Probe raises the stakes for Huawei, which faces a series of moves by Washington to diminish its already-limited business dealings in the U.S.
WASHINGTON—The Justice Department is investigating whether Huawei Technologies Co. violated U.S. sanctions related to Iran, according to people familiar with the matter, a move that opens a new avenue of scrutiny of the Chinese cellular-electronics giant on national security grounds.
It’s unclear how far the Justice Department probe has advanced and what specific allegation federal agents are probing. A Huawei spokesman declined to comment.
Such a probe raises the stakes for Huawei, which is facing a series of actions by Washington to diminish the company’s already limited business dealings in the U.S. It could also have spillover effects for its much larger business overseas, particularly in Europe.
Analysts said a worst-case scenario could entail Huawei suffering the same fate as smaller Chinese rival ZTE Corp. ZTCOY 20.22% , which has lost access to U.S.-made components in a similar probe.
Investors on Wednesday sold down shares in some of Huawei’s suppliers, including a group of small optical-technology firms like Lumentum Holdings Inc., after The Wall Street Journal first reported the probe. Qualcomm Inc., which supplies Huawei with chips, also edged lower.
The Trump administration also has cited Huawei, the world’s largest maker of cellular-tower electronics and other telecommunications equipment, as a threat to American leadership in the race to develop the future of mobile communication. The company is also the world’s No. 3 maker of smartphones.
Washington’s treatment of Huawei has exacerbated tensions with Beijing as the two sides do battle over trade issues. Meanwhile, the heightened U.S. scrutiny, tied originally to fears the Chinese government could use Huawei for cyber-subterfuge, has unsettled some allied countries where the company has big business.
The Justice Department investigation into Huawei follows administrative subpoenas on sanctions-related issues from both the Commerce Department and the Treasury Department’s Office of Foreign Assets Control, according to these people.
The Commerce and Treasury departments can impose administrative penalties and regulatory sanctions on the company. The existence of a criminal probe, which hadn’t previously been reported, represents a more serious level of potential misconduct.
If investigators conclude the company intentionally violated U.S. export laws, Huawei could face criminal penalties, the imposition of a corporate monitor and the prosecution of individuals involved in any illicit activity, among other potential consequences.
That punishment has slammed ZTE, which relies on American suppliers to make both telecom equipment and smartphones. The Commerce Department said Friday that it would let ZTE present evidence in an informal appeal.
Representatives of the Justice, Commerce and Treasury Departments declined to comment. The New York Times reported early last year that the Treasury Department had sent Huawei a sanctions-related administrative subpoena in December 2016, following a separate Commerce Department inquiry into Huawei.
The Chinese company came under U.S. pressure in 2012 when a congressional report concluded both Huawei and ZTE could become a tool for state-sponsored spying or sabotage. U.S. officials say Beijing could order the companies to take control of the telecom equipment they make to disable communications, spy or launch other cyberattacks.
Washington sees itself battling China for control of an increasingly digital world, and since late last year has taken additional steps to curb the two companies.
Huawei and ZTE have denied they are a threat. A Huawei spokesman said the company is employee-owned and that no government has ever asked it to spy on or sabotage another country. He said Huawei poses no greater risk than its rivals, given they share a global supply chain.
Huawei in 2017 led the global telecom-equipment market with a 27% share, while ZTE ranked fourth, with 10%, according to research-firm Dell’Oro Group. Largely because of the 2012 congressional report, the Chinese companies’ U.S. market share is less than 1% for cellular and landline networks, compared with 48% each for Finland’s Nokia Corp. and Sweden’s EricssonAB.
“That pleases me, although it’s not zero,” said Sen. Tom Cotton (R., Ark.), who has led bipartisan Congressional efforts to curtail Huawei and ZTE. “And that’s where I’d like to get it.”
President Donald Trump in December signed a bill that bars Huawei and ZTE equipment from U.S. nuclear-weapon infrastructure, while Sen. Cotton and lawmakers in both the House and Senate have sponsored legislation to ban the U.S. government and its contractors from using electronics from the two companies. Congressional aides said they want to fold the legislation into the next annual defense spending bill, to ensure it gets passed quickly.
National security advisers also cited Huawei’s dominance in the telecommunications-equipment industry in advising Mr. Trump to block Broadcom Ltd.’s $117 billion hostile takeover bid for Qualcomm. Broadcom isn’t Chinese, but security officials feared that the deal would weaken Qualcomm, which competes with Huawei for wireless-technology patents.
Last week, a bipartisan group of senators led by Sen. Cotton sent a letter to the Agriculture Department, which runs a program called the Rural Utilities Service that provides grants and loans to improve telecommunications infrastructure. The senators asked the department to consider blocking the use of those funds for Huawei and ZTE equipment. A department representative had no immediate comment.
The Federal Communications Commission last week adopted a similar measure and proposed banning the use of subsidies from an FCC rural-telecommunications fund on Huawei and ZTE gear.