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July 16, 2008

Recent China-related Enforcement Activities of the Bureau of Industry and Security

Many small and mid-sized manufacturers in the United States are unaware that their exports may be subject to Export Administration Regulations (EAR). The implementation of those regulations is overseen by the Commerce Department’s Bureau of Industry and Security (BIS), and enforced through that bureau's Office of Export Enforcement (OEE). BIS is joined by several other federal departments with various responsibilities in the area of export control.

Not only are dual-use products -- items with military and commercial uses -- subject to the EAR, but many solely commercial products as well. Does your export require a license? The answer to that question is not necessarily straightforward, given the complexity of the regulations, which have been strengthened since 9/11. However, the importance of reviewing your export in light of the EAR cannot be understated.

To that end, I've devoted today's post to several China-related enforcement actions from the BIS website, which make for pretty interesting reading. More on export control law -- especially the topic of “deemed export” about which I've written here -- in future posts. I have dealt with China export issues and welcome inquiries from companies dealing with that and related issues.

WMD and Missile Proliferation

Industrial Furnace to China – On October 4, 2006, William Kovacs, president of Elatec Technology Corporation, was sentenced to 12 months and one day imprisonment, three years’ supervised release, and 300 hours community service in connection with the export of an industrial furnace to a proliferation entity of concern in China. On May 28, 2004, Kovacs and Elatec pled guilty to charges that they conspired to violate U.S. export licensing requirements in connection with this export. Elatec’s export license application for this transaction had previously been denied by BIS due to missile technology concerns. An associate, Stephen Midgley, separately pled guilty on January 10, 2005, to falsely stating in export documents that the furnace did not require an export license when the goods were shipped to China. Midgley was sentenced to one year probation, 120 hours community service and a $1,500 criminal fine. BIS assessed Midgley a $5,000 ($4,000 suspended) administrative penalty as part of an agreement with Midgley to settle charges related to this unlicensed export. OEE and ICE jointly conducted this investigation.

Nickel Powder to Taiwan – On October 11, 2007, Theresa Chang was sentenced to three years’ probation and to pay a $5,000 criminal fine. On June 21, 2007, Chang pled guilty to one count of making false statements related to the export of nickel powder controlled for nuclear proliferation reasons to Taiwan without an export license.

Thermal Insulation Blankets to China – On May 17, 2005, Vladimir Alexanyan, owner of Valtex International, was ordered to pay a $12,000 criminal fine, was sentenced to three years’ probation, and was ordered to refrain from any international activities or trade for the term of his probation. Valtex International was ordered to pay a $250,000 criminal fine. In February 2005, Vladimir Alexanyan and Valtex pled guilty to export violations and false statements in connection with the attempted export of satellite/missile insulation blankets to the Chinese Academy of Space Technology in Beijing. BIS had previously rejected Valtex’s application for an export license for these items. The goods were seized in San Francisco before their shipment from the U.S. BIS assessed Alexanyan an $88,000 administrative penalty and Valtex a $77,000 administrative penalty to settle charges related to this attempted unlicensed export. Both Valtex and Alexanyan are also subject to five year denials of export privileges to China. Further, Valtex agreed to implement an export management system. OEE and ICE jointly conducted this investigation.

Computer Chips with Guidance System Applications to China – On October 6, 2004, Ting-Ih Hsu, a naturalized U.S. citizen and president of Azure Systems, Inc., and Hai Lin Nee, a Chinese citizen and an employee of Azure, were sentenced to three years’ probation for false statements in connection with the illegal export of low-noise amplifier chips to China. The defendants falsely described the goods as “transistors” in export documents. These goods have application in the U.S. Hellfire missile. OEE and ICE jointly conducted this investigation.

Unauthorized Military Use

National Security Controlled Items to China – On May 1, 2006, criminal sentences were handed down against four former employees of Manten Electronics in connection with their illegal exports of millions of dollars worth of sensitive national security controlled items, with applications in radar, electronic warfare and communications systems, to state-sponsored institutes in China. Weibu Xu, aka Xu Weibu, aka Kevin Xu, was sentenced to 44 months’ imprisonment and two years’ probation. Hao Li Chen, aka Ali Chan, was sentenced to 30 months’ imprisonment and two years’ probation. Xiu Ling Chen, aka Linda Chen, was sentenced to 18 months’ imprisonment and two years’ probation. Kwan Chun Chan, aka Jenny Chan, was sentenced to six months’ home confinement and two years’ probation. OEE, the FBI, and ICE jointly conducted this investigation.

Attempted Export of Encryption Modules to Taiwan – On March 7, 2006, Ching Kan Wang, President/owner China May, Inc. of Hollywood, Florida was sentenced to prison for one year and one day. Wang pled guilty to conspiracy to violate the IEEPA for his role in attempting to acquire sensitive communication encryption modules for export to Taiwan without the required BIS export licenses. OEE and ICE jointly conducted this investigation.

National Security Controlled Electronic Equipment to China – On January 18, 2006, Ning Wen, operating Wen Enterprises, was sentenced following his conviction at trial on September 21, 2005 to 60 months’ imprisonment, two years’ supervised release and a $50,000 criminal fine for conspiracy to illegally export more than $500,000 worth of controlled electronic components to Beijing Rich Linscience Electronics in China. On December 21, 2005, Hailin Lin was sentenced to 42 months’ imprisonment and a $50,000 criminal fine; and on July 25, 2005, Jian Guo Qu was sentenced to 46 months’ imprisonment (later reduced to 22 months), and two years’ supervised release for their roles in these exports. OEE, the FBI, the Internal Revenue Service, and ICE jointly conducted this investigation.

Satellite and Radar Technology to China – On September 28, 2005, Zhaoxin Zhu of Shenzhen, China was sentenced to 24 months’ imprisonment and three years’ supervised release for conspiring to purchase controlled satellite and radar technology for illegal export to China. Zhu negotiated with undercover federal agents to purchase a variety of sensitive goods, including traveling wave tubes with satellite and radar applications, for export to China. OEE and ICE jointly conducted this investigation.

Low Noise Amplifiers to China – On August 17, 2005, Univision, operated by Zheng Zheng, was sentenced to a $1,000 criminal fine for false statements in connection with the export of low noise amplifiers, controlled for national security reasons, to China without obtaining the required license from the Department of Commerce. On June 28, 2005, Zheng was also sentenced to a $1,000 criminal fine for this violation. OEE and ICE jointly conducted this investigation.

False Statements on Export Documents; Microwave Amplifiers to China – On August 22, 2007, Norsal Export and its President Norman Spector agreed to pay administrative fines to settled charges that between November 9, 2000 and January 9, 2003, Norsal and Spector each committed forty-four violations of the Export Administration Regulations by exporting microwave amplifiers to the China with knowledge that violations of the EAR would occur in connection with the items. BIS also charged that the parties filed false Shipper’s Export Declarations in support of the unlicensed exports. To settle the charges, Norsal agreed to a $462,000 administrative fine, all of which will be suspended for a period of one year, and then waived, provided that no future violations of the EAR occur. Spector also agreed to an administrative fine of $462,000, of which $442,000 will be suspended on the same terms, and $22,000 is due in payment. In addition, both Norsal and Spector have been subjected to a twenty-five year denial of export privileges. In February 2005, Spector International, dba Norsal Export, was sentenced to a $57,000 criminal fine in connection with providing false information on Shipper’s Export Declarations regarding unlicensed exports of microwave amplifiers with potential radar applications and controlled for national security reasons, to China.

Deemed Exports

Video Amplifiers to China/National Security Controlled Technology to Chinese Nationals – On July 25, 2005, Charlie Kuan, former president of Suntek Microwave, Newark, California, was sentenced to 12 months and one day imprisonment and two years’ supervised release for failure to obtain required export licenses for shipments of detector log video amplifiers (DLVA), items controlled for national security reasons, to Chengdu Jeway Microwave Telecommunications, a company controlled by the Chinese government. Suntek, which was also charged with failing to obtain export licenses under the deemed export provisions of the EAR, was sentenced to a $339,000 criminal fine. BIS additionally assessed administrative penalties of $275,000 against Suntek, $187,000 against Kuan, and 20 year denials of export privileges against both parties in connection with these violations.

National Security Controlled Technology to Chinese and Ukrainian Nationals – In November 2004, BIS assessed Fujitsu Network Communications, Inc. an administrative penalty of $125,000 as part of an agreement with Fujitsu to settle charges related to unlicensed deemed exports to foreign nationals. In particular, BIS alleged that Fujitsu failed to obtain the export licenses required for transferring commercial digital fiber-optic transmission and broadband switching technology to Chinese and Ukrainian nationals. The applicable technology is subject to national security controls.

National Security Controlled Items and Technology to China – In September 2004, BIS assessed a $560,000 administrative penalty against Lattice Semiconductor Corporation as part of an agreement to settle charges of unlicensed exports of extended range programmable logic devices and technical data to China and the deemed export of controlled technology to Chinese nationals. The items and technology are controlled for national security reasons.

National Security Controlled Technology to Chinese and Iranian Nationals – In April 2004, BIS assessed New Focus, Inc., an administrative penalty of $200,000 as part of an agreement with New Focus to settle charges related to unlicensed deemed exports to foreign nationals and other exports. In particular, BIS alleged that New Focus failed to obtain the export licenses required for transferring technology to two Iranian nationals and one Chinese national who, in the course of their employment in the U.S., were exposed to national security controlled manufacturing technology. BIS also alleged that New Focus failed to obtain the required export licenses for shipments of national security controlled amplifiers to the Czech Republic, Singapore, and Chile.

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Posted by: Rebecca at August 6, 2008 7:51 PM

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