BLUE LANTERN LEVEL 3: POST-SHIPMENT END-USE CHECK ON

UNCLAS SEOUL 002441

SIPDIS

STATE FOR PM/DTCC-BLUE LANTERN COORDINATOR

E.O. 12958: N/A
TAGS: ETTC KOMC KS
SUBJECT: BLUE LANTERN LEVEL 3: POST-SHIPMENT END-USE CHECK ON
LICENSE 050108473

REF: STATE 120155


1. Per reftel request, Econoff contacted the Defense Acquisition
Program Administration (DAPA) by phone to verify the transaction
involving fiber optic inverters exported by Schott North America
Inc. Econoff also conducted a site visit of EO Systems to verify
the bona fides of the firm.


2. Major Kim Chang-soon at DAPA confirmed to Econoff that DAPA has
placed an order with EO Systems for 2,060 sets of Night Monocular
Scope (NMS) and 1,248 sets of Day and Night Sight (DNS). DAPA has
ordered a total of 3,308 sets from EO Systems. The purchase order
was signed on July 22, 2008. The subject items will be assembled
into 500 of the 2,060 NMS. Copies of supporting documents will be
separately sent by email.


3. EO Systems confirmed that the company has received a total of
479 Image Intensifying Tubes (II Tubes) that contain the US made
fiber optic inverters. EO Systems said that each fiber optic
inverter has been assembled into a single II Tube, except for the
remaining 21 II Tubes that have not been delivered from Photonis.
EO Systems reported that until it was contacted by Econoff regarding
the II Tubes, it was unaware that the tubes contained fiber optics
from the United States. EO Systems promptly contacted Photonis and
confirmed that the II Tubes contain U.S.-fiber optic inverters.


4. EO Systems has completed the delivery of 218 sets of NMS
integrated with 218 II Tubes to ROK Army and the remaining 261 sets
of NMS will be delivered to ROK Army by December 26, 2008. The
outstanding 21 fiber optic inverters will also be delivered to the
ROK Army once they are received and incorporated into the NMS by EO
Systems.


5. EO Systems was established in 1979 as Optechs Korea, then
registered as a DAPA official supplier in 1984 under the name of
Defense Industrial Corporation. In 1998 it was renamed as Prominent
Corporation until 2000, when the company was renamed EO Systems
Corporation. It is not unusual for South Korean companies to change
their names frequently in an attempt to promote a specific corporate
image.


6. On December 2, 2008 post conducted an on-site visit to EO
Systems. Although access to the company was very restricted because
of the sensitive munitions items it handles, the company granted
Post full cooperation and access to its warehouses. Access to the
EO Systems warehouses is restricted to only EO Systems-designated
staff. All components including all USML items were carefully kept
in separate tightly secured warehouses. Pictures of the EO Systems
warehouse will be sent separately by email. A DAPA-dispatched
inspector is stationed at the EO Systems facilities during
operations. The DAPA inspector is responsible for verifying the
security of all items handled by EO Systems. For three consecutive
years beginning in 2006, EO Systems has received an "excellent"
rating by the ROKG for its handling of USML security measures.


7. Mr. Lee Won-seung, President and CEO of EO Systems spent more
than 20 years at Gold Star Cable and Fiber Optic Communications, a
conglomerate in South Korea, until he took his current position at
EO Systems. Lee is also vice chairman of Korea Defense Industry
Association. Mr. Kim Tae-young, Vice President of EO Systems
Business and Marketing Division has been with the company for more
than 20 years.


8. EO Systems is an official supplier of Night Monocular Scope, Day
and Night Sight, Night Drivers' Viewer that are installed in armored
vehicles for the Korean Army and Marine Corps under the Ministry of
National Defense. EO Systems also produces periscopes for defense
purposes primarily for the ROK Marine Corps. Its typical customers
include the South Korean Marine Corps and Army.


9. EO Systems is fully aware of the USML items restrictions. EO
Systems informed Post that five designated staff including Messrs.
Kim Hong-duk, Purchasing Team Director and Bae Kyu-yong, Purchasing
Team Manager have received ITAR and EAR training provided by the
Korea Strategic Trade Institute (KOSTI),a quasi-official agency
funded by the ROKG to train employees with South Korean companies
trade in strategic materials. In the mid-1990s, EO Systems invited
a U.S. ITAR expert to provide training and guidance to the company
to ensure the company meets U.S. regulations. In November 2008, the
EO Systems staff attended a seminar on the U.S. EAR organized by
KOSTI and received certificates for their participation. Copies of
the KOSTI certificates will be sent by email.


10. EO Systems' President Lee raised concerns that delays in the
U.S. export licensing system have prevented the company from
expanding its business with U.S. suppliers of the core parts it
needs, such as the IR module and II tube. The company has attempted
to source the core parts from the United States but it has faced

frequent difficulties in receiving on-time shipments of U.S. items
due to delays in obtaining U.S. export licenses.

STEPHENS