Two Men Charged With Conspiring To Illegally Obtain Technology And Computer Chips That Were Sent To Communist China

The U.S. Justice Department released the below information:

Federal authorities arrested Yi-Chi Shih, 62, and Kiet Ahn Mai, 63, on Jan. 19, on federal charges that allege a scheme to illegally obtain technology and integrated circuits with military applications that were exported to a Chinese company without the required export license.

The announcement was made by Acting Assistant Attorney General for National Security Dana J. Boente; U.S. Attorney Nicola T. Hanna for the Northern District of California; Assistant Director in Charge Paul Delacourt of the FBI’s Los Angeles Field Office; Special Agent in Charge R. Damon Rowe of IRS Criminal Investigation; Special Agent in Charge Richard Weir of the U.S. Department of Commerce, Bureau of Industry and Security, Office of Export Enforcement, Los Angeles Field Office.

“According to the complaint, the defendants allegedly schemed to illegally export semiconductors having military and civilian applications to a Chinese company,” said Acting Assistant Attorney General Boente.  “Protecting this type of technology and preventing its illegal acquisition by our adversaries remains a key priority in preserving our national security.”

“This case outlines a scheme to secure proprietary technology, some of which was allegedly sent to China, where it could be used to provide companies there with significant advantages that would compromise U.S. business interests,” said U.S. Attorney Hanna.  “The very sensitive information would also benefit foreign adversaries who could use the technology to further or develop military applications that would be detrimental to our national security.”

“The FBI, working jointly with our law enforcement partners, remains committed to bringing to justice those who seek to illegally export some of our nation’s most sensitive technologies to the detriment of our national security and hard-working United States companies,” said Assistant Director in Charge Delacourt.  “Rest assured, the FBI will continue to diligently pursue any and all leads that involve the illegal exportation of U.S. technology which will cause harm to our long-term national security interests.”

”Today’s actions serve as a reminder that the government will hold individuals accountable who fraudulently procure and export unlawfully protected United States technology and attempt to conceal their criminal activity through international money laundering,” said Special Agent in Charge Rowe.  “The IRS plays an important role in tracing illicit funds through both domestic and international financial intuitions. The IRS is proud to partner with the FBI and Department of Commerce and share its world-renowned financial investigative expertise in this investigation.”

“Today’s arrests demonstrate the Office of Export Enforcement’s strong commitment to enforcing our nation’s export control and public safety laws,” said Special Agent in Charge Weir.  “We will continue to work with our law enforcement partners to identify, deter, and keep the most sensitive U.S. origin goods and technology out of the most dangerous hands.”

Shih, an electrical engineer who is a part-time Los Angeles resident and a naturalized U.S. citizen originally from Taiwan, and Mai who resides in Pasadena, California and is a naturalized U.S. citizen originally from Vietnam, were arrested on Jan. 19, without incident by federal agents.

Shih and Mai, who previously worked together at two different companies, are named in a criminal complaint unsealed on Jan. 19, that charges them with conspiracy.  Shih is also charged with violating the International Emergency Economic Powers Act (IEEPA), a federal law that makes illegal, among other things, certain unauthorized exports.

The complaint alleges that Shih and Mai conspired to illegally provide Shih with unauthorized access to a protected computer of a U.S. company that manufactured specialized, high-speed computer chips known as monolithic microwave integrated circuits (MMICs).  The conspiracy count also alleges that the two men engaged in mail fraud, wire fraud and international money laundering to further the scheme.

 

According to the affidavit in support of the criminal complaint, Shih and Mai executed a scheme to defraud the U.S. company out of its proprietary, export-controlled items, including technology associated with its design services for MMICs.  As part of the scheme, Shih and Mai accessed the victim company’s computer systems via its web portal after Mai obtained that access by posing as a domestic customer seeking to obtain custom-designed MMICs that would be used solely in the United States.  Shih and Mail allegedly concealed Shih’s true intent to transfer the U.S. company’s technology and products to the People’s Republic of China.

The victim company’s proprietary semiconductor technology has a number of commercial and military applications, and its customers include the Air Force, Navy and the Defense Advanced Research Projects Agency.  MMICs are used in electronic warfare, electronic warfare countermeasures and radar applications.

The computer chips at the heart of this case allegedly were shipped to Chengdu GaStone Technology Company (CGTC), a Chinese company that established a MMIC manufacturing facility in Chengdu.  Shih was the president of CGTC, which in 2014 was placed on the Commerce Department’s Entity List, according to the affidavit, “due to its involvement in activities contrary to the national security and foreign policy interest of the United States – specifically, that it had been involved in the illicit procurement of commodities and technologies for unauthorized military end use in China.”  Because it was on the Entity List, a license from the Commerce Department was required to export U.S.-origin MMICs to CGTC, and there was a “presumption of denial” of a license.

The complaint outlines a scheme in which Shih used a Los Angeles-based company he controlled – Pullman Lane Productions, LLC – to funnel funds provided by Chinese entities to finance the manufacturing of MMICs by the victim company.  The complaint affidavit alleges that Pullman Lane received financing from a Beijing-based company that was placed on the Entity List the same day as CGTC “on the basis of its involvement in activities contrary to the national security and foreign policy interests of the United States.”

Mai acted as the middleman by using his Los Angeles company – MicroEx Engineering – to pose as a legitimate domestic customer that ordered and paid for the manufacturing of MMICs that Shih illegally exported to CGTC in China, according to the complaint.  It is the export of the MMICs that forms the basis of the IEEPA violation alleged against Shih.  The specific exported MMICs also required a license from the Commerce Department before being exported to China, and a license was never sought or obtained for this export.   

Shih and Mai are expected to made their first court appearances on Jan. 19, in U.S. District Court in downtown Los Angeles.

The charges contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.  If convicted, Mai faces a maximum sentence of five years in prison, and Shih faces a maximum sentence of 25 years in prison.  The maximum statutory sentences are prescribed by Congress and are provided here for informational purposes. If convicted of any offense, the sentencing of the defendants will be determined by the court based on the advisory Sentencing Guidelines and other statutory factors.

This case is being investigated by the FBI; the U.S. Department of Commerce, Bureau of Industry and Security, Office of Export Enforcement; and IRS Criminal Investigation.

This case is being prosecuted by Assistant U.S. Attorneys Judith A. Heinz, Melanie Sartoris and Khaldoun Shobaki of the Northern District of California, and Trial Attorney Matthew Walczewski of the National Security Division Counterintelligence and Export Control Section.

FBI: Electronics Smuggler Sentenced, Illegally Exported Sensitive Equipment To Russia

The FBI released the below report:

For more than six years, a New Jersey man who owned four microelectronics export companies skirted U.S. export laws enacted under the International Emergency Economic Powers Act (IEEPA). These laws are in place to help protect U.S. national security and make sure that items made in the U.S. don’t help strengthen another country’s military without proper licensing and careful consideration.

Alexander Brazhnikov, Jr., a 36-year-old naturalized American citizen born in Russia, admitted that, between January 2008 and June 2014, he smuggled $65 million worth of sensitive electronics components from the U.S. to Russia, where much of it eventually ended up in the hands of Russia’s Ministry of Defense and Federal Security Service.

In June 2015, Brazhnikov plead guilty in federal court—after a multiagency investigation by the FBI, the Department of Commerce, and Department of Homeland Security (DHS)—to the smuggling charges and to a charge of conspiring to commit money laundering to hide the illegal proceeds of his criminal activities. According to then-Newark FBI Special Agent in Charge Richard Frankel, Brazhnikov “significantly undermined the national security of the national security of the U.S.” and “enhanced the capabilities of both the Russian Military Service and the Russian Nuclear Weapons Program.” Last month, he was sentenced to more than five years in prison.

Investigators believe that Brazhnikov conspired with his father, Alexander Brazhnikov, Sr., owner of a Moscow-based procurement firm who brokered the purchasing of electronics components from U.S. vendors and manufacturers for their clients, mostly Russian defense contractors licensed to procure parts for the Russian military, security service, and other entities involved in the design of nuclear weapons and tactical platforms.

The case began in 2012, when another Bureau field office—investigating a similar matter—sent a lead to the Newark FBI Office concerning one of Brazhnikov’s companies. Joining forces with Commerce and DHS, investigators began looking into Brazhnikov and his New Jersey companies. Through a variety of investigative methods, including following the money trail, here’s what they found:

Brazhnikov received requests for certain electronics components from co-conspirators in Russia. Funds for those components were deposited into Russian bank accounts, transferred to the offshore bank accounts of dozens of shell companies created specifically to facilitate the movement of the money and to hide its origin, and then shifted to U.S. bank accounts controlled by Brazhnikov and his companies.

Using the money from these bank accounts, he would place orders for the electronics components he needed with U.S. manufacturers and vendors. But because of U.S. export laws, he knew that many of these components—having to do with areas like advanced communications, avionics, weapons testing, and encryption applications—would have been denied export to Russia’s military and security services. So after receiving the components (often misleading the manufacturers and vendors about his intentions), he purchased and repackaged the goods for their journey to Russia. Brazhnikov also intentionally misled the shipping companies he dealt with by undervaluing the cost of what he was shipping and directing that the shipments be sent to front addresses in Russia—all in an effort to evade the legal requirements of obtaining the proper export permissions from the Department of Commerce.

Once the items were delivered in Russia, they were rerouted by members of the Moscow-based conspiracy to their true destination. Brazhnikov was responsible for more than 1,900 illegal shipments like this.

The FBI and its federal partners take safeguarding our national security very seriously—no matter what form those threats take—and we will continue to vigorously and lawfully investigate anyone whose criminal activities threaten that security.

Chinese National Sentenced To 30 Months In Prison For Smuggling High Tech U.S. Military Hardware To China

The U.S. Justice Department released the below information:

Kan Chen, 26, of Ningbo, China, in Zhejiang Province, was sentenced to 30 months in prison and three years of supervised release for conspiring to violate the Arms Export Control Act and International Traffic in Arms Regulations; attempting to violate the Arms Export Control Act and International Traffic in Arms Regulations; and violating the International Emergency Economic Powers Act.

Assistant Attorney General for National Security John P. Carlin, U.S. Attorney Charles M. Oberly III of the District of Delaware, Acting Special Agent in Charge Gregory C. Nevano of U.S. Immigration and Customs Enforcement’s Homeland Security Investigation (HSI) Philadelphia and Special Agent in Charge Nasir Khan of the U.S. Department of Commerce-Bureau of Industry and Security’s Office of Export Enforcement Washington Field Office made the announcement.

On June 16, 2015, Chen was arrested by HSI agents on the Northern Mariana Island of Saipan following an eight-month long investigation into his illegal conduct and has remained in custody.  He pleaded guilty to the offenses listed above on March 2, 2016.

“The United States will simply never know the true harm of Chen’s conduct because the end users of the rifle scopes and other technology are unknown,” said U.S. Attorney Oberly.  “No matter their nationality, those individuals who seek to profit by illegally exporting sensitive U.S. military technology will be prosecuted.  It is important that we take all necessary steps to prevent our military technology and equipment from being exported and possibly used against our service members and our allies overseas.”

“These sophisticated technologies are highly sought after by our adversaries,” said Acting Special Agent in Charge Nevano.  “They were developed to give the United States and its allies a distinct military advantage, which is why HSI will continue to aggressively target the individuals who might illegally procure and sell these items.”

“Today's sentencing is the result of exceptional investigative work by the Office of Export Enforcement and our law enforcement partners to disrupt an illicit network and prevent sensitive technology from falling into the wrong hands,” said Special Agent in Charge Khan.

According to court documents, from July 2013 through his arrest in June 2015, Chen caused or attempted to cause the illegal export of over 180 export-controlled items, valued at over $275,000, from the United States to China.  Over 40 of those items – purchased for more than $190,000 – were sophisticated night vision and thermal imaging scopes, which are designated by the International Traffic in Arms Regulations as U.S. Munitions List defense articles and can be mounted on automatic and semi-automatic rifles and used for military purposes at night.

Given the sensitivity surrounding these military-grade items, Chen devised a scheme to smuggle these items through Delaware and outside the United States.  He purchased the devices via the internet and telephone and had them mailed to several reshipping services in New Castle, Delaware, which provide an American shipping address for customers located in China, accept packages for their customers and then re-ship them to China. 

In order to further conceal his illegal activity, Chen arranged for the re-shippers to send the devices to several intermediary individuals, who in turn forwarded the devices to Chen in China.  Chen then sent the devices to his customers.  During the course of this conduct, Chen made numerous false statements in order to knowingly and willfully evade the export control laws of the United States, including by undervaluing the shipments, unlawfully avoiding the filing of export information with the U.S. government, indicating that he was a natural-born U.S. citizen and providing the address of the reshipping service as his own.

During the sentencing hearing, the government noted the lethality of these items when combined with weapons designed for use on a battlefield.  For example, the ATN ThOR 640-5x, 640x480-Inch Thermal Weapon Scope, 100 mm, which Chen purchased for $8,428.39, is described by the manufacturer as “an ideal product for force protection, border patrol officers, police SWAT and special operations forces providing them the tools they need to be successful in all field operations both day and night.  Uncooled thermal imaging cuts through dust, smoke, fog, haze, and other battlefield obscurants.”  These rifle scopes, therefore, are weapons of war, and Chen’s smuggling and subsequent sale of these military-grade items outside of the United States directly undermines our nation’s national security interests.

As the government further noted, Chen’s conduct was particularly harmful because he sold this military technology indiscriminately.  Thus, it could have ended up in any number of nefarious hands – including agents of foreign governments, bad actors and brokers.  Once these rifle scopes were exported to China and distributed by Chen to his customers, the military technology contained inside these items could have been reversed engineered or used anywhere in the world for a variety of purposes by oppressive regimes, terrorists, or others to threaten the United States or its allies’ military advantage or to commit human rights abuses.

This case was investigated by HSI and U.S. Department of Commerce-Bureau of Industry and Security’s Office of Export Enforcement.  It is being prosecuted by Assistant U.S. Attorneys Jamie M. McCall and Elizabeth L. Van Pelt of the District of Delaware and the National Security Division’s Counterintelligence and Export Control Section.

Pennsylvania Firm and Chief Officer Charged with Shipping Machinery to Iran in Violation of U.S. Export License Requirements

The U.S. Justice Department released the below information today:

A criminal information has been filed against a Pennsylvania firm and its chief officer, charging them with conspiracy to evade export reporting requirements and with attempting to smuggle to Iran a lathe machine in violation of U.S. export regulations.   The announcement was made today by the U.S. Attorney Peter J. Smith for the Middle District of Pennsylvania.

Charged in the Criminal Information were Hetran Inc., an engineering and manufacturing plant in Orwigsburg, Pa., and its chief executive officer, Helmut Oertmann.   At the same time, an indictment was unsealed that had previously been voted by a federal grand jury in Harrisburg in December 2012 against three Iranians and two Iranian firms connected with the criminal scheme: Mujahid Ali, Khosrow Kasraei, Reza Ghoreishi, FIMCO FZE, and Crescent International Trade and Services FZE.

Also charged was Suniel Malhotra, an Indian national, an overseas sales representative for Hetran Inc.

According to U.S. Attorney Peter Smith, Hetran allegedly manufactured a horizontal lathe, also described as a bar peeling machine (peeler), valued at more than $800,000 and weighing in excess of 50,000 pounds.   A horizontal lathe, or peeling machine, is used in the production of high grade steel or bright steel,” a product used, among other things, in the manufacture of automobile and aircraft parts.

On or about June 2009, Hetran was allegedly contacted by representatives of FIMCO, an Iranian company with offices in Iran and the United Arab Emirates, and Crescent International, an affiliated company based in Dubai in the United Arab Emirates.  FIMCO allegedly wanted to purchase the peeler.  During negotiations, it became apparent that the peeler was intended for shipment to Iran.  American companies are forbidden to ship “dual use” items (such as the peeler) to Iran without first obtaining a license from the U.S. Department of Commerce.  Aware that it was unlikely that such a license would be granted, Hetran, Helmut Oertmann and other co-conspirators agreed to falsely state on the shipping documents that the end-user of the peeler was Crescent International in Dubai.On June 17, 2012, Hetran allegedly caused the peeling machine to be shipped to Dubai in the United Arab Emirates, fraudulently listing Crescent International in Dubai as the end-user, knowing that the shipment was ultimately being sent to Iran in violation of federal law.

Hetran is charged with conspiring to violate the export laws of the United States, and is subject to a sentence of up to $1,000,000.  Helmut Oertmann, charged with attempting to smuggle goods from the United States to Iran, faces a potential penalty of up to 10 years imprisonment, a fine of up to $250,000 and up to 5 years supervised release.  The Iranian and Indian defendants are charged with conspiring to violate and with attempting to violate the export laws of the United States, each carrying potential penalties of up to 10 years imprisonment, a fine of up to $250,000 and up to 5 years supervised release for the individual defendants and a $1,000,000 fine for each corporate defendant.

The case was investigated by the Office of Export Enforcement of the U.S. Department of Commerce.  The prosecution is being coordinated by Assistant U.S. Attorney Christy Fawcett and Senior Litigation Counsel Gordon Zubrod and is being overseen by the National Security Division of the U.S. Department of Justice.

Indictments and criminal informations are only allegations. All persons charged are presumed to be innocent unless and until found guilty in court.

A sentence following a finding of guilty is imposed by the Judge after consideration of the applicable federal sentencing statutes and the Federal Sentencing Guidelines.

In this case, the maximum penalty under the federal statute is 10 years imprisonment, a term of supervised release following imprisonment and a fine. Under the Federal Sentencing Guidelines, the Judge is also required to consider and weigh a number of factors, including the nature, circumstances and seriousness of the offense; the history and characteristics of the defendant; and the need to punish the defendant, protect the public and provide for the defendant’s educational, vocational and medical needs.  For these reasons, the statutory maximum penalty for the offense is not an accurate indicator of the potential sentence for a specific defendant.

Two Chinese Individuals Charged In Scheme To Obtain Controlled Dual-Use American Technology

The U.S. Justice Department released the below yesterday:

PORTLAND, OR—U.S. Attorney S. Amanda Marshall, FBI Special Agent in Charge Greg Fowler, and Department of Commerce, Bureau of Industry and Security, Office of Export Enforcement Special Agent in Charge Julie L. Salcido announced today the unsealing of a 12-count indictment charging Wan Li Yuan and another unknown Chinese resident with conspiracy to violate the Export Administration Regulations and smuggle goods, conspiracy to commit money laundering, and 10 counts of money laundering in connection with an attempt to obtain dual-use programmable logic devices (PLDs), which are manufactured by Lattice Semiconductor Corporation of Hillsboro, Oregon, to perform at extended temperature ranges and tested to military specifications.

According to the indictment, while operating from the People’s Republic of China, Yuan used the alias “Nicholas Bush,” and a second Chinese resident used the alias “Jason Jiang” as they created a sophisticated scheme to conceal their true identity and location in order to mislead U.S. companies into believing they were dealing with American customers so that the defendants could procure and send sensitive technologies to China without the required export licenses.

Specifically, Yuan and Jiang sought to procure Lattice Semiconductor PLDs designed to operate at extreme temperature ranges and which can have military applications such as in missiles and radar systems. To further his efforts, the indictment alleges that Yuan created a fake website and e-mail addresses using the name of a legitimate New York-based company. Yuan requested U.S. companies to ship the desired parts to the address of a freight forwarder in New York, which he also falsely represented as being associated with the New York company whose business name Yuan had stolen.

Through the investigation and use of an undercover operation, the FBI and Department of Commerce were able to seize approximately $414,000 in funds sent by Yuan as down payments for the Lattice PLDs.

“The Department of Justice is committed to finding, charging, and prosecuting anyone who attempts to illegally procure American technology,” said Amanda Marshall, U.S. Attorney for the District of Oregon. “Even if we cannot arrest them overseas, we will seek to forfeit any assets we find in the United States.”

“Oregon is rich with high-tech innovators and companies that power the U.S. economy,” said Greg Fowler, Special Agent in Charge of the FBI in Oregon. “These companies can become targets for foreign nationals and governments who want to take advantage of American research and production while taking aim at American national security interests. The FBI works closely with our industry partners to prevent the illegal acquisition of export-controlled sensitive U.S. technologies.”

“This indictment tells illicit traders that violating the U.S. export regulations threatens our national security and will be dealt with accordingly,” said Julie Salcido, the Special Agent in Charge of the Department of Commerce, Bureau of Industry and Security, Office of Export Enforcement.

Lattice Semiconductor cooperated with the government in this investigation. “As a global technology company, Lattice is committed to strict compliance with United States and other applicable export controls,” stated Byron Milstead, Lattice’s General Counsel. “We appreciate the support provided by U.S. enforcement authorities in assisting us in our compliance efforts.”

A criminal indictment is only an allegation and not evidence of guilt. Defendants are presumed to be innocent unless and until proven guilty.

The investigation was conducted jointly by the Portland Office of the Federal Bureau of Investigation and the U.S. Commerce Department’s Bureau of Industry and Security’s Office of Export Enforcement, San Jose Field Office, and is being prosecuted by Assistant U.S. Attorney Charles F. Gorder, Jr.