VANCOUVER — A lawyer for Meng Wanzhou accused Canada's attorney general of turning fraud law "on its head," as the Huawei executive's formal extradition hearing resumed Monday.

Defence lawyer Mark Sandler told a B.C. Supreme Court judge that government lawyers have failed to present evidence linking the Huawei executive's action to any violation of U.S. sanctions by an international bank or to subsequent losses.

"This is an extraordinary case," Sandler said. "It's extraordinary that years after its commencement, the theory of causation remains unclear."

Meng, who is Huawei's chief financial officer and daughter of the company's founder, was arrested at Vancouver's airport in 2018 at the request of the United States in a move that fractured Canada's relationship with China.

She says she is innocent of U.S. fraud charges that are based on allegations she misled HSBC in a 2013 presentation about Huawei's control of another company that did business in Iran, putting the bank at risk of violating U.S. sanctions.

Her case is unfolding amid rising diplomatic tensions with China as courts there are prosecuting Canadians whose sentencing or detentions are widely seen as retaliation for her arrest.

Canadians Michael Kovrig and Michael Spavor were arrested just days after Meng and Canadian officials have pledged to fight for their release, even as a Chinese court handed Spavor an 11-year sentence last week for spying.

In Canada, the judge hearing Meng's extradition case is tasked with determining whether the United States has presented enough evidence to support a possible guilty verdict against her. However, even if she rules Meng should be surrendered to face the charges, Canada's justice minister still has final say over extradition.

Lawyers for Canada's attorney general, who represent the United States in the case, argued last week that Meng's alleged lies would clearly constitute fraud in Canada.

Fraud law, fundamentally, is about commercial dishonesty, Robert Frater argued. Meng's presentation was intentionally misleading in a way that prevented HSBC from making financial decisions based on full and forthright information about its clients, he said.

However, Sandler said Monday that without proof of "causation" or any evidence that HSBC faced civil or criminal consequences for a sanctions breach, the case wouldn't meet the threshold for fraud and Meng should be released.

"Simply put, nothing Ms. Meng said induced HSBC to violate U.S. sanction laws," Sandler says.

Both sides agree that Meng told HSBC that Huawei and Skycom did business together in Iran.

Nonetheless, HSBC independently chose to clear transactional funds originating from Skycom through its own U.S. subsidiary, Sandler said.

Meng could not have known how HSBC planned on clearing its transaction. However, even if the court rules the bank relied on misrepresentations by Meng to clear transactions, the case still fails, he said. There is no evidence that HSBC suffered an actual loss or risk of loss, he said.

The possibility that HSBC would be held criminally responsible is "legally impossible" and the likelihood that it would be held civilly responsible is "so remote, speculative and hypothetical that it fails to represent a true or real risk of deprivation to support a fraud prosecution," Sandler said.

There has never been a fraud case in Canada in which a fraud prosecution has been supported by the mere possibility that a government would go after an alleged victim for liability, when there is no actual loss or risk of loss, he said.

"We have turned fraud law on its head in these proceedings."

Meng's extradition hearing is expected to wrap up mid-week but could continue through Friday.

This report by The Canadian Press was first published Aug. 16, 2021.

Amy Smart, The Canadian Press