EXTRANCHECK: POST SHIPMENT VERIFICATION: EDAL ELECTRONICS

UNCLAS HONG KONG 000379

USDOC FOR 532/OEA/LHINES/ADYSON
USDOC FOR 3132 FOR FCS/OIO REGIONAL DIRECTOR PATRICK SANTILLO
BICE FOR OFFICE OF STRATEGIC INVESTIGATIONS

SIPDIS

E.O. 12958: N/A
TAGS: BMGT BEXP HK ETRD ETTC
SUBJECT: EXTRANCHECK: POST SHIPMENT VERIFICATION: EDAL ELECTRONICS
CO LTD

REF: A) USDOC 07199

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 Edal Electronics Co. Ltd., No.
17, Wang Chiu Road 6/F, Continental Industrial Building, Hong Kong
(Edal). The items in question for this PSV are various
microprocessors exported to Edal on or about April 3, 2008. On the
applicable shippers export declaration (SED),these items are
classified under export control classification number (ECCN) 3A001
and, if properly classified, would be controlled for national
security (NS) reasons. Based on documentation provided by the
exporter, it appears that these items are of the class that may be
exported license free to Hong Kong, but would require a license for
export or reexport to mainland China because of their ability to
function at extreme temperatures. The exporter was Rochester
Electronics LLC of Newburyport, Massachusetts.


3. According to the Hong Kong Companies Registry, Edal has been in
existence since 1988. Its paid up share capital is the Hong Kong
equivalent of USD 12,500. The Hong Kong Companies Registry lists
four Hong Kong residents as directors, namely Chan, Tak Chung Terry
(HK ID G238949(4)),Chan, Tak Wah (HK ID E198464(4)),Chan, Tak Wing
(HK ID E750017(7)) and Tam, Moureen (HK ID G503096(9)). Chan, Tak
Wah is also a director of Edal Investment Limited in Hong Kong.


4. A review of the Edal's web site (www.edal.com.hk) reveals that
Edal specializes in the distribution of electronic components. It
has offices in Shenzhen and Xian, China. Related company, Telestar
Electronics Ltd. is located in the same building as Edal but uses
the same phone number contact as Edal (more on Telestar below).


5. It took some time to arrange a meeting with Edal to discuss the
transaction. It appears that the initial person involved in the
transaction had already left the company as had a second person
initially tasked to respond to the inquiry. Eventually, on January
14, 2009, ECO visited Edal and met with Jean Yun, Senior Sales
Executive. She stated that Edal is an electronic components
distributor that sources such products for further reexport to
mainland China and other countries. According to Ms. Yun, the end
products for such components are televisions, video players and
other similar electronics products. She stated that Edal is also a
distributor for such companies as NXP, Philips and Infineon .


6. Ms. Yun further stated that Edal is a distributor for Rochester
Electronics which focuses on discontinued and obsolete products.
According to Ms. Yun, customers for Rochester products are in the
oil equipment repair and telecommunications business areas. When
asked about Telestar, Ms. Yun stated that this company is related to
Edal (one family owns an interest in both companies). Telestar is
engaged in a similar line of business as Edal. Ms. Yun was unable
to clarify the full relationship between the two companies nor was
she able to clarify the underlying reason for two very similar
companies to be in apparent direct competition.


7. Ms. Yun stated that Edal typically forwards order details to
Rochester and, if no license is required, Rochester fulfills the
order by shipping the goods to Edal. However, she noted that is a
license is required (in instances where the item is destined to the
mainland, for example),Edal often cancels the order because it is
difficult to get a license and Edal typically loses this order as a
result. Ms. Yun further stated that Rochester is aware of the final
destination of products based on end user statements that Edal and
Rochester require customers to complete for certain orders. In this
instance, the Rochester end use document states that the end user is
a company in Taiwan, namely Tai Chung Electronics. ECO has been
unable to find any trace of this company, whether in Hong Kong or
Taiwan.


8. On February 8, 2009, ECO and Commercial Assistant Carrie Chan
visited the purported Hong Kong customer, G&L Co. This company is a
sole proprietorship and trading company that has been in existence
since 1997. The company headquarters consist of a one room office
in an older, out of the way, shopping center. Mr. Ku, Oi Wang and
his wife jointly run the business. According to Mr. Ku, they are a
general trading company that has been in existence for some time.
ECO notes that the company has no web presence. Mr. Ku stated that
the company deals in a range of products. Its customers come to it
by word of mouth.


9. As to the specific transaction in question, Mr. Ku stated that
he is no longer able to reach the customer at the numbers provided
to him. He further stated that no purchase order was received from
the company. Rather, G&L generated a sales order based on a verbal


order from the customer. Mr. Ku stated that for products where
there might be customs issues (later he clarified that this referred
to electronic components) G&L will not export the items but requires
that the buyer pick them up from his location or that they designate
a Hong Kong address for pickup. From the face of the documents and
from the conversation with Mr. Ku, it would seem that Mr. Ku
purchased roughly USD 15,000 of nonrefundable electronic components
from Edal on behalf of a buyer that he knew virtually nothing about.
Mr. Ku stated that he had done a previous order and, as a result,
he was prepared to take the risk. ECO did not find Mr. Ku's answers
to be credible and believes that Mr. Ku simply does not wish to
disclose his mainland China buyer.


10. It appears to ECO that Edal was, in this instance, prepared to
sell controlled electronic components to a Hong Kong trading company
based on limited information about the customer and final end-use.
ECO believes it is also quite likely that G&L is aware of the final
destination of the items (that being, most likely, mainland China).
In fact, G&L's business model is likely to source controlled items
for mainland companies that are unwilling to order items directly in
situations where a license may be required. Based on the
information noted above, ECO recommends a close review of past
shipments to Edal and G&L as well as Telestar. ECO recommends
further outreach to Rochester Electronics to ascertain its knowledge
of this transaction and to encourage it to police its distributors
more closely. ECO notes that Rochester shipments have been the
subject of multiple unfavorable end use checks implicating similar
products and similar procurement tactics.