The United States has requested a probe of the commercial relationships between Telus Corp. and Chinese telecom equipment makers as part of a review of a subsidiary’s acquisition of an American artificial intelligence and data annotation firm.
The expanded probe, which is voluntary and was requested by the committee on foreign investment in the United States, or CFIUS, is likely an “abuse of process,” Jeff Puritt, chief executive officer of Telus International, an IT services offshoot of Vancouver-based Telus.
But the company is co-operating and says it isn’t likely to affect the approval of its $1.2-billion acquisition of Waltham, Mass.-based Lionbridge AI, which was announced last December, because there are no direct ties between Telus International and Chinese firms Huawei Technologies Co. Ltd. and ZTE Corp., which are subject to U.S. restrictions.
Mr. Puritt said he expects that CFIUS will approve the transaction without imposing any conditions. There is, however, an “infinitesimally small” possibility that CFIUS places a condition stating that Telus International will not partner with those equipment manufacturers. “We don’t, so I can promise to do that all day long,” Mr. Puritt said in an interview with The Globe and Mail.
Nevertheless, the review shows the extent to which the U.S. government is willing to go to protect its national interest from perceived threats from China.
Telus and BCE Inc.’s Bell Canada, which share parts of their cellular networks, have both used gear from Huawei extensively in their fourth-generation wireless infrastructure. However, the companies recently inked deals with other network equipment suppliers – including Sweden’s Ericsson Inc., Finland-based Nokia Corp. and South Korean conglomerate Samsung Electronics Co. Ltd. – and have vowed not to use Huawei gear for their fifth-generation networks unless Ottawa allows it.
The federal government has been conducting a cybersecurity review for more than two years, which is expected to determine whether the Chinese telecom giant should be permitted to supply gear for the country’s 5G telecom networks.
Nova Daly, who once ran the CFIUS process while deputy assistant secretary for investment security and policy at the Treasury Department, said it’s unusual for the committee to expand its scope beyond the specific deal being reviewed.
“[CFIUS] doesn’t do this very often unless it sees a really bona fide and legitimate national security matter and feels it needs to address it, either separately or in the context of the review it’s looking at,” said Mr. Daly, who is now a senior public policy adviser at Wiley Rein LLP.
Concerns around China using Huawei to spy on Western networks have “clearly been a forefront issue for the United States” for some time, he added. “This isn’t just a new explosive issue that’s just found its way to the forefront – it’s been going for quite a while.”
CFIUS and ZTE did not respond to requests for comment. Alykhan Velshi, a spokesperson for Huawei Canada, has declined to comment.
Telus International disclosed the review as a risk in documents filed with securities regulators as part of its initial public offering. The company’s shares began trading on the Toronto Stock Exchange and the New York Stock Exchange Wednesday.
The U.S. has been pressing its allies to bar Huawei from their 5G networks over concerns the telecom giant answers to China’s ruling Communist Party and could be compelled to help Beijing spy. Canada is the only member of the Five Eyes intelligence sharing alliance – which includes the U.S., Britain, Australia and New Zealand – that has not either banned or restricted Huawei from 5G.
CFIUS requested the probe of Telus’s relationships with Asian manufacturers near the end of its 30-day review of the Lionbridge acquisition, kicking off another 45-day review process.
“The CFIUS folks came to us and said, ‘We’re not ready to give you our approval, but it’s not because we have any concerns about the transaction, but rather it’s because two of our sister departments, Justice and Defense, would like to use our CFIUS review process to enhance their understanding of a relationship that your parent company Telus has with some technology vendors from Asia,’” Mr. Puritt said.
Mr. Puritt’s initial response was, “Hang on, this is an abuse of process; they can’t do that.”
“But then I thought, ‘Okay, well, I’m probably going to be doing more deals in the U.S.’ ... Getting into a spitting match ... [with] CFIUS out of the gate is not the best approach,” he added.
Telus International’s colleagues at Telus met with representatives from CFIUS and the Justice and Defence departments and answered all of their questions, Mr. Puritt said. He expects the review to be concluded this month.
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