Is Huawei a ‘Foreign Power’ or an ‘Agent of a Foreign Power’ Under FISA? Insights From the Sanctions Case

[Update: Several colleagues have pointed out that I did not make sufficiently clear that there is an alternate (and much less intriguing) explanation for the 1806(c) notices here. Rather than revealing that the government at some point has persuaded the FISC to categorize either of the Huawei entities as “foreign powers” or “agents of foreign powers,” the theory goes, this may be a situation in which some other person—a single individual, for example—was categorized as an agent of a foreign power, and then surveillance of that person happened to yield communications attributable to these corporate entities. That scenario would make the companies “aggrieved persons” under the terms of 50 USC 1801(k), which specifies that an “aggrieved person” can be either the actual target of a Title I order or “any other person whose communications…were subject to electronic surveillance.”]

The long-running debate over the relationship of Huawei to the Chinese government took an interesting and unexpected turn last week, as the Justice Department disclosed (in the context of the prosecution of Huawei and its CFO for bank fraud and sanctions-busting) that it had obtained orders under Title I of the Foreign Intelligence Surveillance Act, or FISA, targeting the company. (Hat tip to Brendan Pierson and Karen Freifeld of Reuters for spotting and reporting these important filings.)

1. The larger Huawei controversy

Let’s start with some context. Famously, the U.S. government has been pushing allies to spurn Huawei when building out their 5G networks. This has sparked fierce debate regarding the precise nature and extent of the risk associated with Huawei.

Two major accounts of that risk have emerged (both of them similar to arguments we also have seen in the context of the Kaspersky-Russia relationship). The most straightforward account turns on the fact that all Chinese companies have comprehensive obligations under Chinese law to comply when the Chinese government seeks information or assistance for national security purposes. The other account goes much further, arguing that there are deep ties between Huawei and Chinese intelligence services and suggesting that Huawei therefore might act as an agent of those services rather than as an independent company with an arms-length relationship with its government.

The latter account is of course more controversial. It is difficult for the public to assess, too, because the best evidence for or against it is likely to be classified. Which is what makes last week’s disclosure in a seemingly unrelated fraud/sanctions case so tantalizing.

2. Last week’s FISA disclosures

Before last Thursday, there was no reason to expect that the prosecution of Huawei and its CFO for circumventing U.S. sanctions on Iran through a pattern of bank fraud would result in any insights regarding the relationship of Huawei to the Chinese government. The allegations in the case just don’t raise that issue. But then came a pair of filings in the case made under 50 U.S.C. §1806(c), which is part of the Foreign Intelligence Surveillance Act (FISA).

In relevant part, Section 1806(c) provides:

Whenever the Government intends to enter into evidence or otherwise use or disclose in any trial … against an aggrieved person [i.e., any person or entity that had been subject to a FISA Title I order] … information obtained or derived from an electronic surveillance of that aggrieved person pursuant to the authority of this subchapter, the Government shall … notify the aggrieved person and the court ….

This matters because the targets of FISA surveillance normally never learn about the surveillance. But when the government concludes that a FISA target has committed a crime, and when it then decides to prosecute that target, it sometimes will want to use the fruits of the surveillance as evidence in that criminal case. Section 1806(c) in that case requires the government to give notice to the defendant or target and the court, which puts the defendant or target in a position to move to suppress the FISA-derived evidence.

Well, last Thursday, the Justice Department filed two notices under Section 1806(c) in the Huawei case, one directed to Huawei Technologies, a Chinese corporation, and the other to co-defendant Huawei Device USA, a U.S.-based subsidiary of Huawei Technologies. And thus we learned that the U.S. government at some point had obtained FISA surveillance orders targeting both companies.

At first blush, this might seem utterly unsurprising. The underlying allegations in the case—involving an elaborate fraudulent scheme designed to circumvent U.S. sanctions on Iran based on Iran’s nuclear program—plainly involve matters that not only are criminal but also concern U.S. foreign policy and national security. The foreign-intelligence value of monitoring such activity is obvious. And if we were concerned here only with foreign-intelligence collection under the general heading of Executive Order 12333, that would indeed be the end of the story. But we are talking here about foreign-intelligence collection occurring under FISA Title I, and that means that the government first had to go to the Foreign Intelligence Surveillance Court (FISC) to show not merely that a purpose of the collection would be foreign-intelligence gathering but also that there is probable cause to believe that the specific target of the collection was a “foreign power” or an “agent of a foreign power.”

Even that would not make these disclosures very interesting, if the statutory definitions of “foreign power” or “agent of a foreign power” were so broad as to encompass just about any foreign corporation (or entity owned by a foreign corporation). The definitions are not that broad, however.

First, let’s consider the possibility that the government obtained FISC orders against either or both companies on the basis that one or both constituted a “foreign power.” That phrase is defined at 50 U.S.C. §1801(a) to encompass seven scenarios:

(1) a foreign government or any component thereof, whether or not recognized by the United States;

(2) a faction of a foreign nation or nations, not substantially composed of United States persons;

(3) an entity that is openly acknowledged by a foreign government or governments to be directed and controlled by such foreign government or governments;

(4) a group engaged in international terrorism or activities in preparation therefor;

(5) a foreign-based political organization, not substantially composed of United States persons;

(6) an entity that is directed and controlled by a foreign government or governments; or

(7) an entity not substantially composed of United States persons that is engaged in the international proliferation of weapons of mass destruction.

Of those seven options, the only one that seems a plausible fit for either of the two corporate entities is 1801(a)(6), which requires a showing that the entity “is directed and controlled by a foreign government.”

What if, instead, the FISA orders were obtained based on the “agent of a foreign power” prong? Here, the analysis would differ a bit between Huawei Technologies (a Chinese company) and Huawei Device USA (an American subsidiary). For the American company, 50 U.S.C. §1801(b)(2) provides five possible scenarios. The surveillance may proceed if the target:

(A) knowingly engages in clandestine intelligence gathering activities for or on behalf of a foreign power, which activities involve or may involve a violation of the criminal statutes of the United States;

(B) pursuant to the direction of an intelligence service or network of a foreign power, knowingly engages in any other clandestine intelligence activities for or on behalf of such foreign power, which activities involve or are about to involve a violation of the criminal statutes of the United States;

(C) knowingly engages in sabotage or international terrorism, or activities that are in preparation therefor, for or on behalf of a foreign power;

(D) knowingly enters the United States under a false or fraudulent identity for or on behalf of a foreign power or, while in the United States, knowingly assumes a false or fraudulent identity for or on behalf of a foreign power; or

(E) knowingly aids or abets any person in the conduct of activities described in subparagraph (A), (B), or (C) or knowingly conspires with any person to engage in activities described in subparagraph (A), (B), or (C).

Here, the most plausible options are the first two—both of which would entail the sort of spying-for-China concerns that have loomed so large in the 5G debate. (The fifth option might be relevant as well, though it blurs into the first two to a considerable extent, so I won’t discuss it separately.)

The options for establishing “agent of a foreign power” status as to a non-U.S. company such as Huawei Technologies includes those same five options but also a partially overlapping set of scenarios listed in 50 U.S.C. §1801(b)(1). Suffice it to say that it won’t add anything interesting to our analysis at this point to run through those details here, so let’s move on.

The bottom line is this: It appears that the U.S. government has persuaded the Foreign Intelligence Surveillance Court that both these Huawei entities either are under the direction and control of the Chinese government, or have in any event engaged in clandestine intelligence gathering on China’s behalf.

3. How much weight should we give this?

We must be careful not to give undue weight to this inference. The standard of proof in the FISA Title I setting is “probable cause,” which is less demanding than “preponderance of the evidence” (let alone “clear and convincing” or “beyond a reasonable doubt”). To demonstrate probable cause is not nothing, to be sure, but as a matter of logic it leaves plenty of space for the conclusion at issue to be incorrect. And bear in mind that neither of the entities in question was in a position to contest whatever showing the government made; like regular warrant proceedings, FISA Title I proceedings are ex parte and in camera. All that said, it seems fair to say that there was some amount of evidence of such a relationship or activity, and that this evidence was deemed credible and at least somewhat persuasive in the eyes of one or more federal judges.

4. Will there likely be further revelations on this front in the context of the fraud/sanctions case?

Only to a limited extent.

The same part of FISA that required the Justice Department to give notice of its intent to make use of the fruits of FISA surveillance also confirms that defendants in that case can move to suppress that evidence, including by arguing that the FISA order authorizing it should not have been granted in the first place. And so we might well see both Huawei entities moving to suppress on the ground that the evidence to establish foreign power or agent of a foreign power status was insufficient.

At that point, we can expect the Justice Department to file (pursuant to 50 U.S.C. §1801(f)) an affidavit from the attorney general asserting “that disclosure or an adversary hearing would harm the national security of the United States,” at which point the district judge is obliged to conduct the initial review of the FISC materials and other materials both in camera and ex parte—unless the judge determines that some portions of those materials may be shared with the defendant “under appropriate security procedures and protective orders” (something that judges almost never do in this setting). At any rate, we should not expect to see any public filings from the Justice Department shedding further light on this topic, let alone public disclosure of the earlier FISC materials.

In the end, the most likely result is a decision to deny the motion to suppress, which would leave us in roughly the same place we are at currently in terms of how much weight to give to this disclosure. But in the unlikely event that the judge were to grant the motion to suppress at all, and moreover to do so on the ground that there was not in fact a sufficient probable cause showing, it obviously would be a significant blow to the claim that Huawei has such an illicit relationship.

Needless to say, this situation bears watching as it develops.