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SINGAPORE (Reuters) – Singaporean police on Monday said they were looking into reports by the Financial Times of alleged financial irregularities at German payments firm Wirecard AG.
FILE PHOTO: People walk past the Wirecard booth at the computer games fair Gamescom in Cologne, Germany, August 22, 2018. REUTERS/Wolfgang Rattay
The FT last week published two reports about alleged wrongdoing at Wirecard’s Singaporean office that sent shares in the member of the blue-chip DAX index sharply lower.
“The police are looking into the matter,” a Singaporean police spokeswoman said in response to Reuters’ questions about the reports.
Wirecard has called the FT reports “inaccurate, misleading and defamatory”. The company’s Singaporean and Munich offices were not immediately available for comment on Monday.
The second report published on Friday, which wiped $5.7 billion off the company’s market value, said Singaporean law firm Rajah & Tann had found evidence indicating “serious offences of forgery and/or of falsification of accounts” at Wirecard.
Rajah & Tann declined to comment.
Munich-based Wirecard has been a repeated target of short-sellers – investors betting on falling share prices – who have questioned its accounting methods and rapid international expansion in recent years.
These speculative attacks have caused huge volatility in Wirecard’s stock, though its share price has rebounded repeatedly, with the company last year gaining elevation to the DAX.
The Munich state prosecutor’s office on Friday said it had found no evidence of the alleged wrongdoing reported by the FT.
Wirecard is set to hold a conference call on Monday at 1300 CET (2000 Singapore time).
Reporting by John Geddie and Aradhana Aravindan; Editing by Stephen Coates
HONG KONG (Reuters) – Tencent-backed Maoyan Entertainment, China’s biggest movie-ticketing platform by sales, fell 1.1 percent in its Hong Kong stock debut on Monday, the latest in a string of weak starts among Chinese tech firms listing in the financial hub.
Zheng Zhihao (C), chief executive officer of Maoyan Entertainment, attends the company’s listing in Hong Kong, China February 4, 2019. Zhang Wei/CNS via REUTERS
Shares in Maoyan Entertainment opened at HK$14.82 ($1.89), barely higher than the initial public offering (IPO) price of HK$14.8, which was already at the bottom end of an indicative range.
They then fell to as low as HK$14, a warning sign for other Chinese tech companies that may be eyeing IPOs after achieving lofty valuations in private funding rounds. The stock closed at HK$14.64.
However, thin trading volumes in a truncated trading session on the eve of the Lunar New Year could have contributed to Maoyan’s lackluster performance, said Ke Yan, co-head of research at Aequitas Research.
“While on one hand there’s a lack of demand for the name given the limited upside in the online movie ticketing market in terms of market penetration, on the other hand, the upcoming Chinese holiday season could be another contributing factor for the thin volume and the poor performance,” Yan said.
Loss-making Maoyan raised $250 million in a smaller-than-expected IPO, and could raise up to $287 million if a greenshoe, or over-allotment option, is exercised within the first month of trade. That is, however, a fraction of the amount it was looking to raise last year.
Its float is being watched as a test of investor sentiment for Hong Kong deals after a patchy performance by newly listed stocks in 2018 amid U.S.-China trade tensions.
Maoyan’s IPO already implied a “down round” for Chinese tech giant Tencent Holdings Ltd, as it valued the ticketing platform at $2.16 billion – more than a quarter below the valuation reached in its last funding round in 2017.
Investors are bracing for further down rounds in China’s much-hyped tech sector, as weak stock markets worldwide and the country’s economic slowdown weigh on once-buoyant private markets.
Many firms such as online food delivery-to-ticketing services provider Meituan Dianping and smartphone maker Xiaomi Corp, which raised billions of dollars in their listings, are trading below their IPO prices in Hong Kong.
Maoyan offers ticketing services through its Maoyan and Gewara apps in China – the world’s second-largest movie market after the United States – and mainly distributes domestic films.
It also helped with the local distribution of the 2017 romantic drama “The Shape of Water”, which won four Oscars, according to its prospectus.
Maoyan’s revenue almost doubled in the first nine months of 2018 to 3.1 billion yuan ($459.76 million), the prospectus showed. It has yet to turn in a net profit, but its loss narrowed to 144 million yuan over the same period from 152.1 million yuan a year earlier.
Bank of America Merrill Lynch and Morgan Stanley were joint sponsors for the Maoyan listing.
Reporting by Julia Fioretti; Editing by Christopher Cushing and Muralikumar Anantharaman
Tech companies everywhere, but especially those in Silicon Valley, have a serious brand image problem. Over the past few years, major tech companies have drawn ire from the public for their lack of diversity, apathy toward privacy issues, as well as their accumulation of wealth.
This isn’t exactly stopping people from using the tech products we’ve come to rely on so heavily, but it is having an effect on share prices–and it’s attracting stricter regulations from governments all over the world. If these corporate juggernauts are going to earn back the trust of consumers, shareholders, and policymakers, they need to take serious strides to change how they’re publicly perceived. There are several ways to accomplish this, but it’s going to take a concentrated effort.
Diversity and Representation
First, Silicon Valley has a major diversity problem–and has had one for many years. The overwhelming majority of tech CEOs (and even tech employees) are white men. This is problematic both for the vision and products of the companies and for the reputation of those companies in the general public. Having a leadership team without representation from women and minority groups means your company is less likely to consider the wants, needs, and perspectives of those groups; it’s why we end up with algorithms that discriminate against women and minorities.
There is a fix, though it’s not necessarily a simple one. The most obvious solution is to hire more people from underrepresented groups, but tech companies don’t always have the luxury of having equal or proportional quantities of applicants from each of those groups; in other words, you can’t hire more women if there aren’t many qualified women applying.
So instead of simply adjusting HR practices to hire more applicants who belong to underrepresented demographics, companies need to take part in programs designed to incentivize people from minority groups to pursue careers in tech. As an example, Women in Technology (WiT) programs are becoming more popular, offering mentorship and guidance for young women looking for careers in fields like software engineering, mechanical engineering, or signal processing. Given a few years of development, enough early-stage outreach programs like these could fill the pipelines with more appliances from diverse groups, and slowly change the overall composition of these companies.
Consumer Privacy and Corporate Transparency
Tech companies have also taken a hit on the consumer privacy front, with Facebook showing up in the headlines many times in the wake of the Cambridge Analytica scandal, when it was a London-based political consulting firm was capable of harvesting the personal data of millions of Facebook users for political manipulation purposes. Apple, Amazon, Google, and other companies have also been called to testify in front of a Senate Committee on consumer privacy protections.
We use devices, software, and digital products capable of collecting and storing ridiculous quantities of data on our lives, from where we are at any given time to what we’re talking about in our homes. With opaque and hard-to-understand terms of service agreements and an increasing diversity of connected devices, consumers and policymakers are more concerned than ever that data could be used for nefarious purposes–and tech brands are getting labeled as malicious, data-hungry consumer manipulators, working in darkness to take advantage of us.
There’s no quick fix to this dilemma, but offering more transparency is a good start. Giving users more options when it comes to their privacy, giving them simpler tools so they can truly understand what’s at stake when they use a product or service, and taking accountability when breaches do occur are the only path to restore trust.
Leadership and a Company “Face”
Tech brands also suffer from being faceless, corporate conglomerates. They’re either so massive they don’t have a public face, or their public face seems too detached from reality to seem relatable. Take, for example, Facebook CEO Mark Zuckerberg; this man serves as the “face” of Facebook, but has become generally disliked and distrusted due to his reclusiveness and seemingly robotic disposition when testifying before Congress. Or take Jeff Bezos, who is periodically caricatured as a cartoonish supervillain due to his similarly reclusive nature, his ambition for growth, and his access to practically unlimited resources.
Having a stronger, more trustworthy public face isn’t going to fix everything, but it would give the public someone more relatable to associate with the brand. And it doesn’t have to be a charismatic, charming CEO either–it can be a handful of PR reps or even customer representatives who make consumers feel like there are “real” people behind these companies, instead of just automated tech and reclusive billionaires. It would be a massive investment, to be sure, but it’s one of the only reliable ways to rebuild public trust.
WASHINGTON (Reuters) – A federal appeals court asked pointed questions of the Federal Communication Commission on Friday in hearing a challenge to whether the Trump administration acted legally when it repealed landmark net neutrality rules governing internet providers in December 2017.
FILE PHOTO: The Federal Communications Commission (FCC) logo is seen before the FCC Net Neutrality hearing in Washington February 26, 2015. REUTERS/Yuri Gripas
The panel heard more than four hours of arguments in the first court hearing on the FCC’s controversial decision to reverse the Obama administration’s 2015 rules, which barred internet service providers from blocking or throttling traffic, or offering paid fast lanes, also known as paid prioritisation.
The arguments focussed on how internet providers should be classified under law – either as information service providers as the Trump administration decided or as a public utility, which subjects companies to more rigorous regulations – and whether the FCC adhered to procedural rules in dismantling the Obama-era rules.
“We are creating rules that are built to last,” FCC general counsel Tom Johnson told the U.S. Court of Appeals for the District of Columbia.
Judge Patricia Millett repeatedly pressed Johnson over the FCC’s legal basis for treating telephone calls differently than internet traffic and asked if the FCC had properly considered the public safety impacts.
Millett raised the example of police needing to send urgent photos or video of a suspect that could be delayed if some internet traffic was prioritised.
“We can’t anticipate all harms,” Johnson said. As he sought to play down the concern Millett interjected: “There’s no evidence because they haven’t done it yet.”
In its 2017 decision the Republican-led FCC voted 3-2 along party lines to reverse the net neutrality rules. The agency gave providers sweeping power to recast how users access the internet but said they must disclose any changes in users’ internet access.
The appeals panel is made up of Judges Millet and Robert Wilkins, two appointees of Democratic former President Barack Obama, and Stephen Williams, an appointee of Republican Ronald Reagan.
CHALLENGE FROM STATES, COMPANIES
A group of 22 state attorneys general and the District of Columbia asked the appeals court to reinstate the Obama-era internet rules and to block the FCC’s effort to pre-empt states from imposing their own rules guaranteeing an open internet.
Several internet companies are also part of the legal challenge, including Mozilla Corp, Vimeo Inc and Etsy Inc, as well as numerous media and technology advocacy groups and major cities, including New York and San Francisco.
The challengers also got difficult questions about their legal rationale for seeking reinstatement of the rules.
Kevin Russell, a lawyer for the challengers, said hypothetically an internet provider could now block the Daily Caller website or graphic animal abuse videos as long as they disclosed it.
“We never get a straight answer from the commission whether it thinks blocking and throttling must always be prohibited” or only if it applies to punishing a competitor, Russell said, arguing that the FCC failed to engage in a reasoned analysis and did not properly assess consumer complaints.
Johnson conceded that providers could block or throttle traffic under the FCC rules but said it was unlikely. He said the Federal Trade Commission could take action against anticompetitive conduct.
Millett suggested that under the rules that providers would be free to block pro-Nazi websites or other objectionable content without facing antitrust issues.
The FCC repeal was a win for providers like Comcast Corp, AT&T Inc and Verizon Communications Inc, but was opposed by internet companies like Facebook Inc, Amazon.com Inc and Alphabet Inc.
Major providers have not made any changes in how Americans access the internet since the repeal.
In October, California agreed not to enforce its own state net neutrality law until the appeals court’s decision on the 2017 repeal, and any potential review by the U.S. Supreme Court.
A decision is expected by this summer.
Reporting by David Shepardson; Editing by Frances Kerry
HONG KONG/BEIJING (Reuters) – The SoftBank-led Vision Fund is in talks to invest up to $1.5 billion in Chinese used car trading platform Guazi.com, two people with knowledge of the matter said.
That would mark the latest Chinese deal by the mammoth $100 billion investment fund as it looks to expand in the world’s No.2 economy, and would come after it invested 460 million euros in German used car dealing platform Auto1.
The fund is likely to invest up to $1.5 billion in Guazi in a deal that would value the firm at $8.5 billion before the investment, according to one of the sources, who had direct knowledge of the situation.
The two sources, who were not authorized to speak to media, also said the Vision Fund had in the past few months held talks with Guazi’s direct rival, Renrenche, which is backed by Chinese ride-hailing firm Didi Chuxing.
Guazi, a consumer-to-consumer used car trading platform founded in 2014, is backed by Chinese internet giant Tencent and Sequoia Capital China. Its talks with Softbank were first reported by the Financial Times late on Friday.
The Vision Fund and Renrenche declined to comment. Guazi did not respond to a request for comment. Japan’s Softbank was not immediately available for comment.
The Vision Fund, the world’s largest private equity fund after raising more than $93 billion in 2017, has previously made investments in firms such as ride-hailing company Uber Technologies Inc and shared-office space firm WeWork.
China’s used car market has continued to grow even as overall auto sales declined last year for the first time since the 1990s.
Used sales rose 11.5 percent in 2018 from the year before to 13.82 million vehicles. The total value of these transactions was 860.4 billion yuan ($127.61 billion), according to the China Automobile Dealers Association.
China’s state planner has said the country would aim to loosen restrictions on the second-hand auto market, with “appropriate” subsidies provided to boost rural sales of some vehicles.
Reporting by Julie Zhu in Hong Kong and Yilei Sun in Beijing, additional reporting by Junko Fujita in Tokyo; Editing by Joseph Radford
FILE PHOTO: A woman walks past a sign of station for Didi Chuxing in Beijing, China January 2, 2019. REUTERS/Jason Lee/File Photo
BEIJING (Reuters) – China’s Didi Chuxing said it had set up a joint venture (JV) with Beijing Electric Vehicle Co., a unit of state-owned BAIC, to work on new energy vehicle and artificial intelligence projects.
The JV, BAIC-Xiaoju New Energy Auto Technology Co. Ltd, aims to develop “next-generation connected-car systems”, Didi, China’s largest ride-hailing operator, said on Monday.
This is the first JV between Didi and state-owned BAIC, which wants to stop selling gas-driven car models by 2025 as China shifts the industry toward new energy vehicles.
The JV comes at a time when China’s market for new energy vehicles (NEVs), a category comprising electric battery cars and plug-in electric hybrid vehicles, is rapidly growing even as the country’s wider auto market cools.
In 2018, car sales in the world’s biggest auto market hit reverse for the first time since the 1990s. But NEV sales were a bright spot, jumping 61.7 percent to 1.3 million units, China’s Association of Automobile Manufacturers has said.
NEV sales in China will hit 1.6 million this year, the industry body estimates.
Didi said there are already 400,000 NEVs registered on its platform through its partnerships with leading electric vehicle makers including BYD.
Didi, whose backers include Uber Technologies Inc, Apple Inc and Japan’s SoftBank Group Corp, is reshuffling its domestic business as it expands globally with new services in South America and Australia.
Reporting by Yilei Sun and Cate Cadell in Beijing; Editing by Himani Sarkar
Grüezi from the snow-coated Swiss Alps, in whose fir-studded, canvas blanc landscape the World Economic Forum recently transpired.
An inescapable theme at this year’s summit was data privacy. The topic happens, ironically, to play counterpoint to another central theme—that datavore dubbed “artificial intelligence,” as Adam Lashinsky, this newsletter’s regular, weekday author, noted in an earlier column (and elsewhere).
The two concepts are inversely related, a Yin and Yang. Businesses are looking to fill their bellies with as much information as possible, extracting insights that might give them an edge over the competition. Indeed, data-guzzling machine learning processes promise to amplify businesses’ ability to predict, personalize, and produce. But in the wake of a seemingly endless string of data abuses and breaches, another set of stakeholders has grown increasingly vocal about implementing some, let’s call them “dietary restrictions.” Our appetites need limits, they say; left unchecked, the fast-and-loose practices feeding today’s algorithmic models threaten to undermine the autonomy of consumers and citizens everywhere.
The subject of data stewardship clearly occupied the minds of the most powerful politicians in attendance. In the main hall of the forum, two heads of state shared their concerns on Wednesday. Japanese Prime Minister Shinzo Abe said the topic will be one of two primary agenda items for the G20 Summit he is hosting in Osaka in June. (The other is climate change.) Later, German Chancellor Angela Merkel urged Europe to find an approach to data governance distinct from the U.S.’s style, where corporations dominate, as well as the Chinese one, where the state seeks total control.
While policy-makers leaned, unsurprisingly, toward lawmaking, some members of the business set countered their notions with alternative views. Jack Ma, Alibaba’s founder, cautioned against regulation, arguing that it restricts innovation. During a panel on digital trust I moderated on Thursday, Rod Beckstrom, the former CEO of ICANN, an Internet governance group, argued that Europe went astray when it adopted the General Data Protection Regulation, or GDPR, last year, and he advised against the U.S. pursuing a similar path. Instead, Beckstrom proposed adding a privacy-specific amendment to the U.S. Constitution, one separate from the Fourth Amendment’s guard against warrantless searches and seizures. A provocative, if quixotic, idea.
By all measures, the disruptive, data-centric forces of the so-called fourth industrial revolution appear to be outpacing the world’s ability to control them. As I departed Davos, a conference-sponsored shuttle in which I was seated careened into a taxi cab, smashing up both vehicles. (No major injuries were sustained, so far as I could tell; though two passengers visited the hospital out of an abundance of caution.) While waiting in the cold for police to arrive and draw up a report, I was struck by how perfectly the incident encapsulated the conversations I had been observing all week.
We are all strapped, inextricably, to a mass of machinery, hurtling toward collision. Now what must be done is to minimize the damage.
In an effort led by CEO Mark Zuckerberg, Facebook has plans to rearchitect WhatsApp, Instagram direct messages, and Facebook Messenger so that messages can travel across any of the platforms. The New York Times first reported the move Friday, noting also that Zuckerberg wants the initiative to “incorporate end-to-end encryption.” Melding those infrastructures would be a massive task regardless, but designing the scheme to universally preserve end-to-end encryption—in a way that users understand—poses a whole additional set of critical challenges.
As things stand now, WhatsApp chats are end-to-end encrypted by default, while Facebook Messenger only offers the feature if you turn on “Secret Conversations.” Instagram does not currently offer any form of end-to-end encryption for its chats. WhatsApp’s move to add default encryption for all users was a watershed moment in 2016, bringing the protection to a billion people by flipping one switch.
Facebook is still in the early planning stages of homogenizing its messaging platforms, a move that could increase the ease and number of secured chats online by a staggering order of magnitude. But cryptographers and privacy advocates have already raised a number of obvious hurdles the company faces in doing so. End-to-end encrypted chat protocols ensure that data is only decrypted and intelligible on the devices of the sender and recipient. At least, that’s the idea. In practice, it can be difficult to use the protection effectively if it’s enabled for some chats and not for others and can turn on and off within a chat at different times. In attempting to unify its chat services, Facebook will need to find a way to help users easily understand and control end-to-end encryption as the ecosystem becomes more porous.
“The big problem I see is that only WhatsApp has default end-to-end encryption,” says Matthew Green, a cryptographer at Johns Hopkins. “So if the goal is to allow cross-app traffic, and it’s not required to be encrypted, then what happens? There are a whole range of outcomes here.”
WhatsApp users, for example, can assume that all of their chats are end-to-end encrypted, but what will happen in Facebook’s newly homogenized platform if an Instagram user messages a WhatsApp user? It’s unclear what sort of defaults Facebook will impose, and how it will let users know whether their chats are encrypted.
Facebook can also glean more data from unencrypted chats and introduce monetizable experiences like bots into them. The company has had a notoriously hard time earning revenue off of WhatsApp’s 1.5 billion users, in part because of end-to-end encryption.
“We want to build the best messaging experiences we can; and people want messaging to be fast, simple, reliable and private,” a Facebook spokesperson said in a statement on Friday. “We’re working on making more of our messaging products end-to-end encrypted and considering ways to make it easier to reach friends and family across networks. As you would expect, there is a lot of discussion and debate as we begin the long process of figuring out all the details of how this will work.”
Facebook emphasizes that this gradual process will allow it to work out all the kinks before debuting a monolithic chat structure. But encryption’s not the only area of concern. Privacy advocates are concerned about the potential creation of a unified identity for people across all three services, so that messages go to the right place. Such a setup could be convenient in many ways, but it could also have complicated ramifications.
In 2016, WhatsApp started sharing user phone numbers and other analytics with Facebook, perforating what had previously been a red line between the two services. WhatsApp still lets users make an account with only a phone number, while Facebook requires your legal name under its controversial “real name” policy. The company maintains this rule to prevent confusion and fraud, but its rigidity has caused problems for users who have other safety and security reasons for avoiding their legal or given name, such as being transgender.
In a Wall Street Journal opinion piece on Thursday evening, Zuckerberg wrote that, “There’s no question that we collect some information for ads—but that information is generally important for security and operating our services as well.” An indelible identity across Facebook’s brands could have security benefits like enabling stronger anti-fraud protections. But it could also unlock an even richer and more nuanced user data trove for Facebook to mine, and potentially make it harder to use one or more of the services without tying those profiles to a central identity.
“The obvious identity issue is usernames. I’m one thing on Facebook and another on Instagram,” says Jim Fenton, an independent identity privacy and security consultant. “In some ways, having the three linked more closely together would be good because it would make it more transparent that they are connected. But there are some Instagram and WhatsApp users who don’t want to use Facebook. This might be seen as a way to try to push more people in.”
Such a change to how chat works on the three brands isn’t just a potentially massive shift for users—it also seems to have stirred deep controversy within Facebook itself, and may have contributed to the departure last year of WhatsApp cofounders Jan Koum and Brian Acton.
End-to-end encryption is also difficult to implement correctly, because any oversight or bug can undermine the whole scheme. For example, both WhatsApp and Facebook Messenger currently use the open-source Signal protocol (used in the Signal encrypted messaging app), but the implementations are different, because one service has the encryption on by default and the other doesn’t. Melding these different approaches could create opportunities for error.
“There’s a world where Facebook Messenger and Instagram get upgraded to the default encryption of WhatsApp, but that probably isn’t happening,” Johns Hopkins’ Green says. “It’s too technically challenging and would cost Facebook access to lots of data.”
And while end-to-end encryption can’t solve every privacy issue for everyone all the time anyway, it’s harder to know how to take advantage of it safely when a service doesn’t offer it consistently, and creates potential privacy issues when it centralizes identities.
“I think they can work this out,” Fenton says. “The bigger problem in my opinion is user confusion.”
(Reuters) – Facebook Inc Chief Executive Mark Zuckerberg is planning to unify the underlying messaging infrastructure of the WhatsApp, Instagram and Facebook Messenger services and incorporate end-to-end encryption into these apps, the New York Times reported on Friday.
WhatsApp and Facebook messenger icons are seen on an iPhone in Manchester , Britain March 27, 2017. REUTERS/Phil Noble
The three services will, however, continue as stand-alone apps, the report said, citing four people involved in the effort.
Facebook said it is working on adding end-to-end encryption, which protects messages from being viewed by anyone except the participants in a conversation, to more of its messaging products, and considering ways to make it easier for users to connect across networks.
“There is a lot of discussion and debate as we begin the long process of figuring out all the details of how this will work,” a spokesperson said.
After the changes, a Facebook user, for instance, will be able send an encrypted message to someone who has only a WhatsApp account, according to the New York Times report.
Integrating the messaging services could make it harder for antitrust regulators to break up Facebook by undoing its acquisitions of WhatsApp and Instagram, said Sam Weinstein, a professor at the Benjamin N. Cardozo School of Law.
“If Facebook is worried about that then one way it can defend itself is to integrate those services,” Weinstein said.
But Weinstein said breaking up Facebook is viewed as an “extreme remedy” by regulators, particularly in the United States, so concerns over antitrust scrutiny may not have been a factor behind the integration.
Some former Facebook security engineers and an outside encryption expert said the plan could be good news for user privacy, in particular by extending end-to-end encryption.
“I’m cautiously optimistic it’s a good thing,” said former Facebook Chief Security Officer Alex Stamos, who now teaches at Stanford University. “My fear was that they were going to drop end-to-end encryption.”
However, the technology does not always conceal metadata – information about who is talking to whom – sparking concern among some researchers that the data might be shared.
Any metadata integration likely will let Facebook learn more about users, linking identifiers such as phone numbers and email addresses for those using the services independently of each other.
Facebook could use that data to charge more for advertising and targeted services, although it also would have to forgo ads based on message content in Messenger and Instagram.
Other major tradeoffs will have to be made too, Stamos and others said.
Messenger allows strangers to contact people without knowing their phone numbers, for example, increasing the risk of stalking and approaches to children.
Silhouettes of mobile users are seen next to a screen projection of Instagram logo in this picture illustration taken March 28, 2018. REUTERS/Dado Ruvic/Illustration
Systems based on phone numbers have additional privacy concerns, because governments and other entities can easily extract location information from them.
Stamos said he hoped Facebook would get public input from terrorism experts, child safety officers, privacy advocates and others and be transparent in its reasoning when it makes decisions on the details.
“It should be an open process, because you can’t have it all,” Stamos said.
Reporting by Munsif Vengattil in Bengaluru, Jan Wolfe in Washington and Joseph Menn in San Francisco; Writing by Katie Paul; Editing by Tom Brown
SAN FRANCISCO (Reuters) – Top U.S. universities are ditching telecom equipment made by Huawei Technologies and other Chinese companies to avoid losing federal funding under a new national security law backed by the Trump administration.
FILE PHOTO: Graduates attend commencement at University of California, Berkeley in Berkeley May 16, 2015. REUTERS/Noah Berger/File Photo
U.S. officials allege Chinese telecom manufacturers are producing equipment that allows their government to spy on users abroad, including Western researchers working on leading-edge technologies. Beijing and the Chinese companies have repeatedly denied such claims.
The University of California at Berkeley has removed a Huawei video-conferencing system, a university official said, while the UC campus in Irvine is working to replace five pieces of Chinese-made audio-video equipment. Other schools, such as the University of Wisconsin, are in the process of reviewing their suppliers.
UC San Diego, meanwhile, has gone a step further. The university in August said that, for at least six months, it would not accept funding from or enter into agreements with Huawei, ZTE Corporation (000063.SZ) and other Chinese audio-video equipment providers, according to an internal memo. The document, reviewed by Reuters, said the moratorium would last through February 12, when the university would revisit its options.
“Out of an abundance of caution UC San Diego enacted the six-month moratorium to ensure we had adequate time to begin our assessment of the equipment on campus and to prevent the campus from entering into any agreements that could later be viewed as inconsistent with the NDAA,” UC San Diego spokeswoman Michelle Franklin said in response to Reuters’ questions about the memo.
These actions, not previously reported, signal universities’ efforts to distance themselves from Chinese companies that for years have supplied them with technical equipment and sponsored academic research, but which are now in the crosshairs of the Trump administration.
The moves are a response to the National Defense Authorization Act (NDAA), which President Donald Trump signed into law in August. A provision of that legislation bans recipients of federal funding from using telecommunications equipment, video recording services and networking components made by Huawei or ZTE. Also on the blacklist are Chinese audio-video equipment providers Hikvision, Hytera, Dahua Technology and their affiliates.
U.S. authorities fear the equipment makers will leave a back door open to Chinese military and government agents seeking information. U.S. universities that fail to comply with the NDAA by August 2020 risk losing federal research grants and other government funding.
That would be a blow to public institutions such as the sprawling University of California system, whose state funding has been slashed repeatedly over the last decade. In the 2016-2017 academic year, the UC system received $9.8 billion in federal money. Nearly $3 billion of that went to research, accounting for about half of all the university’s research expenditures that year, according to UC budget documents.
HUAWEI UNDER SIEGE
The new law is part of a broader Trump administration strategy to counter what it sees as China’s growing threat to U.S. economic competitiveness and national security.
The president has slapped tariffs on a slew of Chinese goods and made it tougher for foreign companies to purchase minority stakes in U.S. tech companies, causing Chinese investment in Silicon Valley to plunge.
In addition, Trump last year signed legislation prohibiting the U.S. government from buying certain telecom and surveillance equipment from Huawei and ZTE. And he is considering a similar ban on Chinese equipment purchases by U.S. companies.
At the center of the storm is Huawei, a global behemoth in smartphones and telecom networking equipment. The company’s chief financial officer has been under house arrest in Canada since December for allegedly lying about Huawei’s ties to Iran. Another Huawei employee was arrested this month in Poland on espionage allegations.
Huawei did not respond to a request for comment.
U.S. universities have already felt the sting of Trump’s China policies. The State Department shortened the length of visas for certain Chinese graduate students. And the administration is considering new restrictions on Chinese students entering the United States. Chinese students are by far the largest group of international students in the United States and provide a lucrative source of revenue for universities.
Pressure to dump Huawei and other Chinese telecom suppliers is adding to the strain.
In addition to the University of Wisconsin, a half dozen institutions, including UC Los Angeles, UC Davis and the University of Texas at Austin, told Reuters they were in the process of reviewing their telecommunications equipment, or had already done so and determined they were NDAA compliant.
At Stanford University, Steve Eisner, the director of export compliance, told Reuters the school did a “scrub” of the campus, but “luckily” did not find any equipment that needed to be removed.
But for Stanford and other academic institutions, Huawei is more than an equipment vendor. Huawei participates in research programs, often as a sponsor, at dozens of schools, including UC San Diego, the University of Texas, the University of Maryland and the University of Illinois Urbana-Champaign.
In addition to an explicit equipment ban, the NDAA calls for creating regulations that would limit research partnerships and other agreements universities have with China. The law requires the Secretary of Defense to work with universities on ways to guard against intellectual property theft and create new regulations aimed at protecting academics from exploitation by foreign countries. Universities that fail to comply with those rules risk losing Defense Department funding.
UC San Diego highlighted this section of the law in a campus newsletter in September.
Fears of a more rigorous crackdown from Washington would seem to be justified. In June, 26 members of Congress sent a letter to Education Secretary Betsy DeVos, sounding an alarm over Huawei’s research partnerships with more than 50 U.S. universities that “may pose a significant threat to national security.”
The lawmakers called on DeVos to require universities to turn over information on those agreements.
Separately, a White House report from June points to a research partnership on artificial intelligence between UC Berkeley and Huawei as a potential opening for China to gather intelligence that could serve Beijing’s military and strategic ambitions. That partnership started in 2016.
“COOLING” RELATIONS WITH HUAWEI
UC Berkeley spokesman Dan Mogulof said the university does not participate in research involving trade secrets. He said the school only enters research partnerships whose findings can be published publicly. Such open-source research is not subject to federal regulations.
Mogulof said UC Berkeley has no plans to change any of the research partnerships it has with Huawei. The company is involved in at least five UC Berkeley research initiatives, including autonomous driving, augmented reality and wireless technology, in addition to artificial intelligence.
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Still, a person with knowledge of the matter said the university’s relationship with Huawei had “cooled,” and that some Berkeley researchers are choosing not to proceed with their research agreements with the company to avoid scrutiny from university and government officials.
The chill is spreading. The United Kingdom’s Oxford University this month cut ties with Huawei, announcing it would no longer accept funding for research or philanthropic donations.
“The decision has been taken in the light of public concerns raised in recent months surrounding UK partnerships with Huawei,” a university spokesman said in a statement.
Reporting by Heather Somerville and Jane Lanhee Lee; Editing by Greg Mitchell and Marla Dickerson
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