The 'worst crisis' since 1970: Case against Huawei CFO degrades Canada-China diplomatic ties

For those who've been watching tech giant Huawei's business dealings and reporting on Canadian-Chinese relations for years, the political fallout after the arrest of the company's chief financial officer is concerning — but not unexpected.

Huawei CFO Meng Wanzhou, who was arrested in Vancouver last month, faces 13 criminal charges in the United States for alleged violations of international trade sanctions against Iran.

American prosecutors are seeking her extradition while she remains under partial house arrest in Vancouver.

"It's unusual for the U.S. to try to arrest a high level executive of a foreign company," said Steve Stecklow, an investigative reporter for Reuters who initially broke the story of Huawei's dealings in Iran six years ago.

"It's not surprising that the Chinese are not happy about this at all."

'Champion in China'

Stecklow describes Huawei as a "champion" in China because of how quickly it's grown, surpassing Apple to become the world's second largest smartphone maker behind Samsung.

Stecklow was working on a series of stories in 2012 about how companies were trying to get around U.S. sanctions on Iran when he started looking into Huawei.

He found the company had a partner in Iran called Skycom, although Wanzhou denied the connection.

"My first story showed Skycom was attempting to sell U.S. [computer] equipment to Iran, which was clearly under sanctions at the time," he told Stephen Quinn, the host of CBC's The Early Edition.

"It's clear that the stories played a key role in her arrest and the case against her."

Banking firm HSBC, assured by Wanzhou the two companies weren't connected, continued to clear hundreds of millions of dollars in transactions from Iran.  

"It put HSBC at tremendous risk, because they were under some court agreement not to violate sanctions with Iran," Stecklow said.

"So, she's essentially accused of of bank fraud and conspiracy to commit bank fraud by misrepresenting Huawei's relationship with Skycom to the banks."

Political ramifications

But China is painting Meng as a political prisoner rather than criminal and, in a government statement, urged the U.S. to withdraw the arrest warrant.  

Jonathan Manthorpe, who covered China for two decades between 1993 and 2013 for the Vancouver Sun and Postmedia, said the case is having a hugely detrimental impact on Canada-Chinese relations.

"This is the worst crisis in our relationship with China we've had since 1970, when we began formal diplomatic relations with the People's Republic of China," Manthorpe said.

"We've got a long process ahead of us of rebuilding a more realistic relationship with China."

Wanzhou's next court date on March 6 will assess whether Canada has the authority to go ahead with the U.S. extradition request.

"It's ever more important that we allow the judicial process to go forward and to affirm to China and, indeed, to the United States at this point, that we have an independent judiciary that follows the rule of law," Manthorpe said.