The arrest of Huawei’s CFO in Canada has raised a lot of concern. I was not clear what the charges are, and there seem to be many conflicting stories about how this situation should be approached by all parties. It seems like one side is trying to undermine the other from doing business outside its borders, but at the same time, another country might want to protect its own people against espionage risks that come with using Chinese technology products in sensitive industries.
The conflict here is between protecting national security and ensuring economic development, but also keeping an eye on new technologies being developed which could potentially disrupt everything we know today when it comes to tech innovation. There may be very different opinions among governments as well as citizens when it comes to this.
I wanted to know, so I’m talking to Warren Vincent, a global banking expert, to learn the conflict and how it affects future business and investments.
Listen to the podcast here:
Understanding the Conflicts Behind the Arrest of Huawei’s CFO in Canada
Warren Whitlock: [00:00:00] Hi Warren Whitlock, here with another Warren. Warren Vincent. And we’re here because of what I’ve been reading about. What’s going on with Huawei, China, the US, Canada, Sabrina Meng, and HSBC… trying to figure that out and. I don’t know, I’ve got a lot of ideas. It makes a lot of sense how much nonsense this might be to me, but I don’t know.
There might be a lot more substance to it. So I went to a guy who knows. And Warren and also welcome, I think my first Warren on a podcast interview. The two Warren’s show today. But tell me something about, other than your great name, something about this whole situation.
Warren Vincent: [00:00:43] Look, thank you for that intro Warren. Yes, it’s a coincidence. We both had the same name. Look, my background is very straightforward. I’ve spent 30 years working in finance, and from 1998, till 2004, I was a senior executive with HSBC in the United States. Obviously, throughout my career, I have to keep myself up to speed in what is going on in the world of compliance and the world of banking.
And obviously, a topic like this is something that has a particular interest because it brings together the trade aspects together with the geopolitical aspects. And it’s something that fascinates me. And as I say, it just keeps me up to speed.
Warren Whitlock: Most of what I watch well, and in current events, when it comes right down to it, I don’t have a strong opinion one way or the other. I, my interest is how these screwy things happen and understanding them enough because I figure like if something’s going on, if there’s a pandemic out there, even if I’m sitting here in a safe place or what I feel is the safe place.
It’s changed the world. I got to know about it. And the same with this the trade war situation, which I think the average person doesn’t get enough exposure to obviously in finance, a lot. So tell us what happened here. We had things were going along, and somebody made a PowerPoint presentation or is that, or does it go back farther than that?
Warren Vincent: [00:02:14] Yeah, look, I think it probably goes back a little bit further than that, Warren, and I think it might help listeners to understand a little bit about the context here. This is not a situation that came as a bolt of lightning out of; for many years, there had been a creeping pressure to reign in activities within financial services that related to anti-money-laundering and to sanctions.
And this basically culminated in a case against HSBC. In the mid-2010, 2015 range basically, HSBC at that time was found guilty of breaching US sanctions, specifically with regard to Iran. And they reached an agreement with the department of justice in December 2012.
Where they agreed to what is called a deferred prosecution agreement. Now that agreement, and this is an interesting point, has a five-year life. So December 2012, five years. So that takes us up to 2017. The interesting part of the deferred prosecution agreement is that if HSBC were found guilty of any further infringement during that time, they would be guilty for criminal prosecution.
That’s in addition to the 1.3 billion they paid as a penalty for agreeing to the deferred prosecution agreement. So that’s very important, I believe, a very important piece of information for people to understand regarding this, the context of this case.
Warren Whitlock: [00:04:04] So before any of this happened, the agreements in place and the regulators, coppers, whatever we call them, are out looking for more or more ways to go after. Anybody that is doing business in ways they don’t like,
Warren Vincent: [00:04:21] Absolutely. The regulators, as a consequence of many events around this time people might be aware that The banks have their compliance departments after the great financial crisis in 2008, increased by around a third. So financial service companies were having to hire compliance and risk employees at a fairly rapid rate of knots to keep up to speed with developments in the laws and the requirements being laid down by the regulators so much.
So, in fact, that interestingly HSBC off this deferred prosecution agreement. They introduced a new board committee, so that committee had a specific purpose of helping them to identify any areas where HSBC might become exposed internationally. As a consequence of new laws, new regulations such that they wouldn’t become a risk for the financial system as a whole.
That’s quite a that’s quite a difficult challenge.
Warren Whitlock: [00:05:32] Yeah. And now let’s move beyond that because we know HSBC is, it is in everybody’s crosshairs. Yeah. It’s just something as a US point of view, I, as a non-finance guy, I’ve always, I’ve seen the, I’ve seen the letters of, it’s not on the it’s not signs all over the airport when I traveled.
It’s not much me because it doesn’t affect my daily life, but it’s, the news is always these guys are foreigners. We don’t like them xenophobia from the U S but let’s move on beyond that. So they’re out looking, how does Huawei and Meng specifically get involved?
Warren Vincent: [00:06:10] So if that’s part of I think that’s part of a much broader narrative look, Huawei had fallen, foul of a number of governments, specifically Australia, New Zealand, United Kingdom at the time you and
Warren Whitlock: [00:06:24] Given their size. That makes sense.
Warren Vincent: [00:06:27] Yeah, I look, you and your listeners might recall that, during Brexit that other famous political events.
The British government had to decide whether Huawei could be allowed to be a core provider to the 5g, the build-out of the 5g network. And this was one of the pressures. One of the perceived pressures that the United States was putting on the five eyes intelligence group, which is the United States, Canada, UK, Australia.
In that context, that’s how Huawei initially became embroiled in the situation.
Warren Whitlock: And while they don’t want the, and obviously there’s a lot of very large telecom interest based in the United States while those interests, whether or not it’d be through lobbying through how we go about looking at things for whatever. Say, oh yeah. If we can’t let China provide the infrastructure, I went to somebody and asked at one point during this, if there’s anything about Huawei, I should be worried about, and this, I was fairly, not fairly high up in what he’s done in US intelligence.
First of all, we don’t use any of that equipment here. It’s not us we’re then we’re trying to tell the rest of the world what equipment to use. I don’t know, but I get that there’s that. And that puts Huawei in the cross hairs. It’s and it’s also a Chinese company, which means it’s, certain lobbying, the groups don’t want that to happen for whatever reason.
And as an American idea, I liked to say I like having, control of all these things that I know in a global economy. We need parts from everywhere. We’re not going to be able to shut down all trade with China. So I’ve tried to look at the logical conclusion and say, we, we do a lot better to get along with them.
So the Huawei part they just didn’t, it wasn’t a routine. When we found a PowerPoint, I’m excited to go after somebody because that was scared. The heck out of me. I’m not in finance, but the government’s going to review every PowerPoint claim I ever made. As far as I know, I’ve never made anything near, a fraudulent claim, but if, I still don’t want somebody to go over it with a fine tooth comb, say a, what were you trying to say here?
But they targeted that Individual or the company or a group of things. And then Meng becomes the part of this, or did she play some role that, that really made the us government mad at her?
Warren Vincent: [00:08:59] I think it was I think the way that the situation on the phone. That may in her position as deputy chairman, chief financial officer, she made a presentation at a senior level to HSBC at the time in Hong Kong, that was around August 2013. Now the interesting thing that that I see from that narrative and from what has been conveyed in the media is that, Huawei would have been.
One of HSBC’s largest clients globally. They were present in 40 countries and I’ve I, as a banker I’ve attended many of these meetings with very high profile clients in the context of what I was discussing earlier about how the laws and regulations were changing. The bank would have absolutely been on point in Hong Kong in August 2013, a short eight months after agreeing to a deferred prosecution agreement with the United States in December 2012.
So for me, any meeting being conducted with a senior official from one of your largest clients, would definitely have been attended by a very senior executive of the bank. And, as I say, the rules and regulations inside of the bank to, to ensure you have adequate due diligence on your client’s background information constitution of the companies, this is our bread and butter as bankers, frankly.
Warren Whitlock: [00:10:39] Yeah. So if they, if there was some kind of thing here where this was some kind of collusion, first of all, holding things from the bank I don’t get, the bank might be mad, but not, yeah. Not another government. And then even if it’s all there is there’s this leading to them, trying to try in that five year, your agreement, trying to say that.
Yeah, this now proves that if we convict her, that proves that HSBC was doing something that didn’t w that was wrong under the terms of the five year.
Warren Vincent: [00:11:13] Sure. Absolutely. So if you delve into the nitty gritty here, Warren, the angle. The United States has taken is that when Meng gave this presentation there is an accusation that she did not provide information within the presentation regarding a subsidiary of a Huawei that was doing business in Iran, where they were selling US equipment, which I believe was from one of the computer providers.
Hewlett Packard if I’m not mistaken? But it would appear that, all of that information was in fact included in the presentation. And as I alluded to earlier, one of the first things you want to know about one of your largest clients globally is what their corporate structure is.
What do they own? Where do they own it? Where can we bank it? At the end of the day, many banks want to look after their clients internationally and it’s one of HSBC’s mantras. So me
Warren Whitlock: [00:12:17] not a Skyway company was something that would be unknown to HSBC and just, yeah. In the, on the surface, let alone whether or not it was disclosed in a particular PowerPoint. So
Warren Vincent: [00:12:30] I, yeah, I call it of course. None of us can prove that it was, or wasn’t included in the
Warren Whitlock: [00:12:37] Even if wasn’t, it’s the kind of thing where the people in that room would have known about it. And maybe the disclosure didn’t need to even be there again. I’m not one to try to figure out what these laws tell them to do. So if they hadn’t been able to get Meng, would they have gotten somebody else, would it have worked as well?
Or is that the fact that she’s daughter of the founder and it’s a slap in the face? All of China. That is that what that was.
Warren Vincent: [00:13:05] Yeah, look, if it would seem to me that it’s in these cases, like the fines for HSBC, like the fines two years later for BNP patio, but for the same infringement, 8 billion dollar fine. These are headlines more s, these are activities that are seeking to dissuade businesses from doing anything that contravenes the will.
U S policy at the end of the day, otherwise you are going to suffer severe penalty for doing so. It’s important to, it’s important to remember as well, or, and it’s not just the fines within financial institutions. We have the senior bank offices conduct of business rules that specifically apply to us as officers, where if we are found in any way.
Guilty of infringing those rules. Of course, we, ourselves can be held liable, which could lead to a prison sentence and so on and so forth. So there is a real teeth to these rules.
Warren Whitlock: [00:14:08] Okay. So the ends and of course once they are going after her and the fact that you went to Canada, I was, I’m guessing it wasn’t a stop on the way to the U S it was Canada, and that’s why they chose to get her there. They, this whole extradition mess that’s just part of what’s going on in process.
It’s not that the extradition was meant to create the news by itself, or maybe a was who knows I’m not much for conspiracy theories, it sure played out well, that it’s keeping this in the news for years.
Warren Vincent: [00:14:40] You might want to consider these facts were the original meeting with the HSBC executives was August 2013. Meng was questioned first of 1st of December 2018, if I’m not mistaken. So that’s a good few years later. So that means that she must have come up on the radar screen.
It also comes up at the time where we were, where the United States was engaging pretty actively in in a trade war with China under the last president, the presidential administration, either the president Trump had made very
Warren Whitlock: [00:15:20] Fighting with about everybody, but China in particular.
Warren Vincent: [00:15:24] Yeah, absolutely. You know this, I think this was a.
This was an opportunity to get some policy done by it had some leverage and the opportunity presented itself. That’s how it looks to me as an outsider
Warren Whitlock: [00:15:37] so I always like to look at a game and to me, life in business or game a game theory type of thing and without getting too much into what game theory is or anything, I just like overview of going okay, the players here are Huawei HSBC Canada, China, and the US so they all have their interests.
If the us gets its way. And extradites Meng and puts her in jail, or I don’t know what D does any policy change,
Warren Vincent: [00:16:11] I think that would, frankly speaking, I think that would be very damaging for both political and trade relations internationally.
Warren Whitlock: [00:16:20] Yeah. It would have, it may serve some form of justice, but it doesn’t serve making progress in, in the whole thing. So the U S interest is to get some attention for. And then of course we see some rumors where it might be in a Biden and administration’s best interest to just let this thing go.
If they did let this go, then they’re not really hurting. As long as they’re making it look as long as they don’t come off as saying we’ve decided she’s okay. And say, we want you, but we understand the extradition was done. Oops, we’ll get you next time. That seems to be what would be the U S government’s best interest, but I don’t know.
And of course we’re speculating at this point entirely speculating. China wants to save face and doesn’t want to let anybody go. That’s why they’ve taken in two. executives. Who I’m assuming have just as little wrong in anything they did. I’m not one to look at these things in saying that Meng or the other executives or HSBC are guilt-free.
They skirt the law, the laws and regulation all the time. That’s their job is to figure out how to get things done. But in this case, that’s really not what the plan. Does that make sense that both China and Canada are looking to, China and us are looking to save face out of this thing and Canada of course wants to they gotta do what the us tells them at some point, to cause they are, fairly dependent on a relationship with us, but they’re not going to, they don’t want to publicly, just say we’re going along with anything the US tells us to do.
So they all just back down, it seems like everybody progress gets made or will they continue to have this war, even if Meng is not involved.
Warren Vincent: [00:18:07] Look, I think, first of all, I think this is a holdover from a prior administration and perhaps that gives Biden some opportunity to look at the matter in a slightly different way. There have been administration officials in the past, Jack Lew, the former us treasury secretary has made comments that, the U S has to be careful how it plays its hand with US dollar hegemony and how it extracts value from that power internationally, because it can have unintended consequences where this could be.
This could be very damaging for trade. It’s very damaging for business because imagine you’re an executive and exactly to your point, executives are hired. Chief executive officer is hired to execute the business plan and strategy of the business. How do you do that? If you’re so fearful that your very next move could land you?
In a court case with a very powerful defense against the U S government, this is something quite scary.
Warren Whitlock: [00:19:15] It seems sometimes that our policy here is to do anything we can to screw up our relationships with the rest of the world. And I’m not talking about a certain administration, just the U S in general. So we’re going to go stick a base in your country. And protect you, but at the same time, we’re not going to be really good neighbors once we get there, especially in the last 20, 30 years.
It’s, it doesn’t seem like anything we did or can do in Afghanistan makes us better players on the world stage.
Warren Vincent: [00:19:47] No, I think, look just to provide some balance to that word. And what I would say is that I think the United States. Takes its position as the, the global financial transaction provider of the world. Very seriously, in order for that system to work efficiently, it has to be trusted.
So in that context, I can understand why the administration would make sure that, the financial. Laws are robust. Why there are strict penalties for not adhering to that. However, again, coming back to all of these fines for anti-money-laundering sanctions, so on and so forth, sometimes these, I guess people get excited and maybe, they see that they’re making a lot of traction.
They’re getting extra revenue. Maybe they lead it revenue at that time. Maybe that. And certain coffers and you end up going in a direction that has unintended consequences, where you now have a situation where you’re running the risk of tit for tat. And we’ve already seen tit for tat in this case where other individuals, I believe Canadian citizens were arrested by China.
Warren Whitlock: [00:20:59] And I, again, it just does not, I’ve not heard, seen, read or heard anything as to where they were doing anything, in particular, wrong or close to wrong. They were just there at the right time. And of course, that’s very fearful of people. I see when I was researching. Prepare for this interview.
I thought somebody was carrying on about their treatment, which we don’t know. China’s not much it, releasing statements every day about how well they’re treating people compared to a picture of Meng going shopping. And, of course, that kind of gets away from the point. It’s not these particular people.
It’s the fact that they were embroiled in this rather than. Negotiating how to do new business and get technology into people’s hands. So are there any opportunities for businesses watching this to cause obviously some fear that’s being generated? Are there some opportunities for the courageous who want to figure out a solution to not get in this trouble and maybe make a profit?
Warren Vincent: [00:22:04] Yeah, look, that’s a difficult one to answer on a specific case where, and obviously, Huawei very specifically is within the telecoms space. But look, you already have many of the large us companies that are doing very successful business with China and, Chinese companies, internationally back to the other way.
It’s interesting to note here that, throughout the last year of COVID, you, haven’t actually seen such an enormous impact. As a consequence of this trade war and specifically here, obviously we know what the situation is for the United States, but even for Canada, hasn’t been disproportionately impacted here at all as of consequence of this.
So I think that the markets and the participants in the markets see this story for what it really is. They see it as a geopolitical spat. That has now become entrenched in a trade war, where they are trying to extract political points against each other. And unfortunately, this poor lady has got caught in the crossfire.
Warren Whitlock: [00:23:15] Yeah. And you, it right down to, when I talked about the game here what’s Huawei’s involvement Huawei always seems to be wanting to move forward. I keep seeing things where again, the rest of the world is a lot bigger than the US, and Huawei dominates. And it’s not like tomorrow we’re going to start buying Huawei cell phones in the US or the 5g equipment, though.
There were some fairly entrenched competitors there. And I don’t think the average Joe on the street is going to change his opinion to be in love with Huawei. An average person can’t even pronounce Huawei correctly. I’m not sure I do. And but there are these opportunities of knowing.
I don’t think I bet on telecoms from the U S because of this. And I certainly wouldn’t bet against Huawei. I have, in fact, I’m not one to give investment advice nor legally allowed, but, and for myself, I look at it as: Telcom is something I stay away from, but maybe somebody who understands this could do quite well and have betting on a certain outcome here which it seems like this has got to be resolved.
We don’t, this is not this is not Nelson Mandela, and we’re going to keep this woman in Vancouver for the next 20, 30 years. It’s got to be resolved sometime soon, whether or not that’s extradition. Shutting it down, finding that there’s not enough evidence to prosecute, or having a full trial.
It’s got to be over sometimes. Right now, the current status is there is a hearing about extradition going on in Canada. Correct?
Warren Vincent: [00:24:53] Yeah, I believe there is a hearing later this month. But look, all I would really say on the matter of Warren is that I don’t see what is extracted as a major benefit from this case versus the value of the damage that can be done, both known and unintended and the unintended part of the damage can be made.
Warren Whitlock: [00:25:19] I would love to talk about unintended consequences. That’s a, it’d be a whole other show. We could spend hours talking about, in just this situation, let alone everything else is going on. But, ma from mask mandates to travel, shut down and everything we do. Or even taxation, as unintended consequences, but this is a rare thing here.
I look at it, and I’m just going on the surface. It just seems like everyone’s shooting each other’s, or they’re shooting themselves in the foot. I’m to say Canada comes up pretty good at trying to follow the law, and they don’t seem to be in a rush to extradite. Ready to stand up and say, hey, US, you, you were wrong here.
We’re not; we’re going to let her go. But either way, regardless of the outcome, this is going to be over. And as you say, damaging some reputation. So it’s something I like to follow. I think my listeners would too. Anybody that’s still with us at this point should be interested. Where can we where you follow this?
How do you keep up to date? You know the truth rather than somebody worrying about where Meng went shopping.
Warren Vincent: [00:26:28] Yeah, sure. Look, I’m a financial services guy, Warren. So I trust, The Financial Times, Bloomberg, Reuters. These are the types of news feeds where I go to. To distill quality, quality reporting. I can, of course, I can read around that and see, see what people are commenting on in blogs and so on.
But it’s like all of these situations; if you really want to get to the bottom of it, you have to put the matter into context. And that requires a little bit of work to understand exactly what the dynamics are that are going on.
Warren Whitlock: [00:27:03] Yeah, I feel like I understand it much better now. I don’t know that it’s changed my mind or given me in kind of thing I could do with it. But knowing that it’s there, it’s one of those things
Thank you for coming on and explaining some of this because basically, it’s just politics as usual, very important for the players. I’m sure. I’m sure. Meng and those two guys, two Canadians in China jail, are very much interested in their families seeing this resolved.
But as you say, it can’t get any better by carrying it on. So let’s hope they come up with some kind of resolution soon.
Warren Vincent: [00:27:40] Absolutely. I hope they talk to each other. I hope they resolve it. And I hope that the respective parties are returned to their countries as quickly as possible.
Warren Whitlock: [00:27:49] Okay, I’m one that usually ends a conversation like this by giving you a chance to plug something. In this context, I don’t think you have a book coming out on this subject or needs people to follow your YouTube channel, but correct me if I’m wrong, but if somebody does want to get in contact with you, where are you?
Warren Vincent: [00:28:09] No, that’s all I’m not. As I said, I work in financial services. People can reach me at email@example.com. I’m a portfolio manager. I manage money, Warren. So this is why it’s important for me to keep up to speed on these details. I need to know what’s going on and what’s moving prices.
Warren Whitlock: [00:28:28] Yeah, I think so. I think I think we’ve got a lot of more important changes coming to the financial sector and the way things are done, but it’s going to have its fits and false starts and everything like that. As we look at crypto and FinTech, those kinds of things are going to change.
I can say, yeah, in the future, if I want to sell you stock, I’ll sell you stock, and there won’t be a Wall Street involved, but getting from here to there is a lot more complex. And as I say in this case, it’s a diversion that keeps us from making real progress where people can get more things done.
I thank you for being on the show again and hope we cross paths again soon.