VANCOUVER -- Fraud allegations against Huawei executive Meng Wanzhou are a "facade" and charges filed by the United States are really about the country trying to enforce its sanctions on Iran, a defence lawyer has argued.

A court hearing began Monday in Vancouver over the American request to extradite Meng, a case that has fractured Canada-China relations. Beijing has detained two Canadians and restricted imports in moves widely seen as retaliation.

At issue in this week's hearing is the legal test of double criminality, meaning that if her alleged conduct is a crime in Canada then Meng should be extradited to face the charges in the U.S.

Meng is accused of lying to HSBC about Huawei's relationship with an Iran-based subsidiary, putting the bank at risk of violating U.S. sanctions against the country.

However, her lawyer Richard Peck told a British Columbia Supreme Court judge that the allegations do not amount to fraud and Canada has expressly refused to impose similar sanctions against Iran.

"Would we be here in the absence of U.S. sanctions law?" he asked. "In our respectful submission, the response is No."

Peck said it's a "fiction" that America has any interest in policing a foreign citizen or foreign bank for activity on the other side of the globe, but it does have an interest in enforcing its sanctions.

The sanctions are the basis of the alleged fraud, since the bank wouldn't have faced any economic or legal risk if the penalties didn't exist, he added.

Lawyers for Canada's attorney general, on behalf of the U.S., have argued in court documents that Meng's alleged misrepresentations put HSBC at risk of economic loss and are sufficient to make a case of fraud in Canada.

The U.S. alleges that Huawei controlled the operations of its affiliate Skycom in Iran from at least 2007 to 2014, but Meng met with a senior HSBC executive in 2013 and made assurances that Huawei no longer held a shareholding interest in Skycom.

HSBC and its U.S. subsidiary cleared more than US$100 million worth of transactions related to Skycom through the U.S. between 2010 and 2014, exposing the bank to civil and criminal liability, American officials allege.

However, Peck said in that alleged scenario HSBC is a victim and did not wilfully violate any sanctions.

"Our laws do not punish innocent victims. Hence, HSBC could never be at risk of economic deprivation in Canada," he argued.

Another lawyer for Meng, Eric Gottardi, noted that many of the transactions occurred prior to 2013 when Meng is accused of lying to the bank.

He noted Canada had sanctions against Iran in 2013 but lifted them in 2016 after world powers signed a nuclear deal with Iran. The U.S. pulled out of the deal in 2018 and reinstated sanctions, but Canada refused to follow suit.

The law says the conduct must be a crime in Canada at the time the country issues an "authority to proceed" with the extradition process, which in this case occurred in February 2019, Gottardi said.

"The problem with the current request is its timing," he told the judge.

Gottardi also criticized the attorney general's submissions for being contradictory.

The Crown said in court documents that the judge does not need to consider American sanctions to prove a fraud case, but it also suggested the juge could import a foreign legal context in a limited way, to "better understand why HSBC's economic interests were at risk."

The start of the extradition hearing drew a large crowd of members of the public, supporters of Meng and international media. A courtroom with a capacity of 150 people quickly filled and an overflow area was set up.

Meng, who's free on bail and living in one of her two multimillion-dollar homes in Vancouver, denies the allegations. She took notes in court with the help of a Mandarin interpreter.

Her husband Liu Xiaozong listened in the courtroom gallery.

A spokesman for China's Foreign Ministry said Monday that the United States and Canada abused their bilateral extradition treaty and arbitrarily took compulsory measures against a Chinese citizen without cause.

"This is entirely a serious political incident that grossly violates the legitimate rights and interests of the Chinese citizen," said Geng Shuang, urging Canada to release Meng.

Deputy Prime Minister Chrystia Freeland said the Canadian government's priority is the well-being and release of the two Canadians detained by China, Michael Kovrig and Michael Spavor.

"Our government has been clear that we are a rule of law country and that we honour our extradition treaty commitments. That is what we need to do and that is what we will do," she told reporters in Winnipeg.

Huawei said in a statement that it trusts in Canada's judicial system and believes it will prove Meng's innocence.

"Huawei stands with Ms. Meng in her pursuit for justice and freedom," the company said.

If the judge decides the legal test of double criminality has not been met, Meng will be free to leave Canada, though she'll still have to stay out of America to avoid the charges.

If the judge finds there is double criminality, the hearing will proceed to a second phase.

That phase, scheduled for June, will consider defence allegations that Meng's rights were violated during her arrest in December 2018 at Vancouver's airport.

This report by The Canadian Press was first published Jan. 20, 2020.