit describing longstanding policies and norms relating to contacts between the White House and domestic law enforcement officials regarding active criminal investigations and prosecutions, which are designed to avoid even the appearance of political interference in criminal matters. Mr. Gottlieb opined:
President Trump’s stated desire to use Meng’s criminal prosecution as a bargaining chip in trade negotiations with China violates long held policies and norms, enshrined in over 50 years of administration policy against political intervention in individual criminal cases. An individual’s guilt or innocence under federal criminal statutes should turn on whether the individual engaged in conduct that is prohibited by that statute. By contrast, prosecutorial decisions do not and should not turn on whether prosecuting the individual might help position the United States favorably vis-à-vis a foreign trade partner or ultimately help the President’s political prospects.
Counsel for Ms. Meng further cited to statements of Canadian officials, including the controversial statements of now former Ambassador McCallum set out in part two of this series. Moreover, although the stated position of the Trudeau administration is that there has been no political interference in the process, in December 2019, one year after Ms. Meng’s arrest, Prime Minister Trudeau essentially echoed Ambassador McCallum’s remarks, stating , “We’ve said that the United States should not sign a final and complete agreement with China that does not settle the question of Meng Wanzhou and the two Canadians.” However, more recently, in November 2020, the Prime Minister stated  unequivocally that he did not regret the arrest of Ms. Meng, citing Canada’s allegiance to the principle of the rule of law.
These arguments advanced by counsel for Ms. Meng are consistent with the commonly-held view in China that President Trump either orchestrated or authorized the arrest of Ms. Meng, possibly to gain leverage in the negotiations with China. However, multiple current and former U.S. government officials have confirmed that, due to lack of coordination and general dysfunction within his administration, President Trump was out of the loop and was not even aware that Ms. Meng was being arrested as he sat down with President Xi at the private dinner at the G20.
It is also noteworthy that the investigation of Huawei predated President Trump’s election, and in some of the statements cited by counsel for Ms. Meng, President Trump had also downplayed the significance of the Huawei case in the context of the overall U.S.-China trade negotiations, stating “that [the Huawei case], actually, as big as it might seem, is very small compared to the overall deal.” Moreover, notwithstanding President Trump’s predilection for bluster, some of his actions cited by counsel for Ms. Meng were in fact within his constitutional authority, and U.S. justice officials and the U.S. justice system generally maintains strict professional independence, strongly resisting any attempts at political interference.
In addition, now that Trump is out of office, this branch of the defense appears to be less potent now than it once was, and in light of the change in U.S. administration, this argument may have to be revisited in its entirety or at least reframed.
Third Branch – No Bank Fraud Because “HSBC Knew All That It Needed to Know”
Since extradition proceedings do not involve a trial on the merits, the requesting state presents a Record of the Case (ROC), which is entitled to a presumption of accuracy and reliability. Given the importance of the ROC in the proceedings, the requesting state has a duty to be diligent, candid and accurate. Ms. Meng’s lawyers here allege that U.S. prosecutors failed to meet this high standard, threatening the fairness and integrity of the proceedings.
It is in this context that Ms. Meng’s counsel provides the clearest preview of core elements of her case. The crux of the bank fraud charge is that (a) in the PowerPoint presentation, Ms. Meng made material misstatements and omitted material facts regarding the relationship between Huawei and Skycom, and (b) in reliance on that presentation, HSBC proceeded to clear U.S. dollar transactions related to Skycom’s business in Iran, potentially violating U.S. sanctions law and exposing HSBC to criminal liability and financial risk.
In response, counsel for Ms. Meng assert that the ROC included only selected slides from the PowerPoint presentation, omitting other highly relevant information on other slides which clearly confirmed that Huawei and Skycom were business partners in Iran and arguably showed that Huawei controlled Skycom’s operations in Iran. Moreover, the ROC suggested that only junior HSBC employees knew that Huawei controlled Skycom’s bank accounts at HSBC, when in fact two senior executives in the global banking operations of HSBC were also aware of this fact. Finally, HSBC had already been processing U.S. dollar payments for Skycom for three years prior to the August 2013 meeting. In summary, counsel for Ms. Meng argue that there was no deception, no material omission, no conduct by Huawei or Ms. Meng placing HSBC at risk, and thus there was no fraud.
Counsel for Ms. Meng have proffered the affidavit of John Bellinger, III, a partner at the powerhouse D.C. law firm Arnold & Porter Kaye Scholer, and former senior U.S. government lawyer in various administrations, in support of Ms. Meng’s application to stay the proceedings. Based on his extensive experience in both international extradition matters and Iran sanctions laws, Mr. Bellinger concluded that the alleged misstatements by Ms. Meng in the August 2013 meeting with HSBC officials in the Hong Kong restaurant had no bearing on the potential exposure of HSBC to criminal liability under the Iran Transactions and Sanctions Regulations, commonly referred to as the ITSR or the Iran sanctions act.
The ITSR prohibited non-U.S. banks from processing U.S. dollar payments through the U.S. financial system, but Mr. Bellinger noted that from the uncontested statements of Ms. Meng at the meeting with HSBC, it would have already been abundantly clear to HSBC that Huawei and Skycom had a relationship and that both operated in Iran and that therefore HSBC could already be subject to ITSR liability for all such related U.S. dollar payment transactions. The alleged misstatements related only to the extent of the relationship between Huawei and Skycom, not the fact of that there was a relationship. Thus, he concluded that “[a]t all times, HSBC knew all that it needed to know to limit exposure to ITSR liability, and Ms. Meng’s statements did not diminish this knowledge.”
Counsel for Ms. Meng further noted that HSBC was not required to process these U.S. dollar payment transactions through the U.S. banking system, but could have utilized the Clearing House Automated Transfer System (CHATS) in Hong Kong, which is used by more than 200 banks to clear U.S. dollar payments without accessing the U.S. banking system. In his legal opinion, Mr. Bellinger confirmed that non-U.S. banks can make U.S. dollar payments from or to Iran outside of the US financial system without violating the ITSR.
Finally, Mr. Bellinger further noted that “bank customers are generally not in a position to dictate how their banks technically process payments, including U.S. dollar payments. Therefore, it is not reasonable to expect that a non-U.S. bank customer asking its non-U.S. bank to process a payment denominated in U.S. dollars is in a position to either cause or prevent its bank from using U.S. intermediary banks or service providers to process that payment” (emphasis in original).
Counsel for Ms. Meng raised one more example of a material omission in the ROC by U.S. prosecutors – they failed to note that HSBC was severely penalized for its own egregious violations of U.S. sanctions law and had entered into a deferred prosecution agreement (DPA) with federal prosecutors. This was another example of the failure of the U.S. as the requesting state to fully disclose what HSBC knew and when they knew it, which could tend to undermine the factual basis for the bank fraud charges. This, counsel argued, further impair the credibility, reliability and integrity of the proceedings.
(Separately, in an apparent attempt to bolster their position on this point, Huawei sued HSBC  in the U.K. seeking access to internal bank documents. In a set-back for Huawei and Ms. Meng, the U.K. court promptly denied the application. However, the bank reportedly is also facing political pressure in China for its conduct in this case, while HSBC is also facing criticism in the U.K. for allegedly being too solicitous of China in other matters.)
The Attorney General of Canada (AGC), which represents the interests of the Canadian government in supporting the extradition application, has moved to dismiss the third branch on the grounds that it is frivolous, claiming that defense counsel is trying to turn the extradition hearing into a trial and postpone the proceedings.
However, in respect of this argument the Canadian court handed Ms. Meng a small but important procedural victory at the end of October 2020, allowing this third prong of her claim of abuse of process to proceed to hearing and allowing her lawyers to adduce additional evidence in support of those claims (although, as noted above, not to the full extent requested by counsel for Ms. Meng). In making that ruling, the court found that Ms. Meng’s lawyers argument met the “air of reality” test, which admittedly is a low bar.
Although the court’s ruling permits counsel for Ms. Meng to proceed with the third branch of its abuse of process claims, these arguments do not go to the issue of guilt or innocence but only to the integrity of the proceedings. Ms. Meng’s counsel argues that the material misstatements and omissions in the ROC submitted by U.S. prosecutors warrant the dismissal of the extradition proceedings in order to vindicate the principles of fundamental justice. Canadian law, however, also permits the court to require the requesting state to supplement the ROC.
Regardless of the ultimate outcome of the extradition proceedings, as we will address in more detail in concluding part four of in this series, the arguments of counsel for Ms. Meng relating to the processing of U.S. dollar payments relates not only to HSBC’s potential liability under the ITSA for purposes of the charge of bank fraud, but perhaps more importantly also relates to the extension of U.S. jurisdiction over Huawei and Ms. Meng in this case and to other similar transactions outside of the U.S. generally. Global banks act as the de facto agents of the U.S. government in policing sanctions violations around the world principally as a result of the dominance of the U.S. dollar in international trade finance, and as such the implications of these factors merit closer attention by other Chinese and non-U.S. companies.
Planning the End Game
The hearings on the abuse of process applications generally are scheduled for March and April 2021. As noted above, relief will be granted in such cases only in “the clearest of cases,” so the chances for success here may be quite low. But also as noted above, counsel for Ms. Meng may be playing not just to the British Columbia Supreme Court where the current proceedings are being held, but also to the Minister of Justice, who will make the final determination.
Under Canada’s Extradition Act, the Minister can refuse to surrender the person sought to the requesting state if the Minister is satisfied that “the surrender would be unjust or oppressive having regard to all the relevant circumstances” or in cases involving prejudice by reason of race, religion, sex, sexual orientation, political views or other reasons. The Minster can also decline extradition if the offense is punishable by death in the requesting country, but in such cases the Minister may still agree to the extradition if the requesting country confirms that the death penalty will not be imposed in the event of a conviction. In practice, it is very rare for the Minster of Justice to refuse to surrender the person sought.
Some observers suggest that Ms. Meng and Huawei may need to be thinking beyond just the court and the Minister of Justice, but play to an even wider political and diplomatic audience to seek a resolution on a grander scale and on a broader geopolitical basis. In September 2020, Huawei was slapped with a strict ban on the purchase of semiconductor chips and other products containing U.S. technology.
The chip ban threatens to have a severe impact on Huawei’s smartphone business. Huawei has countered by stockpiling supplies  and entering into a supply arrangement with Samsung  to survive in the short term, but over the longer term Huawei will either need to innovate to develop its own chips without using U.S. technology or get relief from the U.S. ban. (On the other hand, some experts consider the chip ban to be counter-productive  as it will tend to cut U.S. technology companies out of the supply chain, as China works with other global players to circumvent the chip ban.)
ZTE Part Deux?
The ZTE experience may prove instructive in the Huawei case, although the context is different and the overall geopolitical environment has changed for the worse. To illustrate how the ZTE case may have relevance to the Huawei case, some additional background is necessary.
When ZTE was placed on the Entity List in 2016 (which, as noted in part two of this series, resulted in renewed scrutiny of Huawei’s activities), it effectively made it unlawful for U.S. and non-U.S. suppliers to sell ZTE key components and software which included U.S. technology. This would have prevented ZTE from using critical parts of the Android operating system, including access to the Google Play store as well as updates to Android. In addition, as we have seen was the case here, U.S. and non-U.S. banks were also prohibited from clearing U.S. dollar payments for ZTE through the U.S. banking system.
This put extreme pressure on ZTE and induced it to come to the table to negotiate a plea deal  with U.S. prosecutors. In March 2017, ZTE agreed to combined civil and criminal penalties of $1.19 billion (US$300 million of which was suspended subject to forfeiture if ZTE violated the settlement agreement) and pled guilty to selling US-origin items to Iran and North Korea in violation of relevant U.S. sanctions laws. In addition, ZTE was placed on probation for an additional seven-year period, although during the probation period it would once again be permitted to purchase U.S.-origin technology. Under the settlement agreement, ZTE was also to take disciplinary action against 39 employees implicated in the illegal scheme.
The ZTE settlement agreement blew up just one year later when ZTE’s outside counsel learned, and then informed U.S. authorities, not only that reprimand letters had not been sent to the implicated ZTE employees as originally confirmed in filings submitted by ZTE to U.S. authorities, but also that all but one of these employees had received their 2016 bonuses in full. The U.S. Commerce Department determined  that this was just the latest example of a continuing pattern of deception, false statements and repeated violations of U.S. law, and as a result the 7-year ban was reinstated and the suspended US$300 million fine was forfeited. Many saw this as a “death penalty” for ZTE, and only a few weeks later ZTE in fact started shutting down most of its operations.
At this point, in a move to save the pending U.S.-China trade deal, President Trump stepped in, tweeting on May 13, 2018, “President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!” Similar to the Huawei case, ZTE was described by some industry analysts as a “bargaining chip” in the larger trade negotiations, and the action by President Trump in the ZTE case may be the best example of direct intervention by the White House in a matter that involved both regulatory as well as criminal actions.
ZTE did not get off lightly. ZTE was required  to shake up its board of directors, a US$1.4 billion fine (US$400 million of which was escrowed) was imposed, and an independent monitor approved by and reporting to the U.S. government was put in place.
Many of these penalties are similar in nature and severity to those imposed on HSBC under the DPA. A key difference between the ZTE and HSBC cases is that because ZTE had repeatedly lied to U.S. government officials and had engaged in efforts to cover up their illegal conduct, it was required to plead guilty to the charges, while prosecution of HSBC was deferred under the DPA, and eventually the charges were dropped, because it provided a high-level of cooperation.
While there are many parallels between the Huawei and ZTE cases, there are also major differences. Trump was incentivized to cut a deal with ZTE in order to keep the then pending trade deal negotiations on track. However, starting well before the U.S. presidential election, in the continuing wake of the global COVID-19 pandemic, negotiations of the next stages of the U.S.-China trade deal had already been placed on indefinite hold. In fact, many high-ranking officials in the Trump administration had started to push for a broader de-coupling with China (a position the Biden team have rejected ).
So even before the Biden team took the reins, the Trump team had all but given up on the next stages of the trade negotiations with China. As such, it was not clear whether Ms. Meng could have been seen by the Trump administration as a bargaining chip any longer since there was nothing on the table to negotiate. However, even absent the over-arching context of a trade deal, in any prosecution there is almost always a plea deal that can be brokered on its own merits.
In fact, the Wall Street Journal reported  in early December 2020 that the DOJ (presumably independent of political pressure from the Trump administration, which was more likely to be pushing the opposite direction) had already quietly offered a plea deal to Meng – plead guilty and go home. Others  are reporting that Ms. Meng is reluctant to admit guilt and is seeking a deferred prosecution agreement instead. This would still require that she sign off on an agreed set of facts outlining the wrong-doing but would avoid a formal conviction so long as she adhered to the terms of the deal. A similar plea deal or DPA based on the ZTE framework would have to be worked out separately for the Huawei entities which face related criminal charges.
Is a Political Solution the Only Realistic Solution?
The Chinese side had been waiting for the results of the U.S. presidential election to see how that might change the relationship dynamics, and the two superpowers currently appear to be in a period of feeling out the new parameters of the dialogue now that the Biden team is in place. While several members of the Trump administration were generally acknowledged to be particularly aggressive anti-China hawks, both sides of the political divide in the U.S. currently hold a generally negative outlook on China. Consequently, many well-placed observers anticipate that a Biden administration perhaps would be more pragmatic and less openly hostile to China, but prevailing public and political sentiments in the U.S. towards China would probably allow only modest softening  of the U.S. official stance. Thus, the overall trajectory of the case against Meng Wanzhou may not be affected to any significant degree by the transition to the new U.S. administration.
Of course, this case involves Canada as well, and negative sentiment within Canada towards China is also at historic highs. However, there is still a strong interest in securing the release of the two Canadians that are being held in China on charges of spying. In this respect, as some influential commentators had observed, it may be that Ambassador McCallum’s original comments may have reflected (and may still reflect) the actual objectives of the Canadian government, but which must be managed in the context of the realities of the Sino-U.S., Sino-Canada and U.S.-Canada relationships. Moreover, these objectives must be balanced against the principles of the rule of law and protection of the rights of the accused. These are the same rights that are now fully afforded to Ms. Meng in the current proceedings.
But as we have also seen, many people, including many in high positions, are willing to entertain the possibility of direct political interference in the judicial process at this or a later stage. The legal opinion sought and promoted by former Canadian Justice Minister Allan Rock (see part two in this series) essentially proposes a similar approach – reinforce the concept of the rule of law by looking beyond the law to the broader considerations of international relations with China. Trump was excoriated for such talk, and as noted above his loose rhetoric in this regard forms part of the claims of abuse of process raised by Meng’s lawyers.
However, this option cannot be ruled out, and the ZTE deal provides the template but with the added dimension that Ms. Meng and the two Michaels would need to plead to agreed lesser charges and be sentenced to time served. Such a deal would need to be structured to be implemented with sufficient intervening intervals of time so as to provide all sides with plausible deniability.
Even with the political establishment and the news media aligned in opposition to almost everything else he did, there was no outrage in the U.S. when Trump cut the ZTE deal. No one complained that he interfered in pending administrative and criminal actions to further his political objective of striking a trade deal with China. So long as the DOJ can report that an arrangement similar to the ZTE deal has reached with Huawei, with corresponding stiff penalties and continuing monitoring obligations, and the two Michaels are released, a plea deal with Meng in her personal capacity is likely to attract minimal attention within the general U.S. population.
Assessing and Addressing Global Compliance Risks
As previously noted, the issues surrounding the Meng Wangzhou case are complex and involve layers of criminal law, administration of justice, administrative law, government discretion and ultimately diplomacy. As such, it is not to be expected that these issues will be resolved quickly, easily or without collateral impact on the tri-partite relationships. However, it is in the best interests of the three state players and the entire global community for the current economic cold war between the first and second largest economies in the world be resolved.
Irrespective of the ultimate outcome of the case against Meng Wanzhou, it does illustrate the types of risks that Chinese and other non-U.S. companies face when expanding internationally. This is the subject of the final installment in this series.
To be concluded