An Unusual Fraud Case: Meng’s Case Entering the Final Phase of the Hearings, Can five questions raised by the judge help Meng regain freedom?

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Meng Wanzhou returned to court this week to attend the final phase of her extradition hearings, which began on August 4, 2021. During last week’s hearings, the judge identified several material loopholes regarding the Crown’s allegations. Analysts commented that the questions raised by the judge appeared to shake the very foundations of the Crown’s allegations against Meng.

Loophole 1: Why it is contradictory of the Crown’s allegations against Meng?

The Crown has tried to prove that Meng failed to disclose the true relationship between Huawei and Skycom, a company operating in Iran, when she gave a PowerPoint presentation to an HSBC executive in 2018. The Crown also argued that her misstatements caused HSBC to clear Skycom’s transactions in US dollars, putting the bank at risk of violating US sanctions against Iran. Based on these allegations, the Crown charged Meng with bank fraud.

The Crown claimed that Meng’s PowerPoint presentation contained three misstatements. The first was Meng’s assurance that Skycom’s operations in Iran were compliant with applicable laws and regulations. The second though, was that Meng failed to disclose the true relationship between Huawei and Skycom. The judge questioned whether the Crown’s claims were contradictory, saying “How would she be able to give that assurance of compliance in a convincing way unless Huawei was in control of Skycom?”

The judge also questioned whether it was reasonable to assume that HSBC had made decisions related to the compliance of a company’s operations solely based on an individual’s descriptions. The fact that an international bank assesses a company’s compliance by relying solely on an individual’s assurances only shows that the bank lacks professionalism.

Loophole 2: Is it valid that the Crown’s charges against Meng?

The Crown accused Meng of committing “fraud” on the grounds that her PowerPoint presentation put HSBC at risk of violating US sanctions against Iran. However, the bank faces risks only if it is found to have violated the sanctions by providing US-dollar services to a company that has business relationships with Iran. When HSBC provided banking services to Skycom, it might or might not have known US sanctions against Iran. It’s ridiculous to assume that Meng’s PowerPoint presentation is the sole factor that caused HSBC to violate US sanctions.

The judge noted that both the Crown and the Requesting State (the US) did not make it clear what the illegal act was within the ROCs. This means there is no evidence to support the Crown’s charges against Meng.

In court, the judge asked the Crown whether all Iran-related transactions in general were illegal. The Crown responded that not all Iran-related transactions were illegal. The judge then went on to ask whether all Iran-related transactions that were cleared in US dollars were illegal, and questioned what the basis was for judging whether an act was illegal. The Crown was evasive and failed to directly answer these questions.

The judge said, “How do the ROCs make all of that clear—that certain things engage sanctions and other things don’t? It’s only with that background that one can assess what’s in the PowerPoint as to whether it was deceptive.”

During the hearing on August 12, the defense’s counsels also pointed out that the case is unique and unusual, regardless of whether it was considered from a factual or legal perspective. One reason for its unusual nature is that it is difficult to determine the basis upon which the US filed its fraud charges against Meng. Doesn’t this prove that the Crown has been trumping up charges against Meng?

Loophole 3: Should Meng be responsible for the illegal clearing of Skycom’s US-dollar transactions?

The Crown alleged that HSBC faced risks after the bank cleared transactions in US dollars between Skycom and Networkers, and made a payment to Networkers based on Meng’s misstatements. The judge questioned whether Meng – as a client of the bank – had the responsibility or right to advise HSBC on how the bank should clear these transactions.

Judge: “It’s clear Meng said we do business in Iran. And it’s clear HSBC continues to do business with Huawei. That’s fundamental. But is Meng the one reasonably to advise HSBC on dollar clearing?”

In other words, the judge questioned why Meng should be responsible for the bank’s clearance of Skycom’s US-dollar transactions. In response, the Crown clarified that Meng had no responsibility or obligation to advise HSBC on how to clear Skycom’s transactions or which currency they should use for clearing.

Loophole 4: Is Meng’s PowerPoint presentation related in any way to the US-dollar payment that is alleged to have violated US sanctions against Iran?

Following Meng’s meeting with HSBC, the bank only cleared the US-dollar transactions between Skycom and Networkers, and made a payment to Networkers accordingly. This is only the payment that could potentially put HSBC at risk of facing financial compliance penalties. However, Meng’s PowerPoint presentation has nothing to do with that payment. The judge asked whether Meng could have known that the transaction between Skycom and Networkers would be cleared in US dollars when she made the PowerPoint presentation.

The judge asked, “How does the misrepresentation anticipate the connection to the US, which appears to be either that the payments were made in US dollars or that HSBC US cleared them through the US, although they were written on a Chinese bank in Asia? How would she know the bank’s business route?”

The defense also stated that no evidence has shown that Meng was aware of the existence of the Networkers transactions. In fact, the sum of the deal (about US$2 million) would not cause the CFO of a Fortune Global 500 company to take her attention off from her daily work. Therefore, it was impossible for Meng to know that the Networkers transactions would be cleared through the US, thus putting HSBC at risk of breaching US regulations.

Loophole 5: Why should Meng face charges if HSBC has already been freed from civil liabilities for its own “violations”?

In this case, the Crown described HSBC as an “unknown” victim. As stipulated in the Deferred Prosecution Agreement (DPA) signed by HSBC and US prosecutors, the bank would face the risk of penalties only if it knowingly committed violations. Considering that the Crown argued HBSC had no knowledge of the relationships between Huawei and Skycom, the bank would not have faced any risk of violations. This means that the fraud charges against Meng aren’t valid.

If HSBC was at actual risk of penalty, it means the bank had knowingly committed violations.

The judge challenged the Crown by asking whether US authorities would pursue criminal charges against the bank for knowingly committed violations, considering that the bank had been freed from civil liability according to the ROC. The judge noted, “There was no risk suggested of prosecution of the bank in civil liability issue… Isn’t there a difference in the situation where as you’ve put it a decision made by authorities as the proceedings would be regulatory or civil or criminal?”

Through these questions, the justice challenged the very existence of the risk that the Crown claims the bank faced due to Meng’s PowerPoint presentation. If the bank was never going to shoulder criminal or civil liabilities, then where was the risk? If HSBC faced no risk, then on what grounds could they claim Meng committed fraud?

An unusual fraud case

Analysts believed that the most “lethal” question the judge had for the Crown’s case came when she stated, “The expression you used—it comes within the four corners of the law of fraud. It has to in order to meet the test for extradition. But on the facts is it not unusual to see a fraud case with no actual harm many years later, and one in which the alleged victim—a large institution—appears to have had a number of people who had all the facts.”

The judge said that the victim (HSBC) suffered no actual loss and that a number of people at HSBC had all the facts (regarding the relationships between Huawei and Skycom). “I simply suggest it’s unusual to have both of those features—no actual loss and fairly extensive knowledge of the true state of affairs.” This cast doubts over whether the elements of fraud are satisfied.

During the final phase of court hearings, Meng’s lawyers continued to maintain that there was no dishonesty, no actual loss (to anyone), and even no reasonable risk theory in this case, and thus no causation between Meng’s PowerPoint presentation and any potential risk to HSBC, as alleged by US prosecutors. Therefore, the Meng case does not satisfy the elements of fraud in the test for extradition, so there is no ground for extradition.

After this phase of hearings ends, the judge is expected to announce her decision later this year. Concerns remain though that if this politicized case is not resolved soon, it will result in worsening geopolitical tensions between China, Canada, and the US.

 

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