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Part 1: Export Enforcement Actions
Electronics distribution company Broad Tech System and its president and owner, Tao Jiang of Riverside, California, pleaded guilty Jan. 11 to participating in a conspiracy to illegally ship chemicals made or distributed by a Rhode Island-based company to a Chinese firm with ties to the Chinese military, the U.S. Attorney's Office for the District of Rhode Island announced. Jiang and Broad Tech admitted to violating the Export Control Act and conspiring to commit money laundering.
Electronics Distributor, Owner Admit Violating Export Control Act
The company and its owner said that they worked with Bohr Winn-Shih, an engineer at Broad Tech, to order chemicals "Photoresist and HPRD (Developer)" from the Rhode Island manufacturer, and then submitted false information to CBP and the Commerce Department about the shipments. The intended recipient of the goods was a state-owned electronics manufacturer in Nanjing, China, that deals in the development of "core chips and key components in China's military strategic early warning systems, air defense systems, airborne fire control systems, manned space systems and other national large-scale projects," the U.S. Attorney's Office said.
CBP told Commerce of an intended shipment of 58 gallons of photoresist to the China-based firm in 2018. After the product was returned to the manufacturer, Jiang asked the Rhode Island-based company to make 94 gallons of photoresist, this time shipping it to a different Chinese company. The manufacturer, finding the request suspicious, reported this to Commerce, the U.S. Attorney's Office said. The ensuing inquiry discovered Jiang's and Broad Tech's efforts to hide the end user of the shipment and receipt of a $65,000 wire transfer for the 58 gallons of photoresist from the Nanjing-based company.
California Resident Admits Violating Export Controls in Bid to Ship Software to Chinese University
Jonathan Yet Wing Soong of Castro Valley, California, pleaded guilty Jan. 17 to violating export controls by conspiring to ship aeronautics software to a Beijing university, the U.S. Attorney's Office for the Northern District of California announced. Soong admitted to violating the International Emergency Economic Powers Act, making him subject to a maximum penalty of 20 years in prison and a $1 million fine.
From 2016 to 2020, Soong worked as a program administrator at space science research nonprofit Universities Space Research Association. In April 2016, the organization contracted with NASA to license and distribute Army flight control software. The defendant was tasked with conducting export compliance screening for customers, among other things.
In pleading guilty, Soong said he "willingly exported and facilitated the sale and transfer of restricted software to Beihang University knowing that the university was on the Department of Commerce’s Entity List," The U.S. Attorney's Office said. Beihang University was placed on the Entity List due to its involvement with the Chinese military's rocket system and unmanned air vehicle systems. The defendant put together plans to sell and transfer a software package, known as CIFER, to the university without acquiring an export license, the office said. CIFER lets a user develop a dynamic model of an aircraft based on flight test data using system identification techniques.
Miami Company Illegally Exported Gun Scopes, BIS Says
A Miami-based company violated U.S. export regulations when it illegally shipped red dot scopes to Austria and Switzerland, the Bureau of Industry and Security said in Feb. 2 order. The company, Dotphins, entered into a settlement agreement with BIS that will require it to complete compliance training.
BIS said Dotphins committed two violations of the Export Administration Regulations when it shipped the scopes in 2016 without the required export licenses. The scopes, worth about $200, were classified under Export Control Classification Number 0A987.c and controlled on crime control grounds. The company shipped the scopes to Austria in March 2016, but the U.S. government stopped the second shipment, a December 2016 export destined to Switzerland, before it left the country.
Under the settlement agreement, BIS will waive a two-year denial of Dotphins’ export privileges -- and the company will instead be subject to a two-year probation -- as long as it doesn’t commit another export violation and completes export compliance training. The training, which must be completed within one year, will require the company to attend an “export compliance training course or program” and submit a program certification to BIS. If Dotphins violates the settlement agreement, BIS may bar the company from participating in or benefiting from any export transaction involving items controlled under the EAR.
US-Iran Dual Citizen Sentenced for Illegal Exports to Iran
Kambiz Attar Kashani, a dual citizen of the U.S. and Iran, was sentenced Feb. 9 to 30 months in prison for "conspiring to illegally export U.S. goods and technology to users in Iran, including the Central Bank of Iran, in violation of the International Economic Powers Act," DOJ announced. The Central Bank of Iran has supported designated terrorist organizations, including the Lebanese Hezbollah and the Qods Force of the Islamic Revolutionary Guards Corps, according to the U.S. government.
From 2019 to 2021, Kashani and other co-conspirators used two United Arab Emirates-based front companies to illegally buy electronic goods and technology from various American tech companies for end users in Iran. The goods, which included "sophisticated, top-tier U.S. electronic equipment and software," were subject to U.S. export controls. Kashani "falsely" claimed to the U.S. companies that the UAE companies would be the ultimate end users, but the true final users were in Iran, DOJ said.
"Kashani conspired to illegally export U.S. goods and technology for the benefit of the Central Bank of Iran, a designated entity that materially supports known terrorist organizations,” Assistant Attorney General Matthew Olsen said. "The Department remains vigilant against any efforts to circumvent our export control and sanctions laws, which exist to protect the security of the United States and its people."
US Fines 3D Printing Company for Illegal Tech Exports, Including to China
The Commerce, State and Justice departments fined an American 3D printing company more than $25 million combined on Feb. 27 after it committed a range of export violations, including illegal shipments of aerospace technology and metal alloy powder to China and controlled design documents to Germany.
In a $2.7 million settlement with Commerce’s Bureau of Industry and Security, South Carolina-based 3D Systems Corp. admitted to committing 19 violations of the Export Administration Regulations, including violations of the EAR’s recordkeeping requirements. The company also reached a $20 million settlement with the State Department’s Directorate of Defense Trade Controls -- the largest amount since the agency’s $30 million settlement with FLIR Systems in 2018 -- and a $4.54 million settlement with DOJ.
DDTC said it will waive $10 million of its penalty if 3D Systems agrees to apply the money to “remedial compliance costs,” and DOJ said it will waive $2.27 million of its fine if the company pays what it owes DDTC and BIS.
BIS said 3D systems provided “3D printing, cast urethane modeling, and injection molding services” to customers in the U.S. and abroad. Although the company had 3D manufacturing facilities in the U.S., it also “regularly e-mailed design documents, blueprints, and technical specifications” to its then-subsidiary’s office in China to generate price quotes for requested services, BIS said, adding that those emails constituted EAR-controlled technology exports.
3D Systems on “several occasions” emailed controlled design drawings to its China office in Guangzhou after receiving requests for price quotes from U.S. companies, BIS said. The drawings involved military electronics and items used to produce and repair spacecraft, BIS said. On two occasions in 2015, the company illegally exported to China design documents for technology controlled under Export Control Classification Number 9E515.
The company also illegally exported controlled technology classified under ECCN 3E611, including in November 2015. The government found out about the violation when a customer for Quickparts, which was a subsidiary of 3D Systems at the time, notified Quickparts that it had committed an export violation and submitted a voluntary disclosure to BIS. A BIS agent eventually “conducted an outreach” with 3D Systems and issued the company a warning letter. 3D Systems “therefore knew or had reason to know” that its activities were subject to export regulations, but the company “failed to seek or obtain a license for such technology before exporting it,” BIS said.
3D Systems also exported the design documents to Germany, where it maintained a “mirrored server to store employee e-mails containing controlled technology,” the agency said. BIS said Quickparts’ employee emails, which contained design documents such as blueprints, drawings, diagrams and computer-aided design files, were stored on the German server and needed a license for national security and regional stability reasons. 3D Systems ended this practice for its U.S. Quickparts employees in December 2017 and “fully decommissioned the German server” in October 2018, and now all of its employee email is “hosted exclusively” in the U.S.
The company also exported $182,107 worth of controlled metal alloy powder to China on eight occasions between 2016 and 2019. BIS said the powder was classified under ECCN 1C002 and controlled for national security and nuclear nonproliferation reasons.
3D Systems’ violations mark another case in a “troubling trend of U.S. companies offshoring 3D printing operations and ignoring the export controls on the technical data sent overseas to facilitate the 3D printing,” John Sonderman, director for the BIS Office of Export Enforcement, said in a statement. The agency in 2022 issued a temporary denial order for three U.S. companies after they illegally exported materials used to 3D print satellite, rocket and defense-related prototypes (see 2206080068).
Under the BIS settlement, 3D Systems admitted to committing the violations and must pay a $2,777,570 fine to the agency within 30 days. The company also must complete two audits of its export compliance program, to be conducted by an “unaffiliated third-party consultant with expertise in U.S. export control laws.” The first audit is due within one year, and the second audit is due within 34 months. BIS said it also may issue a temporary denial order against the company if it doesn’t comply with the terms of the three-year probationary period outlined in the settlement.
In its charging letter, DDTC said 3D Systems committed 132 violations of the agency’s defense trade regulations when it illegally exported technical data to “various countries” and demonstrated “disregard” for its “export compliance responsibilities.” The agency also said the company continued to illegally export technical data even after it discovered its violations.
DDTC said it discovered the violations after 3D Systems responded to a subpoena from BIS and began an internal investigation that uncovered violations of the International Traffic in Arms Regulations by Quickparts. Those violations involved illegal exports of technical data to Germany, Taiwan, and China; illegal exports of technical data to foreign employees from India and the U.K.; and a “failure to maintain records” related to those violations.
Many of the ITAR violations overlapped with 3D Systems’ violations of the EAR, including the company’s illegal storage of technical data on an unencrypted email server in Germany. Those servers contained technical data controlled under multiple U.S. Munitions List categories, including Categories IV, VII, VIII, XII and XIII.
DDTC also said Quickparts sometimes used foreign third-party suppliers located in countries outside of China, including in Taiwan. The agency said Quickparts illegally reexported ITAR-controlled technical data from China to Taiwan between June 2017 and April 2018.
Other violations occurred when Quickparts employed foreign nationals from India and the U.K. who “repeatedly” received unauthorized exports of ITAR-controlled data. ”These two individuals had substantive interactions with ITAR-controlled technical data whenever a customer’s question or production issue was brought to their attention,” the agency said. “These activities likely resulted in unauthorized exports of technical data" listed under several USML categories to foreign-person employees, it said.
DDTC pointed to a range of compliance faults and missteps that led to 3D Systems’ violations, including the fact that it didn’t have a formal export compliance program until 2017 despite exporting items controlled under the ITAR since at least 2012. The company only began a compliance program and hired “dedicated” compliance personnel in July 2017 after the government informed it of its potential export violations, DDTC said.
The agency added that 3D Systems had a “limited awareness" of its ITAR obligations and didn’t “appreciate the risk involved” when acquiring new entities, including when in 2012 it acquired Quickparts, a company that provided 3D printing quotation and manufacturing services for third-party customers. Although 3D Systems knew it needed to maintain an ITAR registration after it acquired Quickparts, it didn’t “understand the various ITAR requirements throughout the business,” DDTC said, “including obtaining ITAR authorizations for ITAR-controlled activities.” The company also placed foreign employees in roles that were “likely to receive ITAR-controlled technical data” without first obtaining a license from DDTC.
DDTC also pointed to several mitigation factors, including 3D Systems’ cooperation with the agency’s investigation and its remedial compliance measures in an effort to prevent future similar violations. The company also entered into tolling agreements with DDTC.
3D Systems’ settlement with DOJ involves allegations that it violated the False Claims Act by illegally sending export-controlled technical data to China. The agency said 3D Systems -- through Quickparts -- completed “on-demand manufacturing projects” as part of contracts issued by the Defense Department and NASA. Those contracts involved export-controlled items. DOJ said the violations occurred between Jan. 1, 2012, and Dec. 31, 2017.
Reached for comment, 3D Systems said it is "pleased to have reached a settlement with the agencies and remains committed to continuing to enhance its export controls program.”
US Citizens Charged With Illegally Exporting Avionics to Russia
Two U.S. citizens were arrested March 2 for their role in a yearslong scheme to avoid U.S. export controls on aviation-related technology headed for Russia, DOJ announced.
Cyril Buyanovsky and Douglas Robertson of Kansas owned and operated KanRus Trading Co., which supplied Russian companies with avionics equipment supplies and repair services. Starting in 2020, the two men worked to evade U.S. export laws by hiding the true end users, value and end locations of their exports by "transshipping items through third-party countries," DOJ alleged.
Between November 2020 and February 2021, Buyanovsky and Robertson worked to repair avionics equipment -- including a computer processor "bearing a sticker identifying Russia’s Federal Security Services" -- for a Russian company. They "concealed the true end user and end destination" of the item by falsely telling a shipping company that the item was destined to Germany.
DOJ said Buyanovsky and Robertson also tried to export avionics to Russia in 2022 after the U.S. imposed broad sanctions against Moscow for its invasion of Ukraine. After U.S. authorities detained the shipment, the Commerce Department told Buyanovsky and Robertson that the item needed a license. Soon after, Robertson told his Russian customer that “things are complicated in the USA” and that “[t]his is NOT the right time for [more paperwork and visibility]," DOJ said. Later that summer, DOJ said they illegally exported the avionics by transshipping them through Armenia and Cyprus to Russia without a Commerce license.
Buyanovsky and Robertson were charged with "conspiracy, exporting controlled goods without a license, falsifying and failing to file electronic export information, and smuggling goods contrary to U.S. law," DOJ said. The export control violation charges come with a maximum of 20 years in prison, the smuggling counts come with a maximum 10-year prison sentence, and the conspiracy and falsifying export information counts have five-year maximum prison sentences.
Iranian National Illegally Exported US Electrical Products, DOJ Says
Iranian national Mehdi Khoshghadam violated U.S. export controls by illegally shipping electrical cables and connectors from the U.S. through Hong Kong and to Iran, DOJ said March 9. Khoshghadam was charged with one count of conspiracy, one count of violating of the International Emergency Economic Powers Act and one count of conspiracy to commit money laundering. The indictment also seeks to forfeit all “proceeds” earned by Khoshghadam from the illegal exports.
Khoshghadam, the managing director of Pardazan Systems Namad Arman, an Iranian electronics importer, allegedly began buying the electrical connectors and cables from a U.S. company in 2016. DOJ said he shipped the goods to a freight forwarding company in Hong Kong before eventually sending them to Iran. Khoshghadam used the alias “David Lei” to buy from the U.S. company, the agency said, and used Merlin International Trading Company, a front company “purported” to be based in Singapore, to buy the goods.
When Khoshghadam first tried to buy the goods under a different name, the U.S. company told him its bank rejected the payment because the payor’s name needed to be identical to the company submitting the order, DOJ said. Khoshghadam then had a “co-conspirator” in China pretend to be Khoshghadam’s agent and handle the payment, DOJ said.
Between January 2016 and May 2018, Khoshghadam used front companies in China and Malaysia to submit three orders to the U.S. company, which helped to “conceal the true identity of the purchaser”and hide that the items were destined for Iran, DOJ said. After the U.S. company shipped the goods to Hong Kong, Khoshghadam had the goods “repacked with falsified shipping records,” which listed a non-U.S. company as the shipper and the ultimate destination as Iran.
Khoshghadam also “falsified” from BIS-711, a document required by the Bureau of Industry and Security in which the purchaser of U.S. goods lists the “identity and location of the true end user of the purchased goods,” DOJ said in a news release discussing the indictment handed down by a grand jury. Khoshghadam listed a China-based company as the end user instead of the true end user in Iran.
The items also required licenses from the Treasury Department’s Office of Foreign Assets Control, DOJ said. The agency also said Khoshghadam made three money transfers from bank accounts in China, Malaysia and elsewhere to U.S. bank accounts or used U.S. correspondent banks “with the intent to promote the unlawful exports to Iran.”
Khoshghadam faces a maximum five-year prison sentence for the conspiracy charge and 20-year prison sentences each for the IEEPA charge and money laundering conspiracy charge. Khoshghadam may also face “financial penalties.”
DOJ Charges 5 People for Illegal Tech Exports to Iran
Five people from Iran, Turkey and the United Arab Emirates were charged in two cases at the U.S. District Court for the District of Columbia for violating the Arms Export Control Act and the International Emergency Economic Powers Act, DOJ announced March 22. They allegedly tried to obtain and export U.S. technology to Iran from 2005 to 2013.
The Treasury Department's Office of Foreign Assets Control sanctioned three of the people along with four entities for their role in the scheme which "supports Iran’s ballistic missile and unmanned aerial vehicle (UAV) and weapons programs (see 2303210031).
In one case, Amanallah Paidar of Iran and Murat Bukey of Turkey allegedly conspired to ship U.S. technology to Iran through their companies Farazan Industrial Engineering and Ozon Spor Ve Hobbi Urunleri, respectively. The duo specifically exported "a device that can test the efficacy and power of fuel cells and attempted to obtain a bio-detection system that has application in weapons of mass destruction (WMD) research and use," DOJ said.
The second case charged Iranian citizens Agshar Mahmoudi and Bahram Mahmoudi Mahmoud Alilou and UAE citizen Shahin Golshani for conspiring to obtain a high-speed camera that has nuclear and ballistic missile testing applications, a nose landing gear assembly for an F-5 jet and a meteorological sensor system. The trio worked to buy these goods through their companies Aran Modern Devices Kish Co. in Iran and Modern Technologies in the UAE.
“The defendants’ efforts to unlawfully export advanced U.S. technology that could benefit the Iranian regime’s military and weapons of mass destruction research pose a threat to all Americans,” Assistant Attorney General Matthew Olsen said. “The Justice Department will steadfastly pursue and bring to justice anyone who violates U.S. export laws and harm our nation’s security.”
BIS Imposes 20-Year Denial Order; Former Agent Says More to Come
The Bureau of Industry and Security on March 30 announced a 20-year export denial order against a Montana resident and his two companies for violating U.S. export controls against Iran. BIS in June charged Kenneth Scott and his companies, Scott Communications and Mission Communications, with shipping export-controlled radios knowing they would be delivered to Iran, failing to maintain export records, making false statements to FBI and BIS agents and more (see 2206100053).
Matthew Axelrod, the top BIS export enforcement official, said the agency “will not tolerate exporters using third countries as transshipment points to prohibited destinations such as Iran and providing false statements to law enforcement agents to cover up such illicit activities.” BIS will “impose severe administrative penalties as appropriate,” he said, “such as extensive export denial orders on persons and companies to prevent future violations of our controls.” Scott couldn't be reached for comment.
A 20-year denial order isn’t unprecedented, but it is a “serious hit,” said Don Pearce, a former agent with the BIS Office of Export Enforcement and now a senior adviser with Torres Trade Advisory. “It keeps this person out of the game for literally a generation.” BIS has more commonly imposed 10-year denial orders for export violations, but Pearce said that “attitude” may be changing, even for lower-level items.
Scott and his companies tried to ship Motorola XTS radios, which Pearce noted isn’t as sensitive as other items listed in the Export Administration Regulations but could be “reverse engineered" to allow Iranians to intercept or decrypt communications. “When you think about it in those terms,” Pearce said, “20 years doesn’t seem all that bad.”
He said the lengthy 20-year denial order likely resulted from recently revised BIS administrative enforcement policies. Axelrod revised those policies earlier in 2023 to set higher penalties for more serious violations, among other changes (see 2206300069).
Companies should expect to see more of these administrative enforcement cases, Pearce said, including in instances where BIS in the past may have issued a warning letter. He also said he’s expecting “closer scrutiny” of disclosures submitted to BIS. “I think you're going to see an uptick in activity,” Pearce said.
DOJ Fines GM for Hiring 'Discrimination' in Efforts to Comply With Export Controls
DOJ on April 18 announced a $365,000 settlement with General Motors over claims that the car maker -- in an attempt to comply with U.S. export control laws -- discriminated against non-U.S. citizens in violation of the Immigration and Nationality Act. The agency also released a fact sheet to help employers avoid citizenship status discrimination when seeking to comply with export control laws.
GM “unnecessarily required” lawful permanent U.S. residents to provide an “unexpired foreign passport as a condition of employment, imposing a discriminatory barrier on them in the hiring process,” DOJ said. From at least July 2019 until May 2021, GM “improperly combined” this worker verification process with its export compliance assessment, “which resulted in GM unnecessarily requiring that newly hired non-U.S. citizens provide specific and unnecessary documents to prove their permission to work.”
As part of the settlement, GM agreed to train its employees on the INA’s requirements, revise its employment policies and face “departmental monitoring and reporting requirements.” The company also must separate the process it uses to verify work permissions from its export compliance assessment process, and “stop requiring lawful permanent residents to present foreign passports as a condition of employment,” DOJ said. Assistant Attorney General Kristen Clarke said export controls don’t “justify or authorize an employer to discriminate against non-U.S. citizens.”
GM is "proud of our diverse workforce of employees from all over the world, and we are committed to providing a workplace that is free of discrimination, including based on citizenship, immigration status, and national origin," spokesperson Maria Raynal said in an April 18 email. There was "no formal determination that GM engaged in discrimination, and we make no admission of wrongdoing," Raynal said, "but we welcome this resolution as an opportunity both to avoid litigation and to refine and clarify our internal administrative processes to further improve the employee experience."
Under the INA, employers are prohibited from “discriminating based on citizenship, immigration status or national origin during the hiring process, including by imposing unnecessary documentary demands as a condition of employment.” The law also blocks employers from asking for “more documents than necessary or specific documents when checking an employee’s permission to work because of citizenship, immigration status or national origin.”
In the fact sheet, the agency said companies should avoid stating in job advertisements or telling job applicants that “export control regulations require applicants to have a specific citizenship, immigration status, or national origin.” Companies also shouldn’t use the State Department’s International Traffic in Arms Regulations and the Commerce Department’s Export Administration Regulations “as a reason to limit jobs to candidates” with certain citizenships or national origins, and should make clear to candidates that “U.S. persons include more than U.S. citizens.”
DOJ said all "U.S. persons" -- including U.S. citizens, U.S. nationals, lawful permanent residents, refugees and asylees working at U.S. companies -- can access export-controlled items without a license. But employers may need authorization from a federal agency before they share those export-controlled items to workers who are not U.S. persons, the agency said.
“The ITAR and the EAR don’t contain employment or hiring requirements,” the fact sheet said. “So they don’t require employers or recruiters, including staffing agencies, to limit jobs or recruitment to U.S. citizens, or workers with other citizenship or immigration statuses.”
Raynal said GM "appreciates" that DOJ is "acknowledging and addressing the longstanding need for guidance to help well-intentioned employers navigate the tension between export control obligations on the one hand and employment eligibility verification compliance obligations on the other hand."
2 Companies Fined $83K for Conspiring to Violate Export Controls, Iran Sanctions
Two companies, one based in Taiwan and the other in Brunei, each must pay a fine of $83,769 and serve a five-year corporate probation term for conspiring to violate U.S. sanctions and export laws by shipping U.S.-made goods to Iran, DOJ announced April 18. Taiwan-based DES International and Brunei-based Soltech Industry, charged in 2020 (see 2011120006), both pleaded guilty to conspiring to defraud the U.S. and violate the International Emergency Economic Powers Act and were sentenced in the U.S. District Court for the District of Columbia.
DES and Soltech share directors, employees and customers and procure goods from the U.S. to benefit Iranian businesses and government entities, DOJ said. A sales agent for both companies helped an Iranian research center obtain U.S. goods, including a power amplifier and cybersecurity software, without the proper license from the Treasury Department's Office of Foreign Assets Control. The sales agent stripped the serial number stickers with the "Made in USA" phrase from packages of the goods and caused the software to be downloaded onto a computer outside Iran.
“These criminal convictions demonstrate that we will pursue any individual or organization, wherever located, that would violate our sanctions against Iran and thereby threaten our national security,” U.S. Attorney Matthew Graves said.
BIS Issues Record $300M Fine Against Seagate for Violating Huawei Export Controls
The Bureau of Industry and Security on April 19 fined Seagate Technology $300 million for violating U.S. export controls against Huawei in what it said is the “largest standalone administrative penalty in BIS history.” The agency said the California-based company and its branch in Singapore sold more than 7 million export-controlled hard disk drives to Huawei in violation of the BIS foreign direct product rule.
Matt Axelrod, top export enforcement official at BIS, called the fine a “clarion call about the need for companies to comply rigorously with BIS export rules.” He also noted that Seagate continued selling to Huawei “even after Huawei was placed on the Entity List for conduct inimical to our national security” and after Seagate’s “competitors had stopped selling” to the Chinese technology company.
As part of a settlement agreement with BIS, Seagate agreed to a “mandatory multi-year audit requirement,” including two internal audits and an external audit in which the company must hire an unaffiliated third-party consultant with expertise in U.S. export control laws. The company must report the audit results to BIS, and it could face a five-year export denial order if it violates the terms of the agreement.
The settlement comes about 18 months after Senate Republicans urged BIS to penalize Seagate for “likely” violating U.S. export controls against Huawei (see 2110260040) and about eight months after Seagate said it received a proposed charging letter from BIS (see 2210260022).
Companies are now “on notice” that BIS is investigating firms for violating its FDP rule restrictions, said John Sonderman, director of the agency’s office of export enforcement. He said any business exporting to any entity subject to FDP rule restrictions needs to assess its “entire manufacturing process” to determine if certain U.S. technologies or software were used “in building the essential tools used in production.” He urged companies that discover any violations to submit voluntary self-disclosures.
BIS said Seagate and its Singapore branch committed 429 violations of the Export Administration Regulations when they “ordered or caused” exports, reexports or transfers of 7,420,496 controlled hard disk drives to Huawei or its affiliates between August 2020 and September 2021. The disk drives were valued at more than $1.1 billion, BIS said.
Seagate exported the hard drive disks despite the fact that “its only two competitors” publicly stated that they had stopped selling them to Huawei after the Chinese company became subject to FDP rule restrictions in 2020 (see 2005150058 and 2008170029), BIS said, “resulting in Seagate becoming Huawei’s sole source provider of HDDs.” Seagate and Huawei entered into a three-year “Strategic Cooperation Agreement” in which Seagate was named as “Huawei’s strategic supplier” and granted “priority basis over other Huawei suppliers.”
BIS said Seagate’s chief financial officer previewed the company’s plans during a September 2020 industry conference, which took place one month after BIS published its new Huawei FDP rule restrictions. “I don’t see any particular restriction for us in term[s] of being able to continue to keep the Huawei or any other customers in China. So, we don’t think we know we need to have a specific license…,” the person said, according to BIS. The company became Huawei’s sole source provider of the HDDs within “days of that statement,” BIS said.
Under the Strategic Cooperation Agreement, Seagate agreed to provide Huawei with its “newest and most advanced technologies available in order to support and sufficiently maintain Huawei’s products in terms of innovation and market leadership,” according to BIS. Huawei praised the partnership, with an executive telling Seagate soon after they signed the agreement that the two companies “are about to reach our new milestone of 600+M USD thanks to our concerted efforts.”
BIS said Seagate “incorrectly interpreted the FDP rule to require evaluation of only the last stage of its HDD manufacturing process rather than the entire process.” The company had HDD manufacturing sites in China, Northern Ireland, Malaysia, Singapore, Thailand and the U.S., and used equipment manufactured by another company and that was subject to the EAR and the FDP rule, which imposes license requirements on foreign-produced items that are made with certain U.S. goods or technology. That equipment included a “fully automated laser-based surface inspection system” classified in the EAR under Export Control Classification Number 3B992, BIS said. The equipment was also the direct product of U.S.-origin ECCN 3E991 technology.
“As such,” BIS said, the equipment was “essential, i.e. a major component, of the Seagate HDD plants,” and Seagate “was prohibited from exporting the HDDs from abroad to a listed Huawei entity, and from involving a listed Huawei entity as a party to the transaction, without a BIS license.”
The agency said Seagate also used other equipment subject to the EAR and the FDP rule to produce the HDDs to Huawei and its affiliates. The company, for example, used EAR-controlled Ion Beam Etch, Ion Beam Deposition and Physical Vapor Deposition equipment to produce the HDDs’ wafers and sliders, BIS said. The equipment was classified under ECCN 3B992 and was the direct product of U.S.-origin ECCN 3E991 technology.
Seagate continued its shipments to Huawei despite receiving a “notification” from the manufacturer of the EAR-controlled equipment in January 2021 that the items were subject to export controls. That same month, Seagate US was notified that Huawei had placed an order for two million HDDs. After hearing the news, BIS said a Seagate U.S. senior manager wrote: “this is great!!!”
BIS also said Seagate "authorized extending to Huawei multiple temporary credit lines totaling more than one billion dollars” between January 2021 and September 2021. “In the meantime, the sales volume and quick timeframe meant that Seagate struggled to maintain production,” BIS said. In a January 2021 email among Seagate staff, employees said “Huawei is getting anxious as we have been their only HDD supplier since 15Sep’20 and they are close to line down situation should we be unable to support [HDD] Evans pilot shipments.”
By early February 2021, Huawei, in an attempt to “preserve the appearance of being able to maintain its production line despite the BIS Entity List designation,” suggested to Seagate that “it would look elsewhere for a supplier,” BIS said. Despite the supply concerns, Huawei and Seagate Singapore signed a “Long Term Agreement” around March 2021 that represented the “intent of the parties to cooperate in new technology co-development, early access to new [HDD] Products and related business on a worldwide basis,” BIS said.
Seagate’s sales to or involving Huawei continued until about September 2021, BIS said, more than a year since the agency had published its FDP rule restrictions. As part of the settlement agreement, BIS said Seagate “admitted to the conduct.”
“We believe entering this agreement with BIS and resolving this matter is in the best interest of Seagate, our customers and our shareholders,” Seagate CEO Dave Mosley said. "Integrity is one of our core values, and we have a strong commitment to compliance as evidenced by our global team of international trade compliance and legal professionals -- complemented by external experts and outside counsel."
Seagate "believed" it complied with "all relevant export control laws at the time we made the hard disk drive sales at issue," Mosley said, but "determined that engaging with BIS and settling this matter was the best course of action. We are now moving forward fully focused on executing our strong technology roadmap to support the growing demand for mass data storage solutions.”
DOJ, Commerce Strike Force Unveils First Enforcement Actions For Illegal Exports
DOJ on May 16 unsealed indictments of six people for trying to illegally ship sensitive items from the U.S., including shipments of dual-use technologies and aircraft parts to Russia, isostatic graphite to Iran and trade secrets to China. The charges are the first enforcement actions brought by the Disruptive Technology Strike Force, a group launched by DOJ and the Commerce Department earlier in the year to investigate and prosecute criminal export violations (see 2302160019).
One complaint charges Nikolaos Bogonikolos of Greece with wire fraud conspiracy and smuggling after he allegedly shipped “highly regulated and sensitive” U.S.-origin military and dual-use technologies to Russia. Bogonikolos -- head of the Aratos Group, a collection of defense and technology companies in the Netherlands and Greece -- illegally smuggled “tactical battlefield equipment,” advanced electronics and “sophisticated testing equipment” used by militaries, such as for quantum cryptography and nuclear weapons testing, the DOJ said.
Bogonikolos said the items “were to be used by Aratos,” but they were actually “reshipped and sent” to Russian end-users, including nuclear and quantum research facilities. Many of the orders were made by Moscow-based Serniya Engineering and Sertal LLC, both of which are on Commerce’s Entity List and the Treasury Department's Specially Designated Nationals List.
DOJ also said Bogonikolos gave “false” end-use statements to U.S. companies, which wrongly said Aratos was the end user. The statements also said Aratos wouldn’t reexport the goods, and that they wouldn’t be used to develop weapons, DOJ said.
A second complaint charges Chinese national Xiangjiang Qiao with sanctions evasion, money laundering and bank fraud offenses after he allegedly used a sanctioned Chinese company to provide weapons materials to Iran. Qiao, an employee of China-based Sinotech Dalian Carbon and Graphite Manufacturing Corp., which is subject to U.S. sanctions, tried to export to Iran isostatic graphite, a material used in the nose tips of ballistic missiles, DOJ said.
Between at least March 2019 and September 2022, Qiao “participated in a scheme” to use Sinotech Dalian to send the graphite to Iran for the production of weapons, including “through transactions involving the U.S. financial system,” DOJ said. He also tried to hide Sinotech Dalian’s involvement in the transaction by creating a “bank account in the name of a front company” to receive two transfers from a U.S. bank for over $15,000, the agency said.
Another complaint charges former Apple employee Weibao Wang, formerly a California resident, with trying to steal Apple technology related to “autonomous systems.” Wang began working as a software engineer at Apple in 2016, DOJ said, and in 2017 began working as a staff engineer with the U.S.-based subsidiary of a Chinese company without telling Apple. Wang resigned from Apple four months later, and the U.S. technology company eventually found that Wang “accessed large amounts of sensitive proprietary and confidential information in the days leading up to his departure,” DOJ said.
Law enforcement searched Wang’s California home and found “large quantities of data taken from Apple,” DOJ said. Wang told agents he had no plans to travel, the agency said, but he boarded a flight from San Francisco to Guangzhou, China, later that night.
Another complaint charges Liming Li of California with stealing sensitive technologies from two of his former U.S.-based employers to build his own “competing business” in China. Law enforcement arrested Li at Ontario International Airport in May, DOJ said, alleging he stole thousands of files of sensitive technology used to manufacture nuclear submarines and military aircraft.
DOJ said Li and his wife established their own business, JSL Innovations, in their home, and tried to use his company-issued laptop to download files from the business “onto his personal external hard drive.” Company security searched Li’s laptop and found that it allegedly included “numerous documents showing Li’s efforts to participate in the [People’s Republic of China’s] Thousand Talents Program” and plans to “use JSL Innovations to provide services and technology” to Chinese businesses and government entities.
In March 2020, DOJ said Li entered into an agreement with a China-based manufacturing company to serve as its chief technology officer. Six months later, FBI agents searched Li’s home and “found numerous digital devices containing millions of files belonging to” his former companies, DOJ said.
The fifth indictment charges Russian nationals Oleg Sergeyevich Patsulya and Vasilii Sergeyevich Besedin with conspiracy to violate the Export Control Reform Act and conspiracy to commit international money laundering after they tried to illegally export aircraft parts to Russia. The two Florida residents “fielded requests” for parts directly from Russian airlines, including several already subject to Commerce export restrictions, and used intermediary companies and foreign bank accounts in other countries to hide the true end-users.
BIS, DOJ Target Russian Nationals for Illegal Aircraft Parts Exports to Russia
The Bureau of Industry and Security issued a temporary denial order May 16 against two Russian nationals, their Florida company, a Maldives business and a Russian airline for a scheme to illegally supply aviation parts to Russia. Oleg Sergeyevich Patsulya and Vasilii Sergeyevich Besedin used their Florida-based company MIC P&I to try to export to Russia more than $2 million worth of U.S. aircraft components, including Goodrich brake assemblies, in a procurement network that went through Intermodal Maldives and eventually to Russia’s JSC Smartavia Airlines.
Alongside BIS, DOJ charged Patsulya and Besedin with conspiracy to violate the Export Control Reform Act and conspiracy to commit international money laundering. Both carry maximum 20-year prison sentences.
The BIS and DOJ actions “demonstrate our resolve in impeding Russian attempts to circumvent our export controls,” Matt Axelrod, top export enforcement official at BIS, said in a statement. He said the agency will “aggressively use all of our criminal and administrative enforcement authorities, including the imposition of temporary denial orders,” to prevent Russia from importing goods that support its war in Ukraine.
BIS said the scheme started in mid-2022, when Patsulya began communicating with various Russian entities, including entities on the agency’s Denied Persons List, about supplying them with the plane parts, including wheels, tires and brakes from U.S. suppliers. Patsulya in June received a list of components from Smartavia that the airline “sought to obtain” and offered to supply Smartavia with two of the Goodrich brake assemblies units for $105,000 each. That same month, Besedin received an email from a U.S. parts supplier offering five of the units for sale, and Patsulya soon offered the units to Smartavia for $515,000 total, receiving a wire transfer from the airline days later.
BIS said the brake assemblies were classified under Export Control Classification Number 9A991.d and controlled for anti-terrorism reasons. Along with Smartavia, Patsulya also spoke with Rossiya Airlines and Pobeda Airlines, after both became subject to temporary denial orders, about selling them aircraft parts, BIS said.
The aircraft parts were routed through Intermodal Maldives, with the first shipments sent around May 2022. By October, the Maldives company had received about 212 shipments, most of which were plane parts, BIS said, and exported those products to Russia. Those exports included a shipment of aircraft parts to a Russian freight forwarder and a shipment of “lab equipment” to a Russian customer, even though none of Intermodal Maldives' “export control documents” showed that the items were destined to Russia, BIS said.
Another shipment to Intermodal Maldives that was destined for Russia contained a rotary actuator, which was controlled under the Export Administration Regulations as EAR99. Although EAR99 items generally don’t require a license, BIS said it had “reason to believe” that the rotary actuator and other EAR99 items sent by Intermodal Maldives required a license because they were subject to Russian industry sector sanctions.
BIS said it conducted an end-use check on Intermodal Maldives in February and discovered that the company is a “designated cargo sales agent” for PJSC Aeroflot, another Russian airline subject to a temporary denial order. The agency also said that four of the five Intermodal Maldives shipments it “inquired” about were sent to Russia, including one destined for Russia’s Pobeda Airlines and another for Russia’s UTair Aviation JSC, both also subject to temporary denial orders.
The agency in November detained a shipment to Intermodal Maldives containing two units of the Goodrich brake assemblies, which required an export license but didn’t have one. A BIS investigation revealed the brake assemblies were bought by MIC, and Besedin “personally traveled to a warehouse location to inspect the brakes.” Another shipment detained by BIS in January contained the Goodrich brake assemblies and was bought by Patsulya and Besedin, who initially told the vendor the brakes were destined for Intermodal Maldives but later changed the shipping information to list Turkey as the destination after Besedin “was alerted by a U.S. freight forwarder of issues with shipping to" Intermodal Maldives.
Patsulya and Besedin emailed BIS agents as recently as April 20, 2023, to try to retrieve their detained brake assemblies, telling BIS that they are “intended for use in Turkey,” BIS said.
BIS said both Patsulya and Besedin have “engaged in repeated attempts to procure U.S. origin commodities for Russian end users,” and when one attempt fails, they “will simply continue engaging other suppliers.” As of Feb. 28, 2023, Intermodal Maldives was listed as the ultimate or intermediate consignee on 248 exports worth more than $5.1 million.
The 180-day temporary denial order imposed on Patsulya, Besedin, MIC, Intermodal Maldives and Smartavia took effect May 16. The order blocks them from exporting goods subject to the EAR.
DDTC Debars Telecom Company to Settle Illegal Defense Exports
The State Department on June 1 announced the debarment of U.S.-based telecommunications company VTA Telecom to settle allegations it violated the International Traffic in Arms Regulations. The agency’s Directorate of Defense Trade Controls imposed the three-year debarment, which prohibits VTA from participating in any activities subject to the ITAR, after it said VTA illegally exported defense goods to Vietnam and gave false statements on export documents.
The debarment comes about two years after the Commerce Department fined the firm, a subsidiary of a Vietnamese state-owned telecom company, $1.87 million for illegally exporting goods to Vietnam (see 2110130007). Commerce said VTA illegally exported power amplifiers and transistors and lied about their end uses and end users.
DDTC said the company made similar statements about its defense exports when it illegally shipped or tried to ship several controlled items, including hobby rocket motors, video trackers, a gas turbine engine and technical data, committing six violations of the ITAR. VTA then knowingly gave false statements on its required end-use statements, according to a charging letter from DDTC, which found out about the violations after VTA submitted a disclosure “in the wake” of a federal investigation into the company.
One shipment in 2015 included the export of an electro-optical imaging video tracker to Vietnam, which was subject to strict license requirements because of its “capacity for substantial military utility or capability.” VTA told a freight forwarder that the item was an “electronic board,” DDTC said, and undervalued it by listing it as worth “zero dollar” with a shipping fee of $70. The company exported an identical shipment later that month, again misrepresenting the item and its value, DDTC said.
Later that year, VTA illegally exported ITAR-controlled imaging video trackers, cables and “related software” to Vietnam, DDTC said, and “misrepresented” the shipment as containing “four circuit boards, two hard drives, 1 meter, and auxiliary cables.” The company again undervalued the items to the freight forwarder.
Between September 2015 and July 2016, VTA said, it illegally exported or tried to illegally export 86 hobby rocket motors, 126 “propellant reload kits’ for the motors and 40 “freestanding propellant reload kits” for the motors. In April 2016, it also tried to export 30 explosive bolts controlled under U.S. Munitions List Category IV and “misrepresented the intended use” of the bolts, DDTC said, but CBP seized the shipment. Another illegal export in July 2016 included a “Teledyne J402-CA-400 engine” controlled under USML Category XIX, DDTC said.
DDTC pointed to several aggravating factors that led to the debarment, including that the shipments were sent to a “proscribed destination” at the time of the activity -- destinations subject to a license review policy of denial. The agency also said VTA disclosed the violations only after it found out about the government charges, the company and its former vice president had “disregard for the requirements” of the ITAR and senior management “participated in or was aware of the conduct.”
The agency also pointed to several mitigating factors, including VTA’s cooperation with DDTC’s investigation and its entry into three tolling agreements to delay the statute of limitations set forth under the ITAR and the Arms Export Control Act. VTA also conducted a “thorough review” of its conduct and the violations and took “appropriate steps to remediate them.”
VTA’s debarment took effect April 20 and will last until April 20, 2026, prohibiting the company from “participating directly or indirectly in defense trade” subject to the ITAR. DDTC said it may make exceptions to this policy on a case-by-case basis. VTA Telecom didn’t respond to a request for comment.
BIS Continuing to Investigate 3 Companies for Illegal China Exports, Renews TDO
The Bureau of Industry and Security again renewed the temporary denial order (TDO) for three U.S. companies for their involvement in illegally exported technical drawings and blueprints to China (see 2206080068) after continuing to find evidence of additional potential export violations. The order, originally issued June 8, 2022, before being renewed in December (see 2212080007), was renewed for another 180 days on June 1, BIS said.
BIS in 2022 suspended the export privileges for Quicksilver Manufacturing, Rapid Cut and U.S. Prototype, which share ownership, after they illegally exported their U.S. customers’ technical drawings to Chinese manufacturers without their customers’ consent or knowledge and without required BIS licenses. The agency first renewed the TDO in December after saying it had evidence the companies’ “export compliance failures are broader in scope than the initial investigation revealed.”
In the latest renewal, BIS said its investigation is still ongoing. The agency has received more evidence from “additional U.S. companies that engaged in business” with Quicksilver Manufacturing, Rapid Cut and U.S. Prototype, including activities “involving the unlicensed export of technical specifications to China.” BIS said it received that information as recently as April.
BIS also said it still hasn’t received a “final written disclosure of prior violations” from the three companies. The firms on May 26 updated BIS on their “efforts to review and submit a written disclosure,” but the agency said its “investigation is ongoing” and “the entirety of Respondents’ misconduct remains unknown.”
BIS also revised the scope of the TDO to exclude items designated under the Export Administration Regulations as EAR99. Those “items generally do not require a license to China and were not the basis for the violations currently under investigation.”
The agency added that “there remains a concern of imminent violations,” and the TDO provides “notice to companies and individuals in the United States and abroad that they should avoid dealing with” the three companies “in connection with exports, reexports, and transfers (in-country) involving items listed on the Commerce Control List.”
The companies didn’t respond to a request for comment. A message on Quicksilver Manufacturing’s website immediately after BIS issued the TDO asked all visitors to certify that they “do not have [International Traffic in Arms Regulations] or Export Controlled Parts.” The message also said: “We do not accept any request for quotes for any export Controlled drawings or ITAR Parts.”
BIS Issues, Renews Denial Order For Russian Export Control Evasion Network
The Bureau of Industry and Security on June 8 suspended export privileges of Aratos Group, a collection of defense and technology companies in the Netherlands and Greece, and its owner for procuring goods for Russian intelligence services in violation of U.S. export controls. BIS also renewed a temporary denial order against three people and two companies also involved in a Russian sanctions evasion scheme.
A denial order now applies to Aratos Group and its leader, Nikolaos Bogonikolos, who BIS said runs a network of defense companies that falsified documents to evade U.S. export controls against Russia. Bogonikolos was indicted in May for illegally shipping dual-use technologies to Russia, including battlefield equipment, advanced electronics and “sophisticated” testing equipment (see 2305160086).
The agency added Bogonikolos and Aratos to an existing denial order for Boris Livshits, Svetlana Skvortsova and Aleksey Ippolitov, along with New York-based companies Advanced Web Services and Strandway, who were charged in December with conspiring to violate U.S. export controls by sending electronic signal generator and measurement equipment, along with other items, to Russian entities on the Entity List, including OOO Serniya Engineering (see 2212130050).
The denial order, which bans the people and companies from participating in transactions subject to the Export Administration Regulations, will remain in effect for 180 days from June 8 and may be renewed.
BIS said it renewed its denial order for Livshits, Skvortsova, Ippolitov and the New York companies after discovering that this “illicit network and its reach are broader in scope and more extensive than initially realized.” The agency said it learned that Bogonikolos is one of “multiple co-conspirators” involved in the network and was recruited as a procurement agent by Serniya.
Bogonikolos worked to hide multiple illegal shipments destined for Russia, BIS said, including by signing a “false end-use statement, stating that certain items were only for use in the Netherlands.” The agency also found that Bogonikolos and employees of the Aratos Group tracked orders for the Serniya on a spreadsheet, which listed the applicable Export Control Classification Number for certain items. One spreadsheet “included a column related to export controls and information about U.S. and European export control restrictions,” BIS said, “demonstrating knowledge and familiarity with export control laws.”
BIS said Livshits, Skvortsova and Ippolotov remain fugitives in Russia, adding that the agency has “reason to believe that their illicit procurement efforts will remain ongoing, given the length and nature of the conduct identified to date.” They are “familiar with methods of concealment and are likely to use increasingly sophisticated methods to avoid detection by law enforcement,” the agency said.
BIS Orders Exporter to Complete Compliance Training After Violating EAR
A Puyallup, Washington, resident who illegally exported optical magnifiers to South Korea agreed to export compliance training as part of a settlement agreement announced by the Bureau of Industry and Security July 5. If Jaeyoun Jung doesn’t complete the training, he may be subject to a two-year temporary denial order, BIS said.
The agency said the violation occurred after Jung bought $10,947 worth of the magnifiers from a Washington supplier in 2018. Soon after, he violated the Export Administration Regulations by shipping the magnifiers, controlled under Export Control Classification Number 0A987.e, to a buyer in South Korea without a BIS license. The agency said CBP seized the shipment before it left the U.S.
As part of a settlement agreement, Jung admitted to violating the EAR -- the result of a BIS change in 2022 to eliminate no-admit/no-deny settlements (see 2205230018 and 2206300069). Jung also agreed to complete export compliance training within 12 months, and must notify BIS’ Office of Export Enforcement “of the course or program he has selected to attend.” He must also submit a “certification of attendance” to OEE within one month after attending the class.
Jung must complete the training before being granted any new export license or using any existing license or exception. If he doesn’t complete the training, he could face a two-year temporary denial order in which he won’t be able to directly or indirectly participate in transactions subject to the EAR.
2 US Navy Personnel Charged With Sending Military Information to Chinese Intelligence
Two U.S. Navy servicemembers, Jinchao Wei and Wenheng Zhao, were arrested in California as part of two separate cases for "transmitting sensitive military information" to China, DOJ announced Aug. 3.
Wei, arrested Aug. 2, was charged with conspiracy to ship national defense information, including technical manuals subject to export controls, to a Chinese intelligence officer. The indictment, unsealed Aug. 3 in the Southern District of California, said Wei, in his role as a "machinist's mate," held a U.S. security clearance granting him access to key information on the USS Essex assault ship's "weapons, propulsion and desalination systems."
In February 2022, Wei allegedly began communicating with the Chinese intelligence officer, who requested that he provide information on the ship and other Navy vessels in exchange for thousands of dollars, DOJ said. From March 2022 to the present, Wei sent the intelligence officer pictures and videos of the ship along with technical and mechanical manuals that "contained export control warnings," DOJ said. Some of the manuals included warnings that "this was technical data subject to export controls and that it was deemed 'critical technology' by the U.S. Navy," the agency said.
In one instance in October 2022, DOJ said Wei sent the Chinese intelligence officer a weapons control systems manual for the Essex and other ships, and the manual "contained export-controlled data that could not be exported without a license from the U.S. government." The agency said Wei knowingly violated the International Traffic in Arms Regulations by sending the manual to the Chinese officer.
In the Central District of California, Zhao was arrested on changes of receiving bribes in exchange for military information provided to an individual purporting to be a "maritime economic researcher" but who was actually a Chinese intelligence officer. Zhao allegedly photographed "electrical diagrams and blueprints for a radar system" set in a military base in Okinawa, Japan. He was allegedly paid around $14,866.
Chemicals Supplier Settles With DDTC After Alleged ITAR Brokering Violations
The State Department fined a U.S.-based specialty chemicals supplier $850,000 for allegedly violating defense export regulations and failing to voluntarily disclose those violations, the agency announced in an order and settlement agreement Aug. 28. The Directorate of Defense Trade Controls said Island Pyrochemical Industries Corp. illegally acted as a broker between Brazilian and Chinese companies for shipments of chemicals used in explosives and made false statements on a license application to DDTC.
The agency said Island Pyrochemical “seriously” violated the International Traffic in Arms Regulations and was aware of the ITAR’s brokering license requirements but still went ahead with the brokering services. The “unauthorized brokering activities demonstrated a disregard for its export compliance responsibilities,” the agency said in a proposed charging letter.
DDTC said the violations began in 2015 when Island Pyrochemical tried to arrange shipments of ammonium perchlorate (APC), a chemical used in explosives and rockets, from Chinese companies to Brazil-based Avibras Industria Aeroespacial SA (Avibras), which was looking to manufacture rockets for Saudi Arabia’s government. Island Pyrochemical sourced the chemical from China-based APC manufacturer Dalian Gaojia Chemical Co. (Dalian) and Chinese APC exporter Aerospace Long-March International Co. (ALIT), a subsidiary of China Aerospace Science and Technology Corporation, which now has various research institutes listed on the Commerce Department’s Entity List.
Island Pyrochemical soon after began “brokering activities” between the companies, including through “various means of communication, engagement, and facilitation,” without a required DDTC license, the agency said. The company agreed to help broker 140 metric tons of APC to Avibras as part of a contract signed in May 2015, DDTC said, including by helping to communicate amendments to the contract and aiding with shipping logistics, production inspections and supervision of vessel loadings.
The agency said Island Pyrochemical submitted a license application to DDTC for the brokering services in June of that year, but the company falsely listed itself as the manufacturer of the APC and ALIT as an “intermediate party.” DDTC returned the license in August, seeking “additional clarification on the roles” of ALIT and Avibras, and Island Pyrochemical submitted another application with no mention of ALIT. The company later told DDTC that it had a “longstanding (but flawed) practice of listing itself as the manufacturer on form DSP-5 as a ‘placeholder’ when” the company was “considering multiple sources for a given product.”
DDTC said the alleged ITAR violations were severe, adding it sent a brokering registration letter to Island Pyrochemical in March 2015 that told the company to be “aware of compliance with brokering requirements.” The agency gave the company “notice in writing that no person(s) may engage in the business of brokering activities with respect to the manufacture, export, import, or transfer of any U.S. or foreign defense article without first obtaining a license from the Department.”
As part of the settlement, Island Pyrochemical will have to pay $425,000 directly to the State Department in incremental amounts over the next three years. The agency said it will waive the second half of the $850,000 penalty as long as the company applies that amount to “remedial compliance costs” outlined in the settlement, which includes hiring a DDTC-approved special compliance officer for three years.
That designated officer will monitor Island Pyrochemical compliance with the ITAR, including its policies and procedures for preventing and detecting future violations, classifying export-controlled items and services, applying for and maintaining export license applications, strengthening the “physical security” of facilities where ITAR-controlled activities occur and maintaining “adequate” compliance staffing levels. The officer will also oversee how the chemical supplier spends the “expenditures” in its “remedial compliance measures account,” help the firm incorporate ITAR compliance into business plans at the “senior executive level,” and evaluate and report on the company’s compliance resources and procedures, including by providing regular status reports on its compliance efforts.
Island Pyrochemical also agreed to introduce a “comprehensive” automated export compliance system, which will track the company’s “decision process from the initiation to conclusion” of an export. The company must provide DDTC status reports about the system every six months. Other provisions in the settlement agreement require Island Pyrochemical to review past export control jurisdiction decisions and complete at least one audit.
Island Pyrochemical didn’t respond to a request for comment.
US Targets Russian Export Control Evasion Scheme With Denial Order, Indictment
The Bureau of Industry and Security issued a temporary denial order Aug. 31 against three people and four companies for their involvement in a scheme to illegally procure more than $225,000 worth of U.S. electronics components for Russia’s military. One of the individuals, Russian-German national Arthur Petrov, was arrested Aug. 26 in Cyprus and charged by DOJ with violating export controls and smuggling controlled goods from the U.S.
Matthew Olsen, DOJ’s assistant attorney general for national security, said the people and companies were trying to ship the type of electronics components Russia’s military needs for its war against Ukraine. “The Justice Department will not tolerate efforts to circumvent our export control laws to fuel the Russian war machine and those who try will find no refuge from U.S. justice,” Olsen said.
The TDO and indictment were announced by the Commerce and DOJ-led Disruptive Technology Strike Force, which in May indicted six people for trying to illegally send sensitive items to Russia, Iran and China (see 2305160086).
Along with Petrov, the denial order targets Russian nationals Zhanna Soldatenkova and Ruslan Almetov. The companies are Cyprus-based Astrafteros Technokosmos, Latvian distributor Ultra Trade Service, Russian supplier Electrocom VPK and Tajikistan shell company Juzhoi Electronic. BIS said Petrov operates Astrafteros and works for Electrocom VPK; Almetov operates Juzhoi Electronic and is the general director of Electrocom; and Soldatenkova works for Electrocom.
BIS said the violations began after Russia’s invasion of Ukraine last year, when Petrov, Almetov and Soldatenkova worked to procure “large quantities” of American-made and export-controlled microelectronics for Electrocom, a Russian supplier of “critical electronics components” to the country’s military. Those components have “significant military applications,” the agency said, and include parts that have been recovered in Russian military hardware in Ukraine, such as in guided missiles, drones and “electronic warfare and communications devices.”
The items included 16-bit flash microcontrollers and digital signal processors controlled for anti-terrorism reasons under Export Control Classification Number 3A991.a.2. Also sent were integrated circuits controlled for anti-terrorism reasons under ECCN 3A991.b.1.a.
A joint BIS-FBI investigation showed Petrov used Astrafteros to buy the microelectronics from U.S. exporters by telling them that the items would be used for fire security systems for companies in Cyprus, Latvia or Tajikistan. Petrov instead helped deliver the goods to Electrocom in Russia, BIS said. DOJ said Petrov knew the shipments were illegal, adding the U.S. distributors provided him with invoices that “expressly noted” the microcontrollers and integrated circuits were subject to export controls.
Petrov, Soldatenkova and Almetov tried to hide the shipments through shell companies and other “deceptive means,” the agency said, including by first shipping the parts to Ultra Trade Service in Latvia or to Juzhoi in Tajikistan. Soldatenkova and Almetov then shipped the items to Electrocom, sometimes through another third country, including Lithuania.
Petrov specifically told U.S. exporters that Astrafteros was a “fabless manufacturer” in the “fire security systems sphere,” the denial order said, but instead used the company as a “pass-through freight-forwarder” on behalf of Electrocom. BIS said Petrov, Soldatenkova, Almetov and their companies never applied for an export license.
All three people and four companies will be subject to the denial order for 180 days from Aug. 28.
DOJ charged Petrov, who is awaiting extradition in Cyprus, with a range of export control violations, smuggling, wire fraud and money laundering offenses. He faces a maximum five-year prison sentence for one count of conspiracy to defraud the U.S.; a 20-year sentence for one count of conspiracy to violate the Export Control Reform Act; a 20-year sentence for each of the three counts of violating ECRA; a five-year sentence for one count of conspiracy to smuggle goods from the U.S.; a 10-year sentence for each of the three counts of smuggling goods from the U.S.; a 20-year sentence for one count of conspiracy to commit wire fraud; and another 20-year sentence for one count of conspiracy to commit money laundering.
US Charity Pleads Guilty to Filing False Export Information for Syria Shipments
New Hampshire-headquartered NuDay, also known as NuDay Syria, pleaded guilty to three counts of failure to file electronic export information, DOJ announced Sept. 8. From 2018 to 2021, the organization, founded as a nonprofit charity, completed over 100 shipments to Syria but falsely reported the goods would be delivered to Turkey and "artificially deflated" the value of the goods below the $2,500 EEI reporting threshold.
Once the goods reached Mersin, Turkey, another company would transship them into Syria, DOJ said. In one instance on May 5, 2019, NuDay falsely reported its shipment was intended for Turkey and valued it at less than $2,500 -- when it was "actually intended" for Syria and had a "true value" of $8.3 million, the agency said.
NuDay faces a maximum sentence of five years of probation and a $10,000 fine per count. Founder Nadia Alawa and her family "will have no further involvement with NuDay" as part of the plea, DOJ said.
DOJ Charges Russian in Scheme to Illegally Procure US Microelectronics
The U.S. unsealed an indictment Sept. 18 against a Russian citizen and Hong Kong resident who helped illegally procure U.S. dual-use microelectronics with military applications for Russian end users. Maxim Marchenko used a network of shell companies to source the items from the U.S., DOJ said, giving false information to American distributors to assure them the products weren’t destined for Russia. Marchenko was charged with conspiring to defraud the U.S. along with money laundering, wire fraud and smuggling offenses.
The indictment, brought by the DOJ-Commerce Department’s joint Disruptive Technology Strike Force, said Marchenko worked with two other Russians to illegally source “large quantities” of dual-use, military grade microelectronics -- specifically “OLED micro-displays” -- from the U.S. Those products can be used in rifle scopes, night-vision goggles, thermal optics and other weapon systems.
Marchenko and others used Hong Kong-based shell companies, including Alice Components Co. Ltd., Neway Technologies Limited and RG Solutions Limited, along with “other deceptive means,” to hide that the products were destined to Russia. They told U.S. companies, including a New York distributor, that the items would be sent to end-users in China, Hong Kong and other countries for use in “electron microscopes for medical research,” DOJ said. They also used “pass-through entities” to tranship the goods to their ultimate destination in Russia, using a freight forwarder “known to provide freight forwarding services to Russia.”
DOJ said Marchenko knew U.S. companies were required to report certain exports to the Census Bureau and hid the true final destination from their purchase orders “for the purpose of causing false statements to the U.S. agencies.” Marchenko and his two conspirators used the Hong Kong shell companies to hide the fact that payments for the micro-displays were coming from Russia. From about May 2022 to August 2023, DOJ said the companies funneled more than $1.6 million to the U.S. to procure the items.
As part of their cover story, one of the Russian nationals working with Marchenko “masqueraded” as an employee for SSP LTD, a Hong Kong-based company, and as “Amy Chan,” a purchase manager with Alice Components, the indictment said. The person was actually an employee for Infotechnika, a Russia-based electronics seller. The other Russian national working with Marchenko is a 25% shareholder of NPC Granat, a company added to Commerce’s Entity List in 2016 for operating in Russia’s arms sector.
Marchenko and the Russian nationals, as early as 2014, used Russia-based Radiofold Systems to buy micro-displays from the New York-based supplier, DOJ said, but the supplier ended the sales in February 2022 after Russia’s invasion of Ukraine. Soon after, the three Russians used Alice Components, the shell company, to purchase the goods. They used the alias “Amy Chan” to send a “pre-sale questionnaire” to the U.S. distributor about buying about $292,000 worth of micro-displays for medical research purposes in China.
Another order request in July 2022 asked for 2,000 micro-displays worth more than $1 million, DOJ said. The U.S. company, “at the direction of law enforcement,” told Alice Components it couldn’t fulfill the orders for “compliance-related reasons.”
The U.S. then used an undercover FBI agent to pose as the employee of a company that sold microdisplays. The agency was able to secure purchase orders from Marchenko, and ultimately tracked more than $1.3 million in wire transfers to pay for the illegal exports.
Marchenko faces a maximum five-year prison sentence each for conspiracy to defraud the U.S. and conspiracy to smuggle goods from the U.S, a 10-year sentence for smuggling goods from the U.S., and a 20-year sentence each for conspiracy to commit money laundering, money laundering, conspiracy to commit wire fraud, and wire fraud.
Georgia Resident Tried to Illegally Export Sighting Devices to China, BIS Says
The Bureau of Industry and Security revoked the export privileges of a Georgia resident after she admitted to trying to illegally export about $25,000 worth of optical sighting devices from the U.S. to China. As part of a settlement agreement, Dina Zhu of Lawrenceville, Georgia, will be barred from participating in any transaction subject to the Export Administration Regulations for one year from Oct. 20, but she won’t face a fine.
BIS said Zhu tried to ship the devices in November 2018 after finding an online ad soliciting someone to send the goods to China. She first sent the items -- controlled under Export Control Classification Number 0A987 for crime control reasons -- to her home before consolidating the packages and taking them to an international courier for export to Hong Kong, the agency said. After arriving in Hong Kong, the goods would then be forwarded to China, Zhu told BIS.
The agency’s Office of Export Enforcement stopped the shipment before it left the country by issuing a “re-delivery order” to the courier to “return or unload the shipment.” BIS said Zhu was “aware” she needed an export license to ship the goods because she had a similar shipment seized by CBP one year earlier.
BIS said it could have imposed a maximum civil penalty of $328,121 per violation but instead issued a one-year denial order after Zhu admitted to the violation, part of a shift by BIS to no longer use no-admit, no-deny clauses in settlements (see 2206300069). The agency said Zhu also will face a probation period for one year after the denial period, and if she violates the settlement agreement, BIS may extend the denial period.
US Unveils Charges for 2 Schemes to Export Dual-Use Goods to Russia
The U.S. on Oct. 31 unsealed two indictments charging multiple people in schemes to deliver export-controlled dual-use goods to Russia. In both cases, DOJ charged Russian nationals and others with using Brooklyn-based companies to buy goods on behalf of sanctioned end-users or others connected to Russia's military.
As part of the first indictment, a New York resident and two Russian-Canadian nationals were arrested and charged with leading a scheme to evade U.S. sanctions on Russia and illegally export dual-use electronic components and integrated circuits. DOJ said Salimdzhon Nasriddinov, Nikolay Goltsev and Kristina Puzyreva used two U.S.-based companies to export hundreds of shipments of dual-use goods -- worth millions of dollars -- from U.S. manufacturers to Russia.
Matthew Olsen, head of DOJ's National Security Division, said the three people had created a "sophisticated procurement network" to help Russia procure the "critical technologies" it needs for its war against Ukraine.
"To be clear: it doesn’t matter if those networks use a front company or transship these items using intermediaries in places like Turkey, Hong Kong, India, China and the United Arab Emirates, with final destination in Russia," said Matthew Axelrod, head of export enforcement for the Bureau of Industry and Security. "We will use all of our tools to hold such actors to account.”
Using Brooklyn-based SH Brothers and SN Electronics, the trio bought and shipped dual-use electronics that Russia has used in its precision-guided weapons systems against Ukraine. The Commerce Department said the goods were "of the highest concern" because of their use in dangerous equipment and Russia's inability to make the goods themselves. DOJ said some of the circuits and electronic parts had "the same make, model and part number shipped by the defendants" that have been found in seized Russian weapons platforms, signals intelligence equipment and unmanned drones.
In total, Goltsev, Puzyreva and Nasriddinov sold more than $7 million in goods to Russia. The three used tactics to conceal the shipments, including shipping the goods to various transhipment countries before they were eventually delivered to Russia, DOJ said.
The agency said Goltsev, a Russian and Canadian national, would first receive orders from a Russian end user operating in the country's defense and technology sectors. Goltsev then contacted U.S. manufacturers and distributors about buying those items, typically using aliases such as “Nick Stevens” or “Gio Ross,” DOJ said.
He worked with Nasriddinov, a Brooklyn resident and dual Russian and Tajik citizen, to buy the goods using SH Brothers and SN Electronics. The dual-use goods were allegedly sent to "various locations" in Brooklyn before they were shipped elsewhere, including to Turkey, Hong Kong, India, China and the UAE. After arriving, they were then rerouted to Russia, DOJ said.
Puzyreva, a Russian and Canadian national, "operated numerous bank accounts and conducted financial transactions in furtherance of the scheme," the agency said.
DOJ said all three knew the exports had military uses and exchanged messages about ways to avoid getting caught. In one November 2022 message, Goltsev wrote: “We need to figure out why they keep holding the package ... I don’t really understand how they figured [it] out," according to DOJ. He also outlined potential ways to evade law enforcement, saying: "for now large packages will be dangerous until we understand what they figured out ... we will need to think of diversifying the load ... so that not everything is not moving from the same deck."
In the second indictment, DOJ charged Russian citizens Nikita Arkhipov and Artem Oloviannikov, as well as Brooklyn resident Nikolay Grigorev, with conspiracy and other charges related to an export control scheme to help procure items for companies affiliated with the Russian military. The three people used Brooklyn-based Quality Life Cue (QLC) to procure electronic components for Russian firms that develop and manufacture drones.
DOJ said QLC accounts controlled by Grigorev received wire transactions from SMT-iLogic, a Russia-based technology company, totaling more than $270,000. That money was used "almost entirely" to make payments to an unnamed Brooklyn-based electronics distributor or to pay Grigorev’s credit cards, DOJ said, which he used to buy goods from the unnamed Brooklyn company. The agency said SMT-iLogic has ties to the Russia-based Special Technology Centre, which was sanctioned in 2019.
DOJ said a search warrant of Grigorev’s Brooklyn home in June "successfully interdicted" over 11,500 electronic components bought from the Brooklyn company that were awaiting export to Russia. It also said it discovered messages in which Arkhipov, Oloviannikov and Grigorev referenced efforts to circumvent U.S. sanctions, "use 'test' or 'fictitious' orders to test new supply lines to Russia, and discuss front companies in third countries."
CBP Seizes Illegally Exported Deuterium Bound for China
CBP officers seized a shipment of China-bound deuterium cylinders that was exported without a license, the agency said in a statement on Oct. 31. The shipment, which was seized on Oct. 18 in Norfolk, Virginia, was worth a little more than $175,000.
The shipment violated nuclear nonproliferation export licensing laws, CBP said. In August, the Bureau of Industry and Security expanded the scope of nuclear-related export controls on China and Macau to include deuterium (see 2308110019).
Deuterium is a stable isotope of hydrogen used in "military, industrial, and scientific applications and requires a license to be exported to China," CBP said.
CBP's National Targeting Center identified the shipment on a manifest of a shipping container on Aug. 22 and asked Norfolk CBP to make sure the export was lawful. Officers inspected the container on Sept. 6 and found 10 gas cylinders of deuterium and one cylinder of deuterium silane, CBP said.
BIS determined the shipments were prohibited for export on Oct. 11 and asked CBP to seize the cylinders. CBP seized the cylinders on Oct. 18.
“This seizure demonstrates how Customs and Border Protection contributes our border and trade facilitation authorities to assist partner agencies in intercepting illicit, and potentially dangerous shipments,” said Mark Laria, CBP’s Norfolk area port director.
BIS Issues Denial Order Against People, Companies Involved in Russian Export Control Evasion Scheme
The Bureau of Industry and Security issued a temporary denial order on Nov. 7 against seven people and three companies for orchestrating a scheme to illegally export millions of dollars worth of export-controlled dual-use electronics to Russia. BIS said the U.S.-origin items were bought by Russian procurement agents and transshipped through other countries before being delivered to Russian companies with ties to the country’s military.
The order came days after the U.S. unsealed indictments against at least three of the people and two of the companies (see 2311010039). Along with violating U.S. export controls, BIS also said the people and companies made “false and misleading statements” in the Automated Export System to hide the ultimate end destination and end user of the items.
The temporary denial order applies to New York resident Salimdzhon Nasriddinov and Russian-Canadian nationals Nikolay Goltsev and Kristina Puzyreva -- all of whom were recently arrested -- as well as Russian residents Oleg Zenchenko, Yekaterina Vetoshkina, Pavel Chernikov and Vladimir Bochkarev. The TDO also names SH Brothers Group Inc., SN Electronics, Inc. and Suntronic F.Z.E., the companies they used to illegally ship the goods.
The denial order, effective for 180 days from Nov. 7, generally blocks the people and companies from participating in transactions subject to the Export Administration Regulations. “By cutting off access to U.S. items, today’s temporary denial order prevents a global Russian procurement ring of brokers and companies, including two storefronts in Brooklyn, from supporting the Russian war machine,” said Matthew Axelrod, BIS’ assistant secretary for export enforcement.
Many of the details in the order were previously disclosed in a previous DOJ indictment issued days earlier, which outlined efforts by Nasriddinov, Goltsev and Puzyreva -- using Brooklyn-based companies SH Brothers and SN Electronics -- to export hundreds of shipments of dual-use goods from U.S. manufacturers to Russia. DOJ is also indicting the others involved in the scheme, who the agency said are the Russian procurement agents that helped organize the shipments.
As part of the scheme, Nasriddinov and Goltsev used SH Brothers and SN Electronics to buy electronic components from U.S. manufacturers before illegally sending them to “intermediary corporations” in other countries, including in Turkey, India, China and the United Arab Emirates, before they were rerouted to Russia. One of those intermediaries was Suntronic, a front company named in the TDO and used by Bochkarev for “multiple procurement operations,” BIS said. Puzyreva, Goltsev’s spouse, “utilized numerous bank accounts” to help with the scheme.
The others worked as procurement officers for Russian companies, including Vetoshkina, who has worked for OOO Radioavtomatika, a Moscow-based defense firm that was added to the Entity List in 2022, and OOO Komtech, a Moscow-based electronics distributor, BIS said. Chernikov has worked as a procurement officer for OOO Testkomplekt, another Moscow-based electronics distributor that has contracted with Russian military entities and that was sanctioned by the Office of Foreign Assets Control in May.
BIS said Bochkarev, Chernikov, Vetoshkina and Zenchenko received orders from Russian end users in the country’s defense and technology sectors for U.S.-origin items before relaying those orders to Goltsev, who bought those items from U.S. companies. BIS said Goltsev “made material misrepresentations” about the end-users in conversations with those U.S. companies. Some of those shipments included items listed on Tier 1 of BIS’ list of common high-priority items, including electronic integrated circuits.
The agency added that some of those electronic parts were the same make, model and part number of items found in seized Russian weapons systems and intelligence equipment in Ukraine, including the “Torn-MDM radio reconnaissance complex, the RB-301B ‘Borisoglebsk-2’ electronic warfare complex, the Izdeliye 305E light multi-purpose guided missile, the Vitebsk L370 airborne counter missile system, Ka-52 helicopters, Orlan-10 unmanned aerial vehicles (UAVs) and T-72B3 battle tanks.” In total, the agency said SH Brothers sent more than $7 million worth of items to Russia.
BIS said it obtained multiple sets of communications that show the people knew they were violating U.S. export controls and were familiar with export regulations, including Export Control Classification Numbers. In one message to Goltsev, Zenchenko asked: “ECCN: 5A991.b.4 can you get this?” Other messages discussed ways to conceal the destination of the shipments, including one message in which Goltsev advised Vetoshkina to use a Hong Kong-based company as the “bill-to” company, even though the items would be shipped to entity-listed Radioavtomatika.
SH Brothers also made false Electronic Export Information filings, including by declaring items were being shipped to one party when they were being shipped to another, part of an effort “to evade detection by law enforcement,” BIS said. In one February EEI filing, they indicated an export-controlled shipment was destined for China and listed an intermediary consignee also located in China, but according to DHL records, BIS said the items were shipped to a location “not identified on the EEI.”
BIS added that its investigation into the scheme “remains ongoing.”
Belgian Businessman Caught by Undercover Agents Illegally Exporting to Russia, China, DOJ Says
The U.S. on Dec. 6 charged Belgian national Hans Maria De Geetere in two separate indictments for allegedly helping to illegally export "military-grade technology" from the U.S. to end-users in China and Russia, DOJ said. The agency said the business owner tried to procure more than $2 million worth of illegal exports from undercover government agents, and told one Commerce Department agent that a shipment was destined for Belgium when it was actually meant for Hong Kong.
DOJ said the Belgian government arrested De Geetere and others as part of the investigation. The Treasury Department sanctioned De Geetere, and the Bureau of Industry and Security added De Geetere and his affiliated companies to the Entity List (see 2312050046).
In the first indictment, DOJ alleged that De Geetere and Florida resident Eddy Johan Coopmans conspired to export controlled field programmable gate array (FPGA) circuits to Russia and short-wave infrared (SWIR) surveillance cameras to China from 2016 to 2018. The pair allegedly wired over $1.2 million to acquire the items. Coopmans pleaded guilty in October 2022 to the charges (see 2210060017).
To catch De Geetere and Coopmans, the U.S. convinced a New Jersey resident, who the government had previously caught smuggling items out of the U.S., to pose as an illegal goods broker. DOJ said both De Geetere and Coopmans used the WhatsApp messenger to try to buy the FPGA circuits, indicating that the items would be illegally exported to Russia and used by Roscosmos, the country’s state-owned space agency.
DOJ also said both De Geetere and Coopmans met with an undercover U.S. government agent in Belgium in 2016 to discuss buying the SWIR surveillance cameras, and Coopmans said the cameras would be illegally exported to China “so they could be reverse engineered.” They also discussed “false and misleading statements that would be made to hide their illegal activity” from export enforcement agencies.
The agency said De Geetere and Coopmans conspired to smuggle goods out of the U.S. in violation of U.S. export controls, conspired to launder monetary instruments and illegally exported defense articles. DOJ said De Geetere "caused false and misleading statements to be made to legitimate companies that sold FPGA Circuits and SWIR Cameras" and to "government officials who regulate the export of FPGA Circuits and SWIR Cameras."
In the second indictment, DOJ said De Geetere from 2021 to 2023 tried to illegally procure controlled accelerometers, worth over $930,000, for export to China. These devices "measure the vibration, tilt and acceleration of motion of a structure and are often used in aerospace and military systems," DOJ said. De Geetere allegedly gave a BIS agent a false statement in saying the accelerometers were meant for export to Belgium when they were actually meant for China.
De Geetere first contacted the undercover BIS agent in May 2022 about buying accelerometers, the indictment said, adding that the agent was posing as a reseller for a U.S. company. De Geetere sent a purchase order for 6,400 units, declaring a Belgian company as the end user.
"Please do everything according to the rules,” De Geetere wrote. “The Goods [sic] are EAR99,” referring to items classified under the Export Administration Regulations as goods that generally don’t require an export license.
The agent applied for and received the license on behalf of De Geetere, which authorized the shipment to Belgium. But the indictment said De Geetere made “false representations” to the undercover agent and planned to send the accelerometers to a Hong Kong company. DOJ said the shipment was detained and never delivered.
De Geetere faces three counts of making false statements and one count of smuggling goods in Oregon. He faces a maximum five-year prison stint for the conspiracy to smuggle goods charge and for each false statements charge, 10 years for smuggling and 20 years for conspiracy to commit money laundering.
US Resident Pleads Guilty for Illegal Defense Exports to Oman
An Oakland, California, resident pleaded guilty Dec. 15 to illegally exporting firearms and other defense items, including night vision goggles. DOJ said Fares Abdo Al Eyani tried to ship the items to Oman from the Port of Oakland in 2019, but U.S. law enforcement stopped the shipment from leaving the country.
Al Eyani pleaded guilty to one count of conspiring to export defense articles and seven counts of attempting to export defense articles, which DOJ said were controlled under the International Traffic in Arms Regulations and Arms Export Control Act. He faces a maximum 20-year prison sentence and a $1 million fine.
DOJ said Al Eyani tried to ship the items -- including firearms, magazines, ammunition, at least 44 rifle scopes, monoculars and night-vision goggles -- on two separate occasions in November and December 2019. To hide the firearms in the November shipment, he disassembled them and wrapped them in aluminum foil before hiding them in cars inside a shipping container, DOJ said. Al Eyani tried to export the remaining rifle scopes, monoculars and goggles in two shipping containers from Oakland the following month.
The containers were stopped after being searched by U.S. authorities. DOJ said Al Eyani never received an export license.
DOJ also said Al Eyani’s wife, Saba Mohsen Dhaifallah, pleaded guilty to making false statements to FBI special agents during the investigation. Dhaifallah faces a maximum five-year prison sentence and a $250,000 fine. Sentencing hearings for both Al Eyani and Dhaifallah are scheduled for March 22.
US Sanctions, Indicts Leaders of Iranian UAV Procurement Scheme
The U.S. sanctioned 10 companies and four people with ties to Iran’s unmanned drone program, including Hossein Hatefi Ardakani, the Iranian-based leader of the network who helped illegally procure hundreds of thousands of dollars worth of U.S. and foreign-made components to Iran. Along with the new sanctions, DOJ on Dec. 19 charged Ardakani and his accomplice, China-based Gary Lam, for violating U.S. export controls.
Both Ardakani and Lam, also known as Lin Jinghe, worked to illegally export U.S. dual-use microelectronics and other items commonly used in unmanned aerial vehicles to Iran in 2014 and 2015, DOJ said. Those exports included high electron mobility transistors, monolithic microwave integrated circuit power amplifiers and analog-to-digital converters, each of which was subject to license requirements for anti-terrorism, national security and regional stability reasons.
The two used a “web” of foreign companies to hide the exports and evade U.S. sanctions, DOJ said. In one case, Lam, who worked for a Chinese company, convinced an “unwitting” French company to buy analog-to-digital converters from a U.S. firm. Lam then “caused a division” of the French company to ship the items to Hong Kong before they were reexported to Iran, DOJ said. The two used a “variation of this tactic” on companies in Canada, Hong Kong and China on three other occasions, allowing them to send items to Iran that can be used in radar, infrared imaging and other dual-use technologies.
The Office of Foreign Assets Control sanctioned the companies used by Ardakani and Lam, including Malaysia-based Skyline Advanced Technologies SDN BHD, Hong Kong-based Dirac Technology HK Limited, Malaysia- and Hong Kong-based Integrated Scientific Microwave Technology SDN BHD, Malaysia- and Hong Kong-based Arta Wave SDN BHD and Malaysia-based Nava Hobbies SDN BHD.
DOJ said it’s seeking to seize more than $800,000 combined from Nava Hobbies and Arta Wave, citing the companies' violations of sanctions against Iran and money laundering violations. OFAC said Nava Hobbies helped ship electrical motors, electrical fuel pumps, and servomotors for Ardakani, and Arta Wave shipped thousands of UAV servomotors or helped ship other servomotors on behalf of Iran’s Islamic Revolutionary Guard Corps Aerospace Force Self Sufficiency Jihad Organization.
Ardakani and Lam were both charged with conspiracy to export U.S. goods to Iran and to defraud the U.S., which carries a maximum five-year prison sentence; illegally exporting and attempting to export goods to Iran, which carries a maximum 20-year sentence; and conspiracy to engage in international money laundering, which also carries a maximum 20-year prison sentence. DOJ said both are at large and believed to be abroad.
U.S.-origin technology “has zero place in Iranian UAVs,” said Matthew Axelrod, the Bureau of Industry and Security’s top export enforcement official. “As these allegations demonstrate, those who procure dual-use microelectronics for the Islamic Revolutionary Guard Corps will be held accountable.” Matthew Olsen, head of DOJ’s National Security Division, said the U.S. will “aggressively investigate, disrupt, and hold accountable criminal networks that supply sensitive technology to hostile and repressive governments in contravention of U.S. sanctions.”
Others designated by OFAC include Iran-based Kavan Electronics Behrad Limited Liability Company, Iran-based Mehdi Dehghani Mohammadabadi, Iran-based procurement agent Gholamreza Ebrahimzadeh Ardakani, Iran-based Teyf Tadbir Arya Engineering Company, Iran-based Basamad Electronic Pouya Engineering Limited Liability Company, Iran-based Saman Industrial Group, and Indonesia-based firm Surabaya Hobby CV and the company’s owner Agung Surya Dewanto.
Kansas Businessman Pleads Guilty to Illegally Exporting to Russia
A Kansas business owner pleaded guilty Dec. 19 for his part in a scheme to violate U.S. export laws by filing false export forms and shipping "sophisticated and controlled" avionics equipment to Russian customers without export licenses, DOJ announced. Cyril Buyanovsky, owner of KanRus Trading Co. also agreed to forfeit over $450,000 worth of avionics equipment along with a $50,000 personal forfeiture. He faces a maximum of 25 years in prison.
Buyanovsky admitted to conspiring with others between 2020 and March to export U.S.-origin avionics equipment to Russian end users in Russia and other nations by filing false export forms and failing to file the required forms with the U.S. government. He and his co-conspirators lied about the true value of the goods, end users and end destinations, DOJ said.
On at least one occasion in 2021, Buyanovsky and a co-conspirator removed a sticker belonging to Russia’s Federal Security Service from a traffic alert and collision avoidance system before sending it to a U.S. company for repairs. DOJ said he then reattached the sticker before shipping the device back to the FSB.
The agency said Buyanovsky continued to illegally export equipment to Russia even after the U.S. introduced a host of new sanctions and export controls against the country for its invasion of Ukraine in 2022. Buyanovsky was arrested in March one day after CBP seized a pallet of avionics devices he was trying to export to Russia.
DOJ said Buyanovsky took "numerous steps to hide" this activity from U.S. law enforcement, including by "lying” to U.S. suppliers about the intended end users of goods and shipping goods through intermediary companies in Armenia, the United Arab Emirates and Cyprus. He also continued to file false export forms with the U.S. government and used bank accounts in Armenia, Kazakhstan, Kyrgyzstan, Cyprus and the UAE to funnel money from the Russian sales to KanRus in the U.S.
Buyanovsky’s guilty plea came about two weeks after BIS added a host of companies to the Entity List for violating export controls by illegally sending controlled items to Russia (see 2312050046). DOJ said “many” of those companies were involved in Buyanovsky’s scheme.