The China-Iran Connection

FBI document links Chinese telecommunications firm to illicit sales to Iran

• July 16, 2012 5:00 am


A senior House Republican leader is warning colleagues of lobbying by China’s state-run telecommunications firms, amid reports that at least one company is under investigation by the FBI for selling surveillance equipment to Iran.

Rep. Frank R. Wolf (R., Va.) stated in two "dear colleague" letters to House members sent Friday and July 9 that Chinese telecommunications companies ZTE and Huawei threaten U.S. security.

"Chinese telecom firms like ZTE and Huawei are a serious threat to U.S. security," Wolf stated in the latest letter.

The warnings come as an FBI affidavit surfaced online revealing that ZTE illegally exported embargoed U.S. products to Iran, including "a powerful surveillance system capable of monitoring land-line, mobile and internet communications."

"The reports of ZTE’s alleged criminal activities to supply the Iranian government with illegal equipment in violation of U.S. laws and international trade embargoes—as well as its alleged efforts to destroy evidence of these activities—confirms what I have been warning my colleagues about: Chinese telecom firms like ZTE and Huawei are a serious threat to U.S. security," Wolf said in a statement Thursday.

Wolf urged the FBI and Commerce Department "to enforce the law to its fullest in this case."

"ZTE’s alleged criminal activities are just part of the reason I carried bill language in the fiscal year 2013 appropriations bill banning the government from purchasing telecom equipment from state-owned and state-directed Chinese companies," Wolf said.

The FBI, in the affidavit, said the information it obtained on ZTE was based on interviews with Ashley Kyle Yablon, general counsel for ZTE’s U.S. subsidiary, on May 2, 2012.

Yablon was listed on the Texas State Bar’s website as the general counsel for Huawei. He did not return a phone call seeking comment on the ZTE probe.

An FBI spokeswoman declined to comment on the probe.

A ZTE spokesman also declined to comment.

The affidavit said the ZTE equipment sale to the Telecommunication Co. of Iran (TCI) was outlined in a March 22 Reuters News Agency article that revealed a packing list of the equipment shipped in July 2011, including goods from several U.S. companies such as Hewlett Packard, Microsoft, Cisco, Dell, Oracle, and Symantec worth $130.6 million.

Qualcomm, Juniper and IBM produced other U.S.-origin equipment mentioned in the affidavit.

Sales of such goods are prohibited under a U.S. embargo of Iran for its nuclear and proliferation activities and support for terrorism.

The covert sale was designed to help Iran circumvent a ban on high-technology purchases.

According to the affidavit, a day after the Reuters story, the Commerce Department issued a subpoena to ZTE demanding documents on the sale to the Iranian company.

The affidavit quoted a ZTE official who questioned how the news agency obtained the list of U.S. products and noted that the disclosure meant the company could no longer "hide anything."

The FBI affidavit also revealed that the sale of the surveillance system to Iran involved a contract with four companies; ZTE branches in China, the United States, and Iran; and a Chinese firm called Beijing 8-Star, a front company for the deal.

"According to Yablon, the contract described how ZTEC [the China branch], would evade the U.S. embargo and obtain U.S.-manufactured components specified in the contract for delivery to TCI," the affidavit said.

Company officials discussed "shredding documents" in response to the Commerce subpoena, the affidavit said.

Edward Timperlake, a Pentagon technology security official during the George W. Bush administration, said the accusations of corruption against ZTE for selling goods to Iran also revealed links between ZTE and Huawei.

Timperlake said he stands by his April 15, 2011 testimony before the House Foreign Affairs Committee that "Huawei in my professional judgment is an ongoing criminal enterprise using denial and deception techniques and a lot of money and influence to infiltrate their high-tech products into American communication networks."

The affidavit was posted on the website

Wolf, in the letter, stated that lobbyists representing Huawei and ZTE, including former members of Congress, likely would be contacting members and staff this summer.

"These Chinese state-directed companies have gone on a lobbying blitz lately, as the U.S. national security community and Congress have launched investigations into their potential threat," Wolf stated.

Before meeting the lobbyists, Wolf urged the members to consider the following security incidents:

  • In May, computer security analysts discovered a "backdoor" in a ZTE mobile phone that could allow the Chinese government to secretly monitor information;
  • Huawei has been the subject of repeated U.S. government intervention to prevent the company from acquiring U.S. companies or installing products on U.S. infrastructure;
  • Former Commerce Secretary John Bryson revealed earlier this year, "Huawei has capabilities that we may not fully detect to divert information… It’s a challenge to our country";
  • Several Huawei executives are former members of the People’s Liberation Army or the Chinese intelligence service.

Wolf stated that the House Permanent Select Committee on Intelligence is conducting an investigation into the threat posed by Huawei and ZTE to both government and private sector companies.

Also, the intelligence committee stepped up its investigation of both companies noting "security threats, subsidies and even the existence of a Chinese Communist ‘Party Committee’ inside of Huawei," Wolf said.

"Huawei and ZTE are leading suppliers of critical telecom services to some of the worst regimes around the world," Wolf said. "Last year, the Wall Street Journal reported that Huawei ‘now dominates Iran's government-controlled mobile-phone industry… it plays a role in enabling Iran's state security network.’"

A report by the congressional U.S.-China Economic and Security Review Commission made public in March revealed that Chinese civilian telecommunications companies, including ZTE and Huawei, provide close support to the Chinese military and Chinese information warfare programs.

The report said, "Huawei is a well established supplier of specialized telecommunications equipment, training and related technology to the PLA that has, along with others such as Zhongxing, and Datang, received direct funding for R&D on C4ISR systems capabilities."

The CIA’s Open Source Center last year produced a report that Huawei is linked to the Ministry of State Security, China’s political police and intelligence service, through Sun Yafang, a former MSS Communications Department official who is Huawei’s chairwoman.

The congressional report said ZTE and Huawei "also provide certification training and related engineering training to PLA personnel assigned to communications and [information warfare] related positions."

Eight Republican senators wrote to the Obama administration in 2010 warning that sales of Huawei equipment to Sprint Nextel could compromise U.S. military and law enforcement agency communications.

The senators raised concerns about Huawei’s past sales of telecommunications goods to Saddam Hussein’s Iraq, Taliban-ruled Afghanistan, and current cooperation with Iran, including the Iranian military.

A Huawei link to the Iranian military "suggests that Huawei should be prohibited from doing business with the U.S. government" under current Iran sanctions, the senators stated. They said Huawei also is working closely with Iran's Islamic Revolutionary Guards Corps, which is under U.S. sanction for its role in Iran’s nuclear program.