PARIS — Global IP, a British Cayman Islands startup planning a mobile satellite project for Africa, is attempting a resurrection after running out of money in 2018, less than a year before launch, and public allegations that it, along with its satellite supplier, Boeing, and its law firm, Milbank LLP, were complicit in a coverup of illicit Chinese government control of the project.
The allegations, made by two company founders in California lawsuits filed in mid-2017, were picked up by The Wall Street Journal in December 2018 in a story referring to a “top secret” satellite and casting Global IP, with Hong Kong financing, as a conduit to provide high-value military technology to China.
Boeing and other industry officials familiar with Global IP have denied that the satellite has any classified or military technology. Global IP, whose project and Boeing’s work on it had been reviewed and approved by the U.S. Commerce Department, has denied it is a front for the Chinese government.
No matter: The mere allegation of shadowy Chinese government involvement is enough to send any U.S. satellite manufacturer or legal team running for the exits. Immediately after the Wall Street Journal piece, Boeing terminated the Global IP contract for default on payment, and the Commerce Department said it wanted to take a fresh look at the project’s setup.
The Chinese government has been a third rail for the U.S. commercial satellite industry for nearly 20 years, when the U.S. Congress decided to apply the U.S. International Traffic in Arms Regulations (ITAR) to satellite exports. The original motive, now all but forgotten, was to prevent China from perfecting its missile technology through launches of commercial satellites aboard Chinese Long March rockets.
The rules have since been relaxed somewhat for satellites, but not for launch services, and not at all where China is concerned.
While the Chinese government is free to import a wide range of U.S. high-technology products, it cannot import U.S. satellites or any but the most mundane U.S.-built satellite components, or launch them from Chinese territory.
Boeing’s institutional history — Boeing purchased the former Hughes Space and Communications, a major satellite manufacturer — has no shortage of examples of employees whose careers were tainted by proximity to Chinese transactions.
It continues: In June, two U.S. Senators wrote U.S. Secretary of State Mike Pompeo asking for an explanation of the Global IP deal and nine other Boeing satellites built over the years for Asian commercial satellite operators including AsiaSat of Hong Kong. The concern here seemed to be that a U.S. manufacturer could sell a satellite to a company that would, in the normal course of business, lease capacity to Chinese government interests for law enforcement leading to human rights abuses.
Negotiating U.S. export regulations is one reason Boeing has some 200 full-time export-compliance personnel. Similarly, Milbank, Tweed has long experience in the U.S. satellite sector.
That the two disgruntled Global IP owners would light the China fuse in this way has been a source of wonderment in the two years since the lawsuits were filed in the U.S. District Court for the Central District of California.
“It was a bit like people trying to destroy a company while at the same time seeking damages against it,” said one industry official in comments echoed by others, including Boeing competitors.
The lawsuits and their incendiary language — and a demand for $300 million or more — have recently been set aside pending the resolution of proceedings at the International Arbitration Court of Hong Kong.
“This has always been about the money and how we settle with them,” Global IP Chief Executive Bahram Pourmand said, referring to the legal action by founders Emil Youssefzadeh and Umar Javed.
Global IP and its principal backer, Bronzelink Holdings Limited of Hong Kong, said they are ready to renegotiate a contract with Boeing to complete the $300-million satellite, this time with financial guarantees.
Ivan PM Chow, Bronzelink’s chief operating officer, said multiple prospective customers have expressed interest in the project, which would provide low-cost bandwidth to a large swath of Africa.
“Our price is very competitive,” Chow said in an interview, referring to what Global IP could generate in user revenue. “There is a great interest in what we’re doing from prospective customers.” Bronzelink has invested $175 million in Global IP.
Pourmand said the satellite remains 90% competed at Boeing’s El Segundo, California, facility and that, backed by Bronzelink, Global IP is prepared to resume payment to Boeing, plus penalties, and establish an escrow account to ease Boeing concerns of fresh liquidity issues.
Boeing terminated the Global IP project in December 2018 — 48 hours after the Wall Street Journal piece appeared — for nonpayment of bills that Pourmand agreed were long passed due. He has no quarrel with Boeing on that score, although he suspects the timing was no coincidence.
The U.S. Department of Commerce, which had approved a Global IP license in 2016, put a hold on it at this point in what appeared to be a reaction to the Journal story.
Industry officials said that early this year Boeing began soliciting interest from other satellite operators about a possible sale of the satellite. Global IP had paid Boeing some $146 million on the contract out of a total contract value of $286 million before late-payment penalties are included.
Boeing declined to comment on whether it would entertain a request from Global IP to reopen contract talks to finish the satellite. Industry officials said Boeing claims the unfinished spacecraft is its property by virtue of Global IP’s default on payment, but that it has been unable to find a buyer in the nine months since the contract’s termination.
Boeing issued the following statement, with the language still reflecting the allegations in the lawsuit and the Journal article:
“The satellite that Boeing was developing for Global IP was a commercial communications satellite based on technology commonly available in the global marketplace. It contained no classified or military technology and reports to the contrary are wholly inaccurate. The satellite’s technology is governed by the Commerce Department under the Export Administration Regulations (the EAR), and not the Department of State under the ITAR.
“Before sharing information with Global IP, Boeing requested and received export compliance information and written assurances from the company. Boeing provided information to Global IP’s US employees under transfer prohibitions and access protocols.
“Boeing terminated its contract with Global IP for nonpayment on December 6, 2018.
“We will continue to consult with and abide by Commerce Department requirements and determinations in this matter.”
With Bronzelink’s continued backing, Global IP is ready to assemble the funds needed to finish the satellite and pay Boeing the associated penalties, Pourmand said.
He said that he company has received no indication from the U.S. government that its organization contravenes U.S. law.
Milbank LLP is no longer involved with the case and declined to comment on both the project and the lawsuits.
Global IP’s legal team is led by Sheppard Mullin, which issued the following statement:
Sheppard Mullin statement
“Sheppard Mullin reports that in a case like this, where:
1— A satellite is to be launched from the U.S.;
2—The EAR [U.S. Export Administration Regulations]-controlled satellite data are seen only in the U.S. by U.S. persons employed by a U.S. company (GIP USA);
3—The launch and integration data are seen only by the U.S. satellite manufacturer (Boeing), and;
4—A NATO country TT&C [satellite [tracking, telemetry and control] contractor (Hellas Sat) will have operational control of the satellite;
no U.S. export license is needed for GIP Cayman to take title to the satellite at launch.
“The only export that occurs is of the TT&C items to [Greek satellite operator] Hellas Sat.
“The U.S. company, GIP USA, has separate, secure computer systems and strict U.S. export compliance procedures, which the U.S. government has seen, preventing any foreign access to its technical data.
“[The Department of] Commerce issued a license to GIP USA for the TT&C items to go to the European TT&C contractor, and that license has never been suspended or revoked. Boeing therefore could build and deliver the satellite in this case without needing a U.S. export license.
“When it applied for is license in 2015 in anticipation of there being a potential GIP program, Boeing did not know that the ultimate structure used would not require an export license.
“The Commerce Department confirmed, after the Wall Street Journal article appeared, that it has no disagreement with the above analysis, and it has not expressed any objection to the program proceeding on this basis.
“No ITAR license or TAA [Technical Assistance Agreement] is needed in such a case because the launch occurs in the U.S. and ITAR data are shown only to the U.S. satellite manufacturer, Boeing, in the United States.
“Throughout the entire program, before and after the Wall Street Journal article, CFIUS [the inter-agency Committee on Foreign Investment in the United States] has not objected to the project or the investment in 2016 that gave rise to the project. The courts in California have stayed all the proceedings because the underlying dispute is to be arbitrated in Hong Kong.”
The reference to HellasSat is because Global IP contracted with the Greek satellite fleet operator to perform satellite tracking, telemetry and control services after the launch.
The lawsuits’ principal accusation is that Bronzelink is owned by the Chinese government via different investment vehicles, notably in the British Virgin Islands, and that Bronzelink’s takeover of Global IP would therefore contravene U.S. regulations.
Tracing the origins of Bronzelink’s financing is a challenge. One independent investigation — done for commercial, not governmental, interests — attempted to do so but abandoned the effort before arriving at any conclusions.
Pourmand concedes that connecting Bronzelink’s roots to its branches is no easy task, but insists that Global IP is not controlled by the Chinese government or Chinese interests and does not violate U.S. law.
In an Oct. 1 interview, Pourmand said he remained hopeful of working out an agreement with Boeing but that Global IP would move forward, if necessary, without Boeing. A new generation of less-expensive, high-performance satellites has appeared on the market since the company’s Boeing order.
Here are excerpts from the interview:
Where are you with Boeing on reopening talks to resume the contract?
I have told Boeing that now that CFIUS and Commerce are no longer issues, we could open an escrow account to their benefit to put money in that would go to them if we reached an agreement that we could not follow through on. We would then pay them what we owe them through our own investment and a bank loan. They have not responded to our offer.
Do you agree that Boeing was justified in terminating the contract for default on payment?
Oh yes. And I understand that at this point, the period of ‘Trust me’ is over. That’s why we are offering the escrow and to guarantee the money with a triple-A-rated bank.
Boeing has told prospective buyers that it now owns the Global IP satellite and can dispose of it as it wishes. Is that your view?
With every commercial satellite I have been involved with, the title remains with the builder until the satellite is launched, or until the moment of intentional ignition of the rocket.
Because of our lack of payment, they can in fact null the contract. But a month before termination we paid Boeing a part of what we owed. They have an obligation under the contract to maximize our gain from the satellite. We have paid $146 million and we want some benefit from that.
What’s your next step if Boeing doesn’t want to deal with you?
I still want us to have that satellite and I want to try everything possible to avoid taking any measures. At this point, I am operating on the assumption that somehow we can work out an agreement with Boeing, directly or indirectly.
Satellite costs, on a per-MB basis, have gone down since you signed with Boeing.
I know. There are companies now talking about totally digitized products for less than $200 million. But that would mean waiting two years.
Your Commerce Department license was suspended in December 2018. Where is that now?
It was a license given to Boeing to sell a satellite to a Cayman company. Commerce has looked at the process and looked at our setup and concluded that all the sensitive aspects are being handled in the U.S., by U.S. people. The satellite is being built in the U.S. and launched in the U.S., with TT&C being handled in Europe and landing in Africa.
And your launch contract with SpaceX?
We paid a deposit on that and so we still expect our launch will be with them.