Every Monday we post the highlights out of last week’s FCC Export/Import Daily Update (“The Daily Bugle”). Send out every business day to approximately 6,500 readers of changes to defense and high-tech trade laws and regulations, The Daily Bugle is a free daily newsletter from Full Circle Compliance, edited by James E. Bartlett III, Sven Goor, and Alex Witt.
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Last week’s highlights of The Daily Bugle included in this edition are:
- Justice: “California Man Charged with Illegally Exporting Cesium Atomic Clocks to Hong Kong”; The Daily Bugle; Monday 1 July 2019, Item #6;
- UK ECJU Amends Export Control Order 2008 and Control List; The Daily Bugle; Monday, 1 July 2019, Item #9;
- Japan METI Updates Licensing Policies and Procedures on Exports of Controlled Items to The Republic of Korea; The Daily Bugle; Monday, 1 July 2019, Item #11;
- Justice Convicts Electrical Engineer Conspiring to Illegally Export to China Semiconductor Chips with Missile Guidance Applications; The Daily Bugle; Wednesday, 3 July 2019, Item #7;
- Treasury/OFAC Treasury Targets Cuban Support for the Illegitimate Venezuelan Regime; The Daily Bugle; Friday 5 July 2019, Item #9;
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1. Justice: “California Man Charged with Illegally Exporting Cesium Atomic Clocks to Hong Kong”
(Source: Justice, 27 June 2019.)
A California man was arrested and charged in an indictment unsealed today in federal court in Boston with illegally exporting cesium atomic clocks to Hong Kong.
Alex Yun Cheong Yue, 67, of South El Monte, Calif., was indicted on one count of conspiracy to commit export violations, two counts of unlawful exports and attempted exports of U.S. goods to Hong Kong, and one count of smuggling. Yue will appear this afternoon in federal court in Los Angeles. Wai Kay Victor Zee, 56, of Hong Kong, along with his company, Premium Tech Systems, Limited were also charged. The two defendants remain at large in Hong Kong Special Administrative Region of the People’s Republic of China.
According to the charging document, beginning in December 2015, Yue, Zee, and Premium Tech conspired to procure U.S.-origin cesium atomic clocks and export them to Hong Kong without obtaining the required export licenses. Cesium atomic clocks are used in global positioning system solutions, network timing protocols, encryption programs, and national defense and space applications. They are controlled for export by the U.S. Department of Commerce for national security and anti-terrorism reasons.
To obtain the atomic clocks, Yue allegedly used a fictitious company, “Ecycle Tech International Ltd.,” to purchase them by falsely representing to the U.S. seller that the atomic clocks would be used solely in the United States for cordless phone research and development. Based on Yue’s false representations, the U.S. seller sold the cesium atomic clocks to Ecycle. On Feb. 19, 2016, the atomic clocks shipped from the manufacturing facility in Beverly, Mass., to Yue in California. Three days later, on Feb. 22, 2016, Yue reshipped the controlled cesium atomic clocks to Zee at Premium Tech in Hong Kong. Neither Yue, Zee, nor Premium Tech ever applied for or obtained the required export licenses from the U.S. Department of Commerce. On Feb. 24, 2016, Zee confirmed receipt of the cesium atomic clocks in Hong Kong.
In December 2017, Yue allegedly attempted to purchase an additional cesium atomic clock. Prior to the sale, however, the U.S. seller required Yue to provide an end-user statement detailing where and for what the clocks would be used. In April 2018, Yue sent an end-user certificate on Ecycle letterhead stating that the atomic clocks would be used in a calibration lab in California. It is alleged that in response to further inquiries from the U.S. seller, Yue falsely declared that he was not intending to export the cesium atomic clocks. When the U.S. seller insisted on a site visit to the California location where the atomic clocks would be utilized, Yue abruptly canceled the order. On July 13, 2018, Yue received a refund payment from the U.S. seller. Three days later, on July 16, 2018, Yue sent a wire transfer to Premium Tech’s bank account in Hong Kong with the refunded money.
The charge of conspiring to commit export violations and unlawfully exporting and attempting to export U.S. goods provides for a sentence of no greater than 20 years in prison, three years of supervised release and a fine of $1 million. The charge of smuggling goods from the United States provides for a sentence of no greater than 10 years in prison, three years of supervised release and a fine of $250,000. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.
United States Attorney Andrew Lelling; William Higgins, Acting Special Agent in Charge of the Department of Commerce, Office of Export Enforcement, Boston Field Office; and Peter C. Fitzhugh, Special Agent in Charge of the Homeland Security Investigations in Boston, made the announcement today. Assistant U.S. Attorney George P. Varghese of Lelling’s National Security Unit is prosecuting the case. …
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2. UK ECJU Amends Export Control Order 2008 and Control List
(Source: UK ECJU, 30 June 2019.)
The Export Control Joint Unit (ECJU) has amended the Export Control Order 2008.
Changes have been made to:
– main order Article 2(1) (interpretation)
– article 36 (offences relating to prohibitions and restrictions in the torture regulation)
– schedule 2 (military goods, software and technology)
– schedule 4 (countries and destinations subject to stricter export or trade controls)
The new order, The Export Control (Amendment) Order 2019 (SI 2019 No.989)comes into force on 30 June 2019. In particular, the order implements Directive (EU) 2019/514, making changes to the list of defence-related products corresponding to changes made to the European Common Military List (CML) that was previously updated following changes agreed in the Wassenaar Arrangement (an international export control regime). See details of wider changes provided below.
The complete list of changes relating to the transposition of Directive (EU) 2019/514 can be found in the transposition notepublished with the order.
Changes to the main order:
– references to Council Regulation (EC) No 1236/2005 have been replaced with references to Regulation (EU) 2019/125, which codifies and replaces that Regulation
– amendments to Article 36 and 36A to ensure offences relating to prohibitions and restrictions accurately cross-refer to the relevant provisions in Regulation 2019/125
Changes to schedule 2 (see transposition note for details):
– changes to ML1, ML8, ML10, ML13, ML17 and ML20
– change to the definition of “required”
Changes to schedule 4:
– an amendment to remove Eritrea from the list of countries at Part 2 Schedule 4, which lists countries and destinations embargoed and subject to transit control for military goods
– The Export Control (Eritrea and Miscellaneous Amendments) Order 2011 (SI 2011/1296) is revoked to the extent that it made provision for offences to enforce the sanctions measures set out in Council Regulation (EU) No. 667/2010 – this is in line with the lifting of sanctions against Eritrea by the United Nations and the European Union
ECJU has updated the Consolidated control list of strategic military and dual-use items that require export authorisation.
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3. Japan METI Updates Licensing Policies and Procedures on Exports of Controlled Items to The Republic of Korea
(Source: METI, 1 July 2019.)
In order to ensure appropriate implementation of export control and regulation based on Article 25(1) and Article 48(1) of the Foreign Exchange and Foreign Trade Act, the Ministry of Economy, Trade and Industry (METI) will apply updated licensing policies and procedures on the export and transfer of controlled items and their relevant technologies to the Republic of Korea (ROK).
METI applies specific licensing policies and procedures for implementing its export control and regulation on a country-by-country basis, considering how a specific country implements its export control and regulation. In most cases, METI has developed these policies and procedures through reliable relationships based on trust and close communication with the specific country and its export control authority.
Through careful consideration among the relevant ministries in Japan, the Government of Japan cannot help but state that the Japan-ROK relationship of trust including in the field of export control and regulation has been significantly undermined. Considering that certain issues in ROK’s export control and regulation can only be addressed under a relationship of utmost trust, METI has concluded that it must change the current implementation practices such as licensing policies and procedures for export or transfer of controlled items and their relevant technologies to the ROK in order to ensure appropriate implementation of Japan’s own export control and regulation. In addition, as METI has recently found that certain sensitive items have been exported to the ROK with inadequate management by companies, METI will apply more stringent procedures over certain controlled items and their relevant technologies.
- Removal of the Republic of Korea from “White Countries”
On July 1, METI will begin the public comments process for the amendment of the Cabinet Order removing the Republic of Korea from the Appended Table III (so called “white countries”) of the Export Trade Control Order.
Reference: Public Comments (e-Gov site) (in Japanese)
- Individual export licenses for certain items and their relevant technologies
From July 4, exporters shall apply for an individual export license for export of Fluorinated polyimide, Resist, and Hydrogen Fluoride, and their relevant technologies, which may include technology transferred with exports of manufacturing equipment to the Republic of Korea, as the relevant bulk licenses for those three items will no longer be applicable.
Reference: Export Control site (in Japanese).
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4. Justice Convicts Electrical Engineer Conspiring to Illegally Export to China Semiconductor Chips with Missile Guidance Applications
(Source: Justice, 2 July 2019.) [Excerpts.]
An electrical engineer has been found guilty of multiple federal criminal charges related to a scheme to illegally obtain integrated circuits with military applications that were exported to China without the required export license, the Justice Department announced today.
Yi-Chi Shih, 64, a part-time Los Angeles resident, was found guilty on June 26 of conspiracy to violate the International Emergency Economic Powers Act (IEEPA), a federal law that makes illegal, among other things, certain unauthorized exports. The jury also found Shih guilty of mail fraud, wire fraud, subscribing to a false tax return, making false statements to a government agency, and conspiracy to gain unauthorized access to a protected computer to obtain information. Shih was convicted of all 18 counts in a federal grand jury indictment.
The guilty verdicts were announced today, one day after United States District Judge John A. Kronstadt discharged the jury that returned the guilty verdicts last week. That jury previously had been scheduled today to consider allegations in the indictment against Shih that seek the forfeiture of hundreds of thousands of dollars. Judge Kronstadt, who presided over a trial that spanned seven weeks, decided on Monday that he will later consider the forfeiture allegations.
Judge Kronstadt will also schedule a sentencing hearing, where Shih will face a statutory maximum sentence of 219 years in federal prison. …
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5. Treasury/OFAC Treasury Targets Cuban Support for the Illegitimate Venezuelan Regime
(Source: Treasury/OFAC, 3 July 2019.)
Today, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated Cubametales, the Cuban state-run oil import and export company, for its continued importation of oil from Venezuela. Cuba, in exchange for this oil, continues to provide support, including defense, intelligence, and security assistance, to the illegitimate regime of former President Nicolas Maduro. Today’s action, taken pursuant to Executive Order (E.O.) 13850, as amended, targets the company for operating in the oil sector of the Venezuelan economy.
“Maduro is clinging to Cuba to stay in power, buying military and intelligence operatives in exchange for oil. Treasury’s sanctions on Cubametales will disrupt Maduro’s attempts to use Venezuela’s oil as a bargaining tool to help his supporters purchase protection from Cuba and other malign foreign actors,” said Treasury Secretary Steven T. Mnuchin. “Treasury’s decision to remove restrictions on PB Tankers and unblock previously sanctioned vessels is a reminder that positive changes in behavior can result in the lifting of sanctions.”
On October 31, 2000, the Government of Cuba solidified its investment in the oil sector of Venezuela through the Cuba-Venezuela Integral Cooperation Agreement (CIC). Through this agreement, Venezuela exports oil to Cuba, and in return, Cuba provides assistance to several sectors of the Venezuelan economy, to include the provision of medical services, technology, and military assistance. The goods and services Cuba provides Venezuela continue to fuel the corruption of Maduro and his associates and help maintain their control over the increasingly impoverished Venezuelan people whose oil has been shipped to Cuba in support of dictatorship.
Since the January 28, 2019 designation of Petroleos de Venezuela, S.A. (PDVSA), the Venezuelan state-owned oil company, Cubametales and other Cuba-based entities have continued to support Maduro through oil shipments from Venezuela.
Cubametales is based in Havana, Cuba and is responsible for guaranteeing 100 percent of imports and exports of fuels and imports of additives and basic oils for lubricants to and from Cuba. Additionally, Cubametales has been the recipient, and charterer, of shipments of oil from Venezuela to Cuba and has expanded its operations to include non-traditionally traded oil products such as sulfur fuel and diluted crude oil. As a part of the original CIC agreement, the agreement states that Cubametales (and its administrative manager) and PDVSA are responsible for setting the terms and conditions for PDVSA oil exports up to 53,000 barrels per day on a quarterly basis.
As a result of today’s action, all property and interests in property of this entity, and of any entities that are owned, directly or indirectly, 50 percent or more by the designated entity, that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. OFAC’s regulations generally prohibit all dealings by U.S. persons or within (or transiting) the United States that involve any property or interests in property of blocked or designated persons.
Delisting of PB Tanker S.P.A
In addition to today’s designation of Cubametales, OFAC is delisting PB Tankers S.p.A. (PB Tankers). OFAC designated PB Tankers on April 12, 2019, for operating in the oil sector of the Venezuelan economy. As a part of this designation, six vessels were identified as blocked property in the interest of PB Tankers; one vessel, named the Silver Point, was used to deliver oil products from Venezuela to Cuba. Following the company’s designation, PB Tankers terminated its charter agreement with Cubametales, which had chartered the Silver Point to transport oil between Venezuela and Cuba. Likewise, PB Tankers took additional steps to increase scrutiny of its business operations to prevent future sanctionable activity.
Treasury recognizes the actions that PB Tankers has taken to ensure that its vessels are not complicit in propping up the illegitimate former Maduro regime in Venezuela. As a result of today’s action, all property and interests in property, which had been blocked as a result of PB Tankers’ designation, are unblocked, and all otherwise lawful transactions involving U.S. persons and PB Tankers are no longer prohibited.
Delistings Promote Positive Changes in Behavior
U.S. sanctions need not be permanent; sanctions are intended to bring about a positive change of behavior. The United States has made clear that the removal of sanctions is available for persons designated under E.O. 13692 or E.O. 13850, both as amended, who take concrete and meaningful actions to restore the democratic order, including through refusing to operate in Venezuela’s oil sector, which continues to provide a lifeline to the illegitimate regime of former President Nicolas Maduro.
Additional Resources
For information about the methods that Venezuelan senior political figures, their associates, and front persons use to move and hide corrupt proceeds, including how they try to exploit the U.S. financial system and real estate market, please refer to Treasury’s Financial Crimes Enforcement Network (FinCEN) advisories FIN-2019-A002, “Updated Advisory on Widespread Public Corruption in Venezuela,” FIN-2017-A006, “Advisory to Financial Institutions and Real Estate Firms and Professionals” and FIN-2018-A003, “Advisory on Human Rights Abuses Enabled by Corrupt Senior Foreign Political Figures and their Financial Facilitators.”