Sept 24 (Reuters) – Huawei Chief Financial Officer Meng Wanzhou has reached an agreement with U.S. prosecutors to end the bank fraud case against her, officials said on Friday, a move that allows her to leave Canada, relieving a point of tension between China and the United States.

The years-long extradition drama has been a central source of discord in increasingly rocky ties between Beijing and Washington, with Chinese officials signaling that the case needed to be dropped to help end a diplomatic stalemate between the world’s top two powers.

The deal also opens U.S. President Joe Biden up to criticism from China hawks in Washington who argue his administration is capitulating to China and one of its top companies at the center of a global technology rivalry between the two countries.

Meng was arrested at Vancouver International Airport in December 2018 on a U.S. warrant, and was indicted on bank and wire fraud charges for allegedly misleading HSBC (HSBA.L) in 2013 about the telecommunications equipment giant’s business dealings in Iran.

Her arrest sparked a diplomatic storm and drew Canada into the fray when China arrested two Canadians, a businessman and a former diplomat, shortly after Meng was taken into custody. Beijing has denied publicly that the arrests are linked.

In an exclusive on Friday, Reuters reported that the United States had reached a deferred prosecution agreement with Meng. Nicole Boeckmann, the acting U.S. Attorney in Brooklyn, said that in entering into the agreement, “Meng has taken responsibility for her principal role in perpetrating a scheme to defraud a global financial institution.”

The agreement pertains only to Meng, and the U.S. Justice Department said it is preparing for trial against Huawei and looks forward to proving its case in court.

A spokeswoman for Huawei declined to comment.

A person familiar with the matter said Meng was flying back to China on Friday night.

At a hearing in Brooklyn federal court on Friday, which Meng attended virtually from Canada, Assistant U.S. Attorney David Kessler said the government would move to dismiss the charges against her if she complies with all of her obligations under the agreement, which ends in December 2022. He added that Meng will be released on a personal recognizance bond, and that the United States plans to withdraw its request to Canada for her extradition.

Meng – the daughter of Huawei founder, Ren Zhengfei – pleaded not guilty to the charges in the hearing. When U.S. District Court Judge Ann Donnelly later accepted the deferred prosecution agreement, Meng sighed audibly.

A Canadian judge later signed Meng’s order of discharge, vacating her bail conditions and allowing her to go free after nearly three years of house arrest.

She was emotional after the judge’s order, hugging and thanking her lawyers.

Speaking to supporters and reporters on the steps of the court afterward, Meng thanked the judge for her “fairness” and talked of how the case had turned her life “upside down”.

Beyond solving a dispute between the United States and China, the agreement could also pave the way for the release of the two Canadians, businessman Michael Spavor and former diplomat Michael Kovrig, who have been held in China. In August, a Chinese court sentenced Spavor to 11 years in prison for espionage.

Meng was confined to her expensive Vancouver home at night and monitored 24/7 by private security that she paid for as part of her bail agreement. Referred to by Chinese state media as the “Princess of Huawei,” she was required to wear an electronic ankle bracelet to monitor her movements, which became fodder for the tabloids when it hung above her designer shoes.

By contrast, the Canadians’ have had no access to the outside world beyond occasional consular visits, and their trials were held behind closed doors.

“HUAWEI CONFIDENTIAL”

Articles published by Reuters in 2012 and 2013 about Huawei, Hong Kong-registered company Skycom and Meng figured prominently in the U.S. criminal case against her. Reuters reported that Skycom had offered to sell at least 1.3 million euros worth of embargoed Hewlett-Packard computer equipment to Iran’s largest mobile-phone operator in 2010.

Reuters also reported numerous financial and personnel links between Huawei and Skycom, including that Meng had served on Skycom’s board of directors between February 2008 and April 2009. The stories prompted HSBC to question Meng about Reuters findings.

Huawei (HWT.UL) was placed on a U.S. trade blacklist in 2019 that restricts sales to the company for activities contrary to U.S. national security and foreign policy interests. The restrictions have hobbled the company, which suffered its biggest revenue drop in the first half of 2021, after the U.S. supply restrictions drove it to sell a chunk of its once-dominant handset business before new growth areas have matured.

The criminal case against Meng and Huawei is cited in the blacklisting. Huawei is charged with operating as a criminal enterprise, stealing trade secrets and defrauding financial institutions. It has pleaded not guilty.

A Canadian government official said Ottawa would not comment until the U.S. court proceedings were over. ​Kovrig’s wife declined to comment. Representatives for Spavor could not be reached immediately for comment.

CHINA VS USA

Huawei has become a dirty word in Washington, with China hawks in Congress quick to react to any news that could be construed as the United States as being soft, despite Huawei’s struggles under the trade restrictions.

Then-President Donald Trump politicized the case when he told Reuters soon after Meng’s arrest that he would intervene if it would serve national security or help secure a trade deal. Meng’s lawyers have said she was a pawn in the political battle between the two super powers.

Republican China hardliners in Congress called Friday’s deal a “capitulation.”

“Instead of standing firm against China’s hostage-taking and blackmail, President Biden folded,” Republican Senator Tom Cotton said in a statement.

Senior U.S. officials have said that Meng’s case was being handled solely by the Justice Department and the case had no bearing on the U.S. approach to strained ties with China.

During U.S. Deputy Secretary of State Wendy Sherman’s July trip to China, Chinese Vice Foreign Minister Xie Feng insisted that the United States drop its extradition case against Meng.

U.S. officials have acknowledged that Beijing had linked Meng’s case to the case of the two detained Canadians, but insisted that Washington would not be drawn into viewing them as bargaining chips.

Reporting by Karen Freifeld, Kenneth Li, Jonathan Stempel, David Shepardson and Michael Martina; editing by Chris Sanders and Edward Tobin

Our Standards: The Thomson Reuters Trust Principles.