Boeing says it has canceled a controversial satellite order from a U.S.-based startup, which had received the bulk of its funding from a Chinese-government owned financial company. The deal, which critics warned could give China access to sensitive technology, comes amid a period of especially acrimonious relations between Washington and Beijing over a host of issues, including industrial espionage and intellectual property theft. The Chicago-headquartered aerospace company announced its decision, which it said was only because of non-payment on the part of the customer, to nix the deal, worth more than $200 million, on Dec. 6, 2018. Two days earlier, the Wall Street Journal had published an expose detailing the links between the official buyer, Global IP, and a string of Chinese government operated entities and individuals with significant connections to China’s Communist Party and military establishment.

“When we resigned over a year ago, we informed Boeing of the reasons for our decision,” Emil Youssefzadeh, one of Global IP’s founders, told the Journal, referring to concerns about China's involvement and a hope that the company would be able to shake off worrisome Chinese government influence. “It’s unfortunate that this did not happen at the time.” Some of the first inklings that there might be problems with the satellite sale came when Youssefzadeh and co-founder Umar Javed resigned from their own California-based company in 2017. They subsequently lodged a suit in federal court alleging that the Chinese government had effectively taken control of Global IP.

Boeing Boeing Wideband Global Satcom (WGS) System satellites under construction for the US military.

U.S. law prevents any American company from selling satellites or certain related technologies directly to the Chinese government or companies based in China. This appears to have created a loophole that authorities in Beijing sought to exploit with the deal through Global IP. Global IP’s own goal was to procure the satellite, known as GiSAT-1, to help expand affordable internet coverage in areas of the African continent. In 2015, China Orient Asset Management, a wholly-government owned entity, approached the founders with a financing offer. What followed was a meeting between Global IP's Javed and China Orient’s president in Beijing, along with Geng Zhiyuan. Geng, who is the son of a former top leader of the People’s Liberation Army (PLA), is an influential businessman and member of the Chinese Communist Party, with links to present Chinese President Xi Jinping. China Orient has also publicly touted its links to the PLA, according to the Journal.

Xinhua Geng Zhiyuan

The resulting arrangement saw at least $200 million funneled from China Orient to Global IP through Dong Yin, a Hong Kong-based subsidiary of the Chinese financing firm, to a shell company in the British Virgin Islands, called Bronzelink Holdings Ltd. The Chinese investors reportedly assured Youssefzadeh and Javed that Bronzelink was independent of Chinese government influence. The former Global IP executives say that this turned out not to be the case. Instead, China Orient, through its subsidiaries, effectively owned a 75 percent stake in the company, which is formally headquartered in the Cayman Islands, but has a wholly-owned subsidiary in Los Angeles, and gained the right to appoint four members to its board of directors. The Chinese then demanded to see the contract with Boeing and technical details about the satellite. Bronzelink and the present leadership of Global IP deny the allegations, citing, among other things, a legitimate export license from the U.S. Commerce Department for the satellite. They also dispute the assertion that they should have at least alerted the Committee on Foreign Investment in the United States (CFIUS), an inter-agency board that reviews deals with foreign funding to ensure that there are no national security risks. The panel can then recommend the U.S. government block deals based on those concerns. Boeing had initially indicated its intention to proceed with the deal, though it has now finally abandoned the contract in the face of new public scrutiny. Without the Journal's reporting, it may have gone ahead as planned. The future of the satellite itself, which is nearing completion, is also unclear, though the company will almost certainly begin looking for another buyer. SpaceX had also been under contract to launch it and that deal will almost certainly be terminated now, as well.