EXTRANCHECK: POST SHIPMENT WING FAT TRADING CO/SHENZHEN

UNCLAS HONG KONG 001070 SIPDIS C O R R E C T E D COPY SIGNATURE USDOC FOR 532/OEA/LHINES/ADYSON USDOC FOR 3132 FOR FCS/OIO REGIONAL DIRECTOR WILLIAM ZARIT BICE FOR OFFICE OF STRATEGIC INVESTIGATIONS E.O. 12958: N/A TAGS: BMGT BEXP HK ETRD ETTC SUBJECT: EXTRANCHECK: POST SHIPMENT WING FAT TRADING CO/SHENZHEN XINYUE CORP REF: A) USDOC 03522 B) USDOC 03524 C) USDOC 03613 1.Unauthorized disclosure of the information provided below is prohibited by Section 12C of the Export Administration Act. ¶2. As per reftels A to C requests 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 three post shipment-verifications (PSVs) at Shenzhen Xinyue Corp. (two checks),Rm 2302, 23/F, Pitt St, Hip Kwan Commercial Bldg 38, Hong Kong (Xinyue) and Wing Fat Trading Co. (same address) (one check) (Wing Fat). The items in question are three shipments of semiconductors. Two shipments of EAR99 semiconductors were shipped to Xinyue on June 19, 2007 and November 1, 2007. Items classified as EAR99 can generally be exported/reexported to all destinations, end-users/uses worldwide except to certain heavily restricted destinations and certain proliferation related or other restricted end-users/uses. The third shipment to Wing Fat was exported on August 14, 2007. The semiconductors in this shipment were classified by the exporter under export control classification number (ECCN) 3A001a.2.c. This ECCN is controlled for national security (NS) reasons and most likely requires a license for export to mainland China but does not require a license if shipped to Hong Kong. The exporter for all three shipments was Rochester Electronics of Newburyport, Massachusetts. ¶3. According to the Hong Kong Inland Revenue Department Business Registration Office, Win Fat Trading Co. has been in existence since ¶1998. It is a sole proprietorship (and is therefore not registered in the Hong Kong Companies Registry). The owner is listed as Mr. Khoo, Cheng Yan with Hong Kong identification number D1667409. The company has no apparent web presence. Xinyue does not appear to be registered as a corporate entity or sole proprietorship in Hong Kong. It likewise does not appear to have a web presence. ¶4. On June 2, 2008, ECO, accompanied by Commercial Assistant, Carrie Chan visited the two companies at the Pitt Street address referenced above and met with Mr. Lu Yan of Xinyue and Mr. Khoo Cheng Yan, Managing Director of Wing Fat Trading Co. Mr. Lu Yan stated that he had forgotten his business cards and so was unable to share one with the ECO. The meeting was held in a small, one room office containing a desk, a small couch and various boxes apparently containing shipments received by Wing Fat (one from Lattice Semiconductor). Multiple additional boxes were delivered during the meeting. ¶5. According to Mr. Khoo Cheng Yan, Wing Fat acts as the receiving agent for Xinyue. In particular, when Wing Fat receives shipments, Mr. Khoo Cheng Yan either ships the items to Xinyue customers in Hong Kong or the customers collect the items from his office. According to Mr. Khoo Cheng Yan, no purchase orders or other transactional details are conducted from the offices of Wing Fat. Mr. Khoo Cheng Yan stated that the two companies are not related and that Xinyue has merely hired Wing Fat to act as its agent. ¶6. According to Mr. Lu Yan, Xinyue generates all purchase orders from its office in Shenzhen (there are additional Xinyue employees at its offices in Shenzhen). Xinyue issues purchase orders to companies, including U.S. suppliers, and arranges for the items to be shipped to the Hong Kong address of Wing Fat. Mr. Lu Yan stated that he knows that some of his customers resell the items to other countries but he stated that he does not know what countries those might be. He stated that his business is focused on electronics components for the communications industry. ¶7. As to the shipments in question, Mr. Lu Yan stated that all were destined to the same customer, an electronics store in Shenzhen. He provided documentation on the shipment (by FedEx) to Wing Fat confirming receipt by Wing Fat as well as an Invoice from Wing Fat Trading Co. dated August 21, 2007 listing a buyer address (but no company name). This is the transaction referenced in reftel A. Mr. Lu Yan stated orally that the customer is an electronics store with the name Shenzhen Duo Hue Dian Ze. Subsequent research indicated that the address on that invoice corresponds to a company called Shenzhen Shi Xin Er Ye Ltd. (this is a transliteration of information at web site www.hqew.com/homepage/ sply). The web information on this company includes Mr. Lu Yan as the contact person and a contact number for the company that corresponds to the Shenzhen Xinyue phone number in purchase order documentation provided by OEA. The web site of this company states that the company specializes in the military industry and aerospace electronics. ¶8. Mr. Lu Yan stated that delivery was confirmed by the initials of the person picking up the shipment at the bottom of the invoice (a USD 17,000 transaction). By subsequent phone call, ECO attempted to obtain the underlying purchase order for these transactions but has not yet had any success (ECO will inform OEA if such purchase orders are received although ECO is doubtful they will ever be received). ECO asked whether Xinyue or Wing Fat had generated this order. Mr. Lu Yan stated that it had been generated by Xinyue. When confronted with a purchase order from Wing Fat (provided to ECO by OEA),Mr. Lu Yan amended his answer somewhat by stating that he had generated the order out of Shenzhen using Wing Fat's name. Mr. Khoo Cheng Yan did not seem surprised or perturbed by the use of Wing Fat's name in this way. When ECO asked who had filled in the Rochester Electronics End User Statement listing Qiu Qing Yuan (another transliteration of Khoo Cheng Yan) as signatory (though the name was typed and not signed on the form),Mr. Koo stated that he had passed the statement to th customer who had filled it in. Neither Mr. KhooCheng Yan nor Mr. Lu Yan could (would) state who the real end-user was in this circumstance. The sated end-user was Sinlecory Electronics Engineerng Co., Ltd. of Hong Kong. That company has no eb presence and is not listed in the Hong Kong Copanies Registry. ¶9. As to the first shipment t Xinyue (exported on June 19, 2007 and noted in eftel B),Mr. Lu Yan stated that neither he nor Mr Khoo Cheng Yan were able to provideshipping documentation confirming receipt of the items. However, they provided an invoice listing the buyer's address (described above). That invoice included the items exported by Rochester and referenced in the documentation provided by OEA. In this case, Xinyue issued the purchase order and apparently Mr. Lu Yan prepared the end-user statement for Rochester Electronics. When questioned, however, Mr. Lu Yan stated that while he filled in the form, the customer filled in the names and other details of the end-users and he merely attached to the statement for Rochester. He stated that he knew little about the customers listed, although he believes some may be involved in communications. ¶10. As to the later shipment from Rochester to Xinyue (shipped on November 1, 2007 and referenced in reftel C),Wing Fat/Xinyue were unable to provide any documentation relating to this shipment. Mr. Lu Yan stated that in this circumstance, the End Use Statement provided to Rochester Electronics had purportedly been signed by the end user (Xian Yong Da Co.). In particular, Xinyue's customer had arranged for the signature of the document by the purported end user. ¶11. Mr. Lu Yin stated that he worked with one usual contact at Rochester (listed on documentation as Jennifer) in ordering the items and that Rochester was unaware of the final destination (mainland China) of the items. ¶12. ECO provided information concerning BIS reexport controls to the representatives of Xinyue and Wing Fat. Mr. Lu Yan asked what products were restricted to mainland China. ECO noted that further information could be found on the BIS web site but that certain electronic components require a license to mainland China (particularly radiation hardened devices and those rated for operation at a wide range of temperatures). Mr. Lu Yan stated that he seldom dealt in those types of items. He further stated that he tries to avoid trading in items that require export licenses. When asked whether he was aware that Hong Kong places similar licensing requirements on shipments of certain electronic components, Mr. Lu Yan repeated that he tries to avoid transactions involving items requiring a license. ¶13. Both Wing Fat and Xinyue are entirely unsuitable recipients of U.S. origin technology. ECO did not find the answers of Mr. Lu Yan and Mr. Khoo Cheng Yan to be credible. In fact, ECO strongly suspects that Mr. Lu Yan uses the Wing Fat corporate information when ordering items that may require a license for export to mainland China and where a license is not required for shipment to Hong Kong. ECO recommends a thorough review of all shipments to Wing Fat, Xinyue and their respective addresses. ECO also recommends that BIS reach out to Rochester to determine what information it had on hand when it shipped the items. Further, ECO requests that OEA confirm the 3A001 classification of the Wing Fat shipment so that ECO may reach out to Hong Kong TID concerning a potential violation of Hong Kong's export control rules in connection with this shipment. Finally, ECO recommends that these two companies be added to the BIS Unverified List. CUNNINGHAM