EXTRANCHECK: POST SHIPMENT VERIFICATION:

UNCLAS HONG KONG 004111

SIPDIS

STATE FOR US HQ BICE WASH DC

USDOC FOR 532/OEA/LHINES/KGAINES
USDOC FOR 3132 FOR FCS/OIO REGIONAL DIRECTOR WILLIAM
ZARIT

BEIJING FOR FCS JEANETTE CHU

BICE FOR OFFICE OF STRATEGIC INVESTIGATIONS

SIPDIS

E.O. 12958: N/A
TAGS: BMGT BEXP HK ETRD ETTC
SUBJECT: EXTRANCHECK: POST SHIPMENT VERIFICATION:
KASTON OPTRONICS MANUFACTURING LTD.

REF: A) USDOC 05199 B) EXP.LIC. D316278


1. Unauthorized disclosure of the information provided
below is prohibited by Section 12C of the Export
Administration Act.


2. As per reftel A request and at the direction of the
Office of Enforcement Analysis (OEA) of the USDOC
Bureau of Industry and Security (BIS),Export Control
Officer Philip Ankel (ECO) conducted a post shipment
verification (PSV) at Kaston Optronics Manufacturing
Ltd., Rua De Foshan, No 51, EDIF, San Kin Yip Centro
Commercial, Andar, Macao (Kaston). The PSV concerned
4000 grams of Hafnium Oxide in the form of three gram
tablets valued at $3,360 that were the subject of
export license D316278 and which were exported to
Kaston in November 2004. Hafnium oxide is classified
under ECCN 1C231 and is controlled for nuclear
nonproliferation reasons (NP).


3. On October 12, 2006, the ECO visited Kaston at the
address above and met with Ms. Waiman Fong, VP of
Administration and Finance at the location referenced
above. The Kaston facilities are located on one half
of the second floor of this older industrial center
located in the center of Macau.


4. Ms. Fong was open and cooperative and provided the
relevant documentation concerning the Hafnium Oxide on
request. At one point, Ms. Fong stressed that she was
aware of the controlled nature of the item and was
willing to be open and forthcoming with the ECO because
Kaston had always operated legally.


5. Ms. Fong stated that Kaston uses Hafnium Oxide to
coat crystals that are used in various types of lasers
including those used for stage lighting (for use
generally in China) and also for medical purposes
(which are exported primarily to the United States).
Mr. Fong provided samples of crystals (both in their
raw form and as coated with the Hafnium Oxide). More
details about the company can be found at its web site
(www.kaston.net).


6. Mr. Fong stated that the production that used the
Hafnium Oxide was recently moved to the company's
mainland China production site (in Fujian province).
She stated that Kaston moved its production facilities
because of the greater availability of skilled
engineers at its mainland China production site.
During a tour of the Macau site, it did not appear that
any of the machines there were in use and, in fact,
much of the machinery was partially or fully boxed for
further shipment while other rooms were empty.
Employees were only located in the same office as Ms.
Fong and there were no production employees or
engineers apparent anywhere at the Macau site. Ms. Fong
stated that Kaston intended to locate newer production
facilities at the Macau site in the near future.


7. Ms. Fong stated that the purchase of the Hafnium
oxide in question had been the responsibility of an
employee no longer with the company. Ms. Fong was,
however, able to provide several documents relating to
the purchase of the item including the purchase order,
End Use Statement and a "Nuclear Certification" signed
by Ms. Cynthia Cheang, Secretary to the Managing
Director. That certification provided that the Hafnium
Oxide would not be used in nuclear explosive activities
or safeguarded or unsafeguarded nuclear activities.
Mr. Fong also provided a copy of the original BXA-711
(Statement by Ultimate Consignee and Purchaser) signed
by Ms. Cheang and Ms. Fong (suggesting that Ms. Fong
was directly involved in the original purchase).


8. Ms. Fong further stated that approximately one
kilogram of the original four-kilogram shipment
remained when the production facilities were moved to
China. The remaining Hafnium Oxide was also moved with
the production facilities to mainland China. When the
ECO pointed out that the "Nuclear Certification"
(signed by Ms. Cheang) provides that BXA (now BIS)
approval is required for reexport, Ms. Fong suggested


that failure to obtain such approval was an oversight.


9. Ms. Fong indicated that Cerac is the only U.S.
supplier they have used for Hafnium Oxide. She recalls
that the ordering (and licensing) process took close to
one year and that, as a result, Kaston tended to order
larger amounts for use over a longer period of time. A
previous order destined for Kaston's China production
facility in 2001 had taken close to six months to
complete. She stated that Kaston now orders this
product from Germany as it is of better quality and
less expensive.


10. While Ms. Fong was open, forthcoming and believable
during the visit, she conceded that Kaston had
reexported some of the Hafnium Oxide notwithstanding a
commitment not do so (absent BIS approval). In
addition, it did not appear to the ECO that any
production was underway at the Macau location. As a
result, the ECO recommends that this PLC be classified
as Unfavorable.
Cunningham