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