Huawei and Lenovo in Discussions with Russia to Help Implement Domestic Surveillance Program

On August 24, 2016, over a month after Russian President Vladimir Putin signed a new ‘‘‘anti-terrorism‘ law designed to increase the electronic surveillance of Russian internet users, Huawei and Lenovo reportedly began negotiations with Russian firm Bulat for technology transfers related to server manufacturing, data storage and other information and communications technology (ICT) equipment.  Bulat was jointly formed by Rostec, a major Russian military contractor, and Rostelecom, the country‘s largest telecommunications company, in anticipation of the new law.  Rostec and Rostelecom are reaching out to foreign companies in order to comply with the new legislation requiring internet service providers (ISPs) to store records of their customers‘ traffic for six months.

The involvement of both Rostec and Huawei, a Chinese company with ties to the military and intelligence communities, raises questions regarding the potential dual-use of any technology transferred or developed under the pending partnerships.  The partnering concept itself illustrates Russia’s need for technological assistance in meeting the Kremlin’s data storage and processing requirements.  In exchange for its efforts, Huawei will purportedly receive a minority stake in Bulat.  Moreover, cooperation by both Lenovo and Huawei could provide the companies, and any others willing to work with Moscow, status as ‘‘‘domestic producer,‘ a boon for future business in the country, as Russia continues to promote import substitution.

The involvement of Lenovo in this project has the potential to do the company more reputational harm than Huawei, which already has an established reputation as having links to the Chinese military and intelligence services (only made worse by this venture in Russia).  Lenovo, on the other hand, has a more entrenched position in the U.S. consumer market.  Masshtab, a research institute under Rostec, and Vestelcom, a subsidiary of Rostelecom, both hold stakes of 37.5% in the Bulat venture, while private equipment manufacturer QTECH holds a 25% stake.