Intelligence Leaders Warn Businesses: Hang Up on Chinese Telecoms

Leaders of the House Intelligence Committee have arrived at the conclusion that doing business with two Chinese telecom giants is far too risky to national security and advised U.S. companies to find other vendors.

In addition, Chairman Mike Rogers (R-Mich.) and Ranking Member Dutch Ruppersberger (D-Md.) recommended that U.S. government systems keep out any parts made by Huawei or ZTE.

"Many people asked why -- why this report, why these two companies, and why did we initiate the investigation," Rogers said at a Capitol Hill press conference today unveiling the 60-page report. "And it started over a year ago when we started looking at the new threat that has been prolific in the last few years from the Chinese government when it comes to cyber espionage, human espionage, and something really unprecedented in history that a nation-state investing billions of dollars in its military and intelligence services to target specifically intellectual property of American businesses, western businesses, Asian businesses, taking that information back, and repurposing it to artificially compete in a world market."

Huawei is the second-largest supplier of mobile telecommunications infrastructure equipment in the world; corporate partners include Motorola, T-Mobile, and Cox Communications with items such as modems and cable boxes. It also owns 51 percent stake in a joint venture with Symantec, and bid for a Sprint contract in 2010.

ZTE Corporation, founded as a state-owned enterprise with ties to China’s aerospace ministry, is the world’s fourth-largest manufacturer of mobile phones. Its Score mobile phone can easily be accessed remotely, sparking concern about handset security. In 2010, the company sold Iran’s state-owned telecommunications company equipment for spying on phone and online communications.

In March, the Australian government, on advice of its national security service, decided to keep Huawei out of the bidding process to work on its national broadband network. The United Kingdom felt the need to come up with a third-party validation system in an attempt to mitigate the risks posed to personal information and government data.

The companies have been trying to dig a deeper foothold in the U.S., expanding operations and getting "into the infrastructure backbone of the United States."

"The amount of data and allegations that we processed has been shocking," Rogers said. "…The investigation concluded that the risks associated with these companies' providing equipment and services to U.S. critical infrastructure undermines the core U.S. national security interest."

The chairman's message to the private sector? "The investigation concluded that the risks associated with these companies' providing equipment and services to U.S. critical infrastructure undermines the core U.S. national security interest."

"Numerous" Huawei employees came forward to the committee investigators and revealed "several potential criminal violations" by company officials that will be referred to the executive branch for investigation, including allegations of immigration violations, bribery and corruption, and copyright infringement.

"Neither company credibly answered how it would operate free of Chinese national interests. They could not deny their historic and current ties to the Chinese state. They could not deny the pervasive influence of China's national interest in affairs of purportedly private sector firms," Rogers said.

"Huawei and ZTE are Chinese companies headquartered in China, a communist country where they must follow Chinese laws," Ruppersberger said. "We already know the Chinese are aggressively hacking into our nation's networks, threatening our critical infrastructure, and stealing millions of dollars worth of trade secrets and other sensitive information from American companies."

The Maryland Dem noted that the investigation went to China to meet officials face to face and probe the companies on their home turf.

"I had conversations, as I said, when I went to China. My comment basically was: You want to do business in the United States, you tell your Chinese government to stop hacking our companies in the United States of America," Ruppersberger said. "That's what needs to be done."

Both companies reacted angrily to the report.

"We had hoped to ensure that the investigation would be fact-based and objective in its review of our business activities and the global issue of cyber-security," Huawei said in a statement. "…However, despite our best effort, the Committee appears to have been committed to a predetermined outcome."

"The report released by the Committee today employs many rumors and speculations to prove non-existent accusations. …We have to suspect that the only purpose of such a report is to impede competition and obstruct Chinese ICT companies from entering the US market."