2 CHINESE NATIONALS SENTENCED TO PRISON FOR CONSPIRACY TO VIOLATE ARMS EXPORT CONTROL ACT BY EXPORTING SENSORS

FROM:  U.S. JUSTICE DEPARTMENT
Department of Justice
Office of Public Affairs
FOR IMMEDIATE RELEASE
Thursday, April 23, 2015
Chinese Nationals Sentenced in New Mexico for Conspiring to Violate Arms Export Control Act

This afternoon, a federal judge in the District of New Mexico sentenced two Chinese nationals for conspiring to violate the Arms Export Control Act and the International Traffic in Arms Regulations (ITAR) by scheming to illegally export defense articles with military application to the People’s Republic of China, announced Assistant Attorney General for National Security John P. Carlin and U.S. Attorney Damon P. Martinez of the District of New Mexico.

Bo Cai, 29, of Nanjing, China, was sentenced to 24 months in prison and his cousin Wentong Cai, 30, of Chifeng, China, was sentenced to 18 months in federal prison.  Both will be deported after completing their prison sentences.  The two men were charged in three-count superseding indictment with a scheme to illegally export sensors primarily manufactured for sale to the U.S. Department of Defense for use in high-level applications, such as line-of-sight stabilization and precision motion control systems.  The Arms Export Control Act and the ITAR prohibit the export of defense-related materials from the United States without obtaining a license or written approval from the U.S. Department of State.

Bo Cai entered a guilty plea to all three counts of the superseding indictment in July 2014, and Wentong Cai pleaded guilty to Count 3 of the superseding indictment in December 2014.  In entering the guilty pleas, each admitted that from March 2012 to December 2013, they conspired with each other to illegally export sensors from the United States to China without first obtaining the required export license.  Bo Cai admitted that in March 2012, while he was employed by a technology company in China, he embarked on an illegal scheme to smuggle sensors out of the United States to China for one of his customers despite knowledge that the sensors could not be exported without a license and that the United States did not issue licenses to export the sensors to China.  Wentong Cai admitted that while he was in the United States on a student visa, Bo Cai enlisted him to acquire the sensors under the ruse that he planned to use the sensors at Iowa State University where he was a graduate microbiology student.

Court filings indicate that the investigation of this case began in October 2013, when an undercover U.S. Immigration and Customs Enforcement Homeland Security Investigations (HSI) agent responded to Wentong Cai’s overtures.  After negotiations by telephone and email, in December 2013, Bo Cai and Wentong Cai traveled to New Mexico, where they obtained a sensor from undercover HSI agents and developed a plan for smuggling the sensor out of the United States to China.  On Dec. 11, 2013, Bo Cai was arrested at an airport in Los Angeles, as he was preparing to board a flight to China, after the sensor was discovered concealed in a computer speaker in his luggage.  Wentong Cai subsequently was arrested on Jan. 22, 2014, in Ames, Iowa.

The HSI Albuquerque, New Mexico, office led the investigation of this case with assistance from the U.S. Air Force Office of Special Investigations, the Defense Security Service, HSI in Iowa and Los Angeles and the FBI.  Iowa State University cooperated throughout with HSI’s investigation.  Assistant U.S. Attorneys Dean S. Tuckman and Fred J. Federici of the District of New Mexico prosecuted the case with assistance from Deputy Chief Deborah Curtis and Trial Attorneys David Recker and Brian Fleming of the Justice Department’s National Security Division.  The U.S. Attorney’s Office of the Central District of California and the U.S. Attorney’s Office of the Southern District of Iowa also assisted in the prosecution.

FORMER DEFENSE CONTRACTOR PLEADS GUILTY TO THE ILLEGAL EXPORT OF MILITARY BLUEPRINTS TO INDIA

FROM:  U.S. JUSTICE DEPARTMENT
Wednesday, April 1, 2015
Former Owner of Defense Contracting Businesses Pleads Guilty to Illegally Exporting Military Blueprints to India Without a License

Assistant Attorney General for National Security John P. Carlin and U.S. Attorney Paul J. Fishman of the District of New Jersey announced that the former owner of two New Jersey defense contracting businesses today admitted that she conspired to send sensitive military technical data to India.

Hannah Robert, 49, of North Brunswick, New Jersey, pleaded guilty before U.S. District Judge Anne E. Thompson of the District of New Jersey to count six of a superseding indictment, which charged her with conspiracy to violate the Arms Export Control Act by exporting to India military technical drawings without prior approval from the U.S. Department of State.

“Hannah Robert circumvented the U.S. government and provided defense technical drawings in violation of the Arms Export Control Act,” said Assistant Attorney General Carlin.  “We will continue to pursue and hold accountable those who abuse their access to sensitive defense information.  I would like to thank all of the special agents, prosecutors and other personnel whose work led to the guilty plea in this case.”

“Hannah Robert conspired to send to another country thousands of technical drawings of defense hardware items and sensitive military data,” said U.S. Attorney Fishman.  “She was also charged with manufacturing substandard parts that were not up to spec, in violation of the contracts she signed with the Department of Defense.  Enforcement of the Arms Export Control Act is critical to the defense of our country.”

According to documents filed in this case and statements made in court:

In June 2010, Robert was the founder, owner and president of One Source USA LLC, a company located at her then-residence in Mount Laurel, New Jersey, that contracted with the U.S. Department of Defense (DoD) to supply defense hardware items and spare parts.  In September 2012, Robert opened another defense company, Caldwell Components Inc., based at the same address.  Along with a resident of India identified only as “P.R.,” Robert owned and operated a third company located in India that manufactured defense hardware items and spare parts.

From June 2010 to December 2012, Robert conspired to export to India defense technical drawings without obtaining the necessary licenses from the U.S. Department of State.  The exported technical drawings include parts used in the torpedo systems for nuclear submarines, military attack helicopters and F-15 fighter aircrafts.

In addition to United States’ sales, Robert and P.R. sold defense hardware items to foreign customers.  Robert transmitted export-controlled technical data to P.R. in India so that Robert and P.R. could submit bids to foreign actors, including those in the United Arab Emirates (UAE), to supply them or their foreign customers with defense hardware items and spare parts.  Neither Robert nor P.R. obtained approval from the U.S. Department of State for this conduct.

On Aug. 23, 2012, P.R. e-mailed Robert requesting the technical drawing for a particular military item.  P.R.’s e-mail forwarded Robert an e-mail from an individual purporting to be “an official contractor of the UAE Ministry of Defence,” and who listed a business address in Abu Dhabi, UAE.  The UAE e-mail requested quotations for a bid for the “blanket assembly” for the CH-47F Chinook military helicopter and listed the “End User” for the hardware item as the UAE Armed Forces.  Later that same day, Robert replied to P.R.’s e-mail, attaching, among other things, the electronic file for an export-controlled technical drawing titled “Installation and Assy Acoustic Blankets, STA 120 CH-47F,” to be used in the Chinook attack helicopter.

In October 2010, Robert transmitted the military drawings for these parts to India by posting the technical data to the password-protected website of a Camden County, New Jersey, church where she was a volunteer web administrator.  This was done without the knowledge of the church staff.  Robert e-mailed P.R. the username and password to the church website so that P.R. could download the files from India.  Through the course of the scheme, Robert uploaded thousands of technical drawings to the church website for P.R. to download in India.

On June 25, 2012, P.R. e-mailed Robert, stating: “Please send me the church web site username and password.”  The e-mail was in reference to both an invoice to and a quote for a trans-shipper known to Robert as a broker of defense hardware items for an end user in Pakistan.  This individual used a UAE address for shipping purposes.  Later that day, Robert replied to this e-mail, providing a new username and password for the church website so that P.R. could download the particular defense drawings.

On Oct. 5, 2012, Robert e-mailed P.R. with the subject line “Important.”  The e-mail referenced the Pakistan trans-shipper, a separate potential sale to individuals in Indonesia and the church website: “Please quote [the Pakistan trans-shipper] and Indonesia items today[.] [Dr]awings I cannot do now as if the size exceeds then problem, I should be watching what I upload, will do over the weekend[.]  Ask me if you need any drawing . . . . Talk to you tomorrow . . . .”

There were also quality issues with the parts that Robert provided to the DoD.  After the DoD in October 2012 disclosed that certain parts used in the wings of the F-15 fighter aircraft, supplied by one of One Source USA’s U.S. customers failed, Robert and P.R. provided the principal of their customer with false and misleading material certifications and inspection reports for the parts.  These documents, to be transmitted to the DoD, listed only One Source USA’s New Jersey address and not the address of the actual manufacturer in India, One Source India.  As a result of the failed wing pins, the DoD grounded approximately 47 F-15 fighter aircraft for inspection and repair, at a cost estimated to exceed $150,000.

Until November 2012, Robert was an employee of a separate defense contractor in Burlington County, New Jersey, where she worked as a system analyst and had access to thousands of drawings marked with export-control warnings and information on this defense contractor’s bids on DoD contracts.  Robert misrepresented to her employer the nature and extent of her involvement with One Source USA in order to conceal her criminal conduct.

Count six of the superseding indictment – conspiracy to violate the Arms Export Control Act – is punishable by a maximum potential penalty of five years in prison and a fine of $250,000.  As part of her plea agreement, Robert must pay $181,015 to the DoD, which includes the cost of repair for the grounded F-15s.  Robert also consented to a forfeiture money judgment of $77,792, which represents the dollar value of Robert’s fraudulent contracts with DoD.

The Arms Export Control Act prohibits the export of defense articles and defense services without first obtaining a license from the U.S. Department of State and is one of the principal export control laws in the United States.

The case was investigated by the special agents of the Defense Criminal Investigative Service’s Northeast Field Office and the special agents of the Department of Homeland Security’s Counter Proliferation Investigations.

The government is represented by Assistant U.S. Attorneys Fabiana Pierre-Louis and L. Judson Welle of the District of New Jersey.  The prosecution received invaluable support from attorneys of the U.S. Department of Justice’s National Security Division.

COMPANY, OWNER AND EMPLOYEE CHARGED WITH ILLEGALLY EXPORTING AND IMPORTING MILITARY ITEMS

FROM:  U.S. JUSTICE DEPARTMENT
Thursday, February 19, 2015
Arlington Heights, Illinois, Company and its Owner and Employee Charged with Illegal Export and Import of Military Articles

Assistant Attorney General for National Security John P. Carlin, U.S. Attorney Zachary T. Fardon of the Northern District of Illinois, Special Agent in Charge Gary Hartwig of Homeland Security Investigations Chicago, Special Agent in Charge James C. Lee of the Internal Revenue Service’s (IRS) Chicago Office and Special Agent in Charge Brian Reihms of the Department of Defense Criminal Investigative Service in Chicago announced today that an Arlington Heights, Illinois, company, its president and a former employee were indicted on federal charges for unlawfully exporting and importing military articles, including components used in night vision systems and an M1A1 Abrams tank, which is the main battle tank used by the U.S. Armed Forces.  The defendants were charged in an indictment returned by a federal grand jury in January and made public this week.

Vibgyor Optical Systems Inc., a company located in Arlington Heights, purported to manufacture optics and optical systems, including items that were to be supplied to the U.S. Department of Defense (DOD).  Instead of manufacturing the items in Illinois, as it claimed, Vibgyor illegally sent the technical data for, and samples of, the military articles to manufacturers in China, then imported the items from China to sell to its customers—including DOD prime contractors.  Bharat “Victor” Verma, 74, of Arlington Heights, Vibgyor’s president, and Urvashi “Sonia” Verma, 40, of Chicago, a former Vibgyor employee and owner of a now-defunct company that operated as a subcontractor for Vibgyor, were also charged in the indictment.

According to the indictment, between November 2006 and March 2014, the defendants conspired to defraud the United States and violate the Arms Export Control Act (AECA) and International Traffic in Arms Regulations.  The AECA prohibits the export or import of defense articles and defense services without first obtaining a license from the U.S. Department of State and is one of the principal export control laws in the United States.  Under the International Traffic in Arms Regulations, any person seeking to import items designated as defense articles on the United States Munitions Import List is required to obtain a permit to do so from the Bureau of Alcohol, Tobacco, Firearms and Explosives.  Vibgyor won subcontracts to supply optical components and systems to DOD prime contractors by misrepresenting the location of manufacture of the items it supplied.  Bharat Verma falsely claimed that the items Vibgyor supplied were manufactured in domestically, when they actually had been manufactured in China, based on information illegally exported to Chinese manufacturers.  In addition to illegally providing technical data for a military item to China, Urvashi Verma attempted to ship an example of one of the military items to the Chinese manufacturer.

“The Arms Export Control Act and the International Traffic in Arms Regulations are vital to preventing embargoed countries from gaining access to our sensitive military technology, and to ensuring that our armed forces are not issued substandard equipment,” said U.S. Attorney Fardon.  “Where companies and individuals seek to violate the AECA and the International Traffic in Arms Regulations, we will not hesitate to act."

Vibgyor, Bharat Verma and Urvashi Verma are charged with one count of conspiracy to violate both the AECA and the International Traffic in Arms Regulations; one count of conspiracy to defraud the United States—each offense is punishable by up to five years’ imprisonment—and one count of  violating the AECA, with a maximum possible penalty of 20 years in prison and a fine up to $1,000,000.  Vibgyor and Bharat Verma were also charged with international money laundering, an offense with a maximum possible sentence of 20 years’ imprisonment and a fine up to $500,000.  The defendants are scheduled to be arraigned Friday, Feb. 20, 2015, before U.S. Magistrate Judge Sidney I. Schenkier.  

The case is being prosecuted by Trial Attorney Casey Arrowood of the Justice Department’s National Security Division, and Assistant U.S. Attorneys Diane MacArthur, Bolling W. Haxall and Shoba Pillay of the Northern District of Illinois.

The public is reminded that an indictment contains only charges and is not evidence of guilt.  The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

ESTERLINE TECHNOLOGIES SETTLES STATE DEPARTMENT ALLEGATIONS OF UNAUTHORIZED EXPORTS

FROM:  U.S. STATE DEPARTMENT

State Department Concludes Settlement of Alleged AECA and ITAR Violations by Esterline Technologies Corporation

Media Note

Office of the Spokesperson

Washington, DC

March 6, 2014

---

The U.S. Department of State concluded an administrative settlement with Esterline Technologies Corporation of Bellevue, Washington, to resolve alleged violations of the Arms Export Control Act (AECA) (22 U.S.C. § 2778) and the International Traffic in Arms Regulations (ITAR) (22 C.F.R. Parts 120-130). Esterline agreed to enter into a consent agreement with the Department pursuant to ITAR Section 128.11. The agreement was reached following an extensive compliance review by the Department’s Office of Defense Trade Controls Compliance (DTCC) in the Bureau of Political-Military Affairs. This settlement addresses hundreds of alleged civil violations of the AECA and ITAR, and highlights the Department’s responsibility to protect U.S. defense articles, including technical data, and defense services from unauthorized use.

DTCC determined that Esterline demonstrated inadequate corporate oversight and failed to establish an adequate AECA and ITAR compliance program in its defense trade activity. Over the course of many years, Esterline and its operating divisions, subsidiaries, and business units disclosed to the Department hundreds of alleged AECA and ITAR violations consisting of unauthorized exports of defense articles, including technical data, and defense services; unauthorized temporary imports of defense articles; violations of terms and conditions of licenses or approvals granted; exports of defense articles in excess of quantity and value authorized; improper use of exemptions; and failure to file or filing of incorrect documentation with the Automated Export System.

DTCC’s compliance review concluded that many of these alleged violations occurred because Esterline did not properly establish jurisdiction over its defense articles and technical data, did not properly administer licenses and agreements, and had incomplete or poor recordkeeping. The alleged violations involved defense articles, technical data, and defense services that are or were controlled at the time of the alleged violations by the U.S. Munitions List under the following current or former categories: IV(h), VI(i), VI(f), VI(g), VII(g), VII(h), VIII(h), VIII(i), XI(a), XI(c), XI(d), XII(e), XII(f), XV(e), XV(f), XX(c), and XX(d).

Under the terms of a three year Consent Agreement with the Department, Esterline will pay a civil penalty of $20 million. The Department agreed to suspend $10 million of this amount on the condition the Department approves expenditures for self-initiated, pre-Consent Agreement remedial compliance measures and Consent Agreement-authorized remedial compliance costs. Additionally, Esterline will engage a Special Compliance Official to oversee the Consent Agreement, and Esterline will conduct two audits of its compliance program as well as implement additional compliance measures, such as improved policies and procedures, and additional training for employees and principals.

Esterline disclosed the alleged AECA and ITAR violations resolved under this settlement to the Department, acknowledged the serious nature of the alleged violations, cooperated with the Department, and implemented or has planned extensive remedial measures. For these reasons, the Department determined that an administrative debarment of Esterline was not appropriate at this time.

INTERNATIONAL ARMS SMUGGLER SENT TO PRISON FOR 180 MONTHS

FROM:  U.S. JUSTICE DEPARTMENT 
Thursday, December 19, 2013
International Arms Smuggler Sentenced to 180 Months in Prison

Siarhei Baltutski, aka Sergey Boltutskiy, 41, of Minsk, Belarus, was sentenced today to serve 180 months in prison for conspiracy to violate the Arms Export Control Act, conspiracy to violate the International Emergency Economic Powers Act and conspiracy to commit money laundering.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, Acting Assistant Attorney General John Carlin of the Justice Department’s National Security Division and U.S. Attorney Zane David Memeger of the Eastern District of Pennsylvania made the announcement.

Baltutski pleaded guilty on Jan. 25, 2013.  In addition to the prison term, U.S. District Court Judge Paul S. Diamond of the Eastern District of Pennsylvania ordered Baltutski to serve three years of supervised release.

Between Jan. 1, 2008, and Sept. 21, 2011, Baltutski organized a network of buyers in the United States to obtain and illegally export to Belarus high-tech military hardware such as Scorpion Thermal Weapon Sights, ThOR 2 Thermal Imaging Scopes, Thermal-Eye Renegade 320’s, and other night vision targeting devices.  During the course of the conspiracy, Baltutski and his associates illegally exported hundreds of these items.  Baltutski then arranged for hundreds of thousands of dollars to be secretly wired, via offshore shell companies, to purchase these items, to pay for shipping, and to pay his network of buyers.

The Arms Export Control Act and the International Emergency Economic Power Act prohibit the export of high-tech military technology.  Keeping this technology out of the hands of current and potential adversaries is critical to national interest and the safety and success of U.S. service members in combat.

This case was investigated by the U.S. Immigration and Customs Enforcement Homeland Security Investigations and the FBI.  The case was prosecuted by Trial Attorney Jerome Maiatico of the Criminal Division’s Organized Crime and Gang Section and Assistant U.S. Attorney Robert Livermore of the Eastern District of Pennsylvania, with assistance from Trial Attorney David Recker of the National Security Division’s Counterespionage Section.

FORMER HONEYWELL INTERNATIONAL EMPLOYEE DEBARRED FOR VIOLATIONS OF EXPORT LAWS

FROM:  U.S. STATE DEPARTMENT 
State Department Debars Former Honeywell International Employee for Export Violations
Bureau of Political-Military Affairs
November 27, 2013

The State Department issued an order administratively debarring LeAnne Lesmeister, former compliance officer at Honeywell International, Inc. (Honeywell), from participating in any activities that are subject to the International Traffic in Arms Regulations (ITAR)(22 C.F.R. parts 120-130) for violations of the Arms Export Controls Act (AECA)(22 U.S.C. § 2778) and the ITAR.

Honeywell voluntarily disclosed to the Department numerous ITAR violations carried out by Ms. Lesmeister, its senior export compliance officer in Clearwater, Florida, between 2008 and 2012. Ms. Lesmeister, who had worked in export compliance at Honeywell for twenty-seven years, used her position to circumvent Honeywell’s export compliance program in the fabrication of various export control documents that Ms. Lesmeister presented as Department of State authorizations. Relying on these falsified authorizations, Honeywell exported defense articles, including technical data, and provided defense services to various foreign persons without Department approval in violation of the AECA and ITAR.

The State Department’s Office of Defense Trade Controls Compliance in the Bureau of Political-Military Affairs performed an extensive compliance review of the disclosed violations. The results of that review indicated no direct harm to U.S. foreign policy or national security. The nature of the violations, however, prompted the Deputy Assistant Secretary for Defense Trade Controls in the Bureau of Political-Military Affairs to formally charge Ms. Lesmeister with twenty-one violations of the AECA and ITAR in connection with her creation and use of Department authorizations, containing false statements or omitting and misrepresenting material facts for the purpose of exporting, retransferring, or furnishing defense articles, technical data, or defense services, and causing the unauthorized export of technical data and provision of defense services.

This administrative debarment is the result of the Department’s first institution of an administrative proceeding by referral of a charging letter before an Administrative Law Judge for consideration pursuant to ITAR § 128.4. The referral and debarment followed Ms. Lesmeister's failure to answer the formal charges.

Acknowledging the serious nature of the violations, Honeywell cooperated fully with the Department’s review and implemented remedial measures to resolve the conditions that allowed the misconduct of one employee, in a position of authority, to bring about significant export compliance violations.

This administrative proceeding highlights the range of potential penalties that may be imposed by the Department on entities or individuals for ITAR violations. Individuals, if found culpable, may not be shielded by their employers for their independent violations. Those persons tasked with an entity’s export responsibilities, should be vigilant in their compliance with all export control regulations.

Under the terms of the administrative debarment, Ms. Lesmeister will be prevented from participating directly or indirectly in any activities that are subject to ITAR for a period of three years and until an application for reinstatement is submitted and approved by the Department. The Department determined that civil penalties were not appropriate at this time.

FORMER HONEYWELL EMPLOYEE DEBARRED BY STATE DEPARTMENT FOR DOCUMENT FABRICATION

FROM:  U.S. STATE DEPARTMENT 
State Department Debars Former Honeywell International Employee for Export Violations
Media Note
Office of the Spokesperson
Washington, DC
November 27, 2013

The State Department issued an order administratively debarring LeAnne Lesmeister, former compliance officer at Honeywell International, Inc. (Honeywell), from participating in any activities that are subject to the International Traffic in Arms Regulations (ITAR)(22 C.F.R. parts 120-130) for violations of the Arms Export Controls Act (AECA)(22 U.S.C. § 2778) and the ITAR.

Honeywell voluntarily disclosed to the Department numerous ITAR violations carried out by Ms. Lesmeister, its senior export compliance officer in Clearwater, Florida, between 2008 and 2012. Ms. Lesmeister, who had worked in export compliance at Honeywell for twenty-seven years, used her position to circumvent Honeywell’s export compliance program in the fabrication of various export control documents that Ms. Lesmeister presented as Department of State authorizations. Relying on these falsified authorizations, Honeywell exported defense articles, including technical data, and provided defense services to various foreign persons without Department approval in violation of the AECA and ITAR.

The State Department’s Office of Defense Trade Controls Compliance in the Bureau of Political-Military Affairs performed an extensive compliance review of the disclosed violations. The results of that review indicated no direct harm to U.S. foreign policy or national security. The nature of the violations, however, prompted the Deputy Assistant Secretary for Defense Trade Controls in the Bureau of Political-Military Affairs to formally charge Ms. Lesmeister with twenty-one violations of the AECA and ITAR in connection with her creation and use of Department authorizations, containing false statements or omitting and misrepresenting material facts for the purpose of exporting, retransferring, or furnishing defense articles, technical data, or defense services, and causing the unauthorized export of technical data and provision of defense services.

This administrative debarment is the result of the Department’s first institution of an administrative proceeding by referral of a charging letter before an Administrative Law Judge for consideration pursuant to ITAR § 128.4. The referral and debarment followed Ms. Lesmeister's failure to answer the formal charges.

Acknowledging the serious nature of the violations, Honeywell cooperated fully with the Department’s review and implemented remedial measures to resolve the conditions that allowed the misconduct of one employee, in a position of authority, to bring about significant export compliance violations.

This administrative proceeding highlights the range of potential penalties that may be imposed by the Department on entities or individuals for ITAR violations. Individuals, if found culpable, may not be shielded by their employers for their independent violations. Those persons tasked with an entity’s export responsibilities, should be vigilant in their compliance with all export control regulations.

Under the terms of the administrative debarment, Ms. Lesmeister will be prevented from participating directly or indirectly in any activities that are subject to ITAR for a period of three years and until an application for reinstatement is submitted and approved by the Department. The Department determined that civil penalties were not appropriate at this time.

IRANIAN CITIZEN CHARGED WITH TRYING TO SMUGGLE MILITARY ANTENNAS TO SINGAPORE AND HONG KONG

Map:  Singapore.  Credit:  CIA World Factbook.

FROM: U.S. DEPARTMENT OF JUSTICE
Tuesday, November 20, 2012

Iranian National and His Company Charged in Plot Involving Export of Military Antennas from the United States

Amin Ravan, a citizen of Iran, and his Iran-based company, IC Market Iran (IMI), have been charged in an indictment unsealed today with conspiracy to defraud the United States, smuggling, and violating the Arms Export Control Act (AECA) in connection with the unlawful export of 55 military antennas from the United States to Singapore and Hong Kong.

The indictment was announced by Lisa Monaco, Assistant Attorney General for National Security; Ronald C. Machen Jr., U.S. Attorney for the District of Columbia; John Morton, Director of the Department of Homeland Security’s U.S. Immigration and Customs Enforcement (ICE); Stephanie Douglas, Executive Assistant Director of the FBI’s National Security Branch; and Eric L. Hirschhorn, Under Secretary for Industry and Security at the Commerce Department.

According to the indictment, which was returned under seal by a grand jury in the District of Columbia on Nov. 16, 2011, Ravan was based in Iran and, at various times, acted as an agent of IMI in Iran and an agent of Corezing International, Pte, Ltd, a company based in Singapore that also maintained offices in Hong Kong and China.

On Oct. 10, 2012, Ravan was arrested by authorities in Malaysia in connection with a U.S. provisional arrest warrant. The United States is seeking to extradite him from Malaysia to stand trial in the District of Columbia. If convicted of the charges against him, Ravan faces a potential 20 years in prison for the AECA violation, 10 years in prison for the smuggling charge and five years in prison for the conspiracy charge.

According to the indictment, in late 2006 and early 2007, Ravan attempted to procure for shipment to Iran export-controlled antennas made by a company in Massachusetts, through an intermediary in Iran. The antennas sought by Ravan were cavity-backed spiral antennas suitable for airborne or shipboard direction finding systems or radar warning receiver applications, as well as biconical antennas that are suitable for airborne and shipboard environments, including in several military aircraft.

After this first attempt was unsuccessful, Ravan joined with two co-conspirators at Corezing in Singapore so that Corezing would contact the Massachusetts company and obtain the antennas on behalf of Ravan for shipment to Iran. When Corezing was unable to purchase the export-controlled antennas from the Massachusetts firm, Corezing then contacted another individual in the United States who was ultimately able to obtain these items from the Massachusetts firm by slightly altering the frequency range of the antennas to avoid detection by the company’s export compliance officer.

In March 2007, Ravan and the co-conspirators at Corezing agreed on a purchase price of $86,750 for 50 cavity-backed antennas from the United States and discussed structuring payment from Ravan to his Corezing co-conspirators in a manner that would avoid transactional delays caused by the Iran embargo. Ultimately, between July and September 2007, a total of 50 cavity-backed spiral antennas and five biconical antennas were exported from the United States to Corezing in Singapore and Hong Kong.

According to the indictment, no party to these transactions -- including Ravan or IMI -- ever applied for or received a license from the State Department’s Directorate of Defense Trade Controls to export any of these antennas from the United States to Singapore or Hong Kong.

Two of Ravan’s co-conspirators, Lim Kow Seng (aka Eric Lim) and Hia Soo Gan Benson (aka Benson Hia), principals of Corezing, have been charged in a separate indictment in the District of Columbia in connection with this particular transaction involving the export of military antennas to Singapore and Hong Kong. The two Corezing principals were arrested in Singapore last year and the United States is seeking their extradition.

This investigation was jointly conducted by ICE agents in Boston and Los Angeles; FBI agents and analysts in Minneapolis; and Department of Commerce, Office of Export Enforcement agents and analysts in Chicago and Boston. Substantial assistance was provided by the U.S. Department of Defense, U.S. Customs and Border Protection, the State Department’s Directorate of Defense Trade Controls, and U.S. Department of Justice, Office of International Affairs.

The prosecution is being handled by Assistant U.S. Attorney Anthony Asuncion of the U.S. Attorney’s Office for the District of Columbia and Trial Attorney Richard S. Scott of the Counterespionage Section of the Justice Department’s National Security Division.

An indictment is merely a formal charge that a defendant has committed a violation of criminal law and is not evidence of guilt. Every defendant is presumed innocent until, and unless, proven guilty.

U.S. CO. SUBSIDIARY PLEADS GUILTY TO VIOLATING ARMS EXPORT CONTROL ACT

FROM:  U.S. DEPARTMENT OF JUSTICE 
Thursday, June 28, 2012
United Technologies Subsidiary Pleads Guilty to Criminal Charges for Helping China Develop New Attack Helicopter United Technologies, Pratt & Whitney Canada and Hamilton Sundstrand Corporations Also Agree to Pay More Than $75 Million to U.S. Government

BRIDGEPORT, Conn. – Pratt & Whitney Canada Corp. (PWC), a Canadian subsidiary of the Connecticut-based defense contractor United Technologies Corporation (UTC), today pleaded guilty to violating the Arms Export Control Act and making false statements in connection with its illegal export to China of U.S.-origin military software used in the development of China’s first modern military attack helicopter, the Z-10.

In addition, UTC, its U.S.-based subsidiary Hamilton Sundstrand Corporation (HSC) and PWC have all agreed to pay more than $75 million as part of a global settlement with the Justice Department and State Department in connection with the China arms export violations and for making false and belated disclosures to the U.S. government about these illegal exports.  Roughly $20.7 million of this sum is to be paid to the Justice Department.  The remaining $55 million is payable to the State Department as part of a separate consent agreement to resolve outstanding export issues, including those related to the Z-10.  Up to $20 million of this penalty can be suspended if applied by UTC to remedial compliance measures.  As part of the settlement, the companies admitted conduct set forth in a stipulated and publicly filed statement of facts.
 
Today’s actions were announced by David B. Fein, U.S. Attorney for the District of Connecticut; Lisa Monaco, Assistant Attorney General for National Security; John Morton, Director of U.S. Immigration and Customs Enforcement (ICE); Ed Bradley, Special Agent in Charge of the Northeast Field Office of the Defense Criminal Investigative Service (DCIS); Kimberly K. Mertz, Special Agent in Charge of the FBI New Haven Division; David Mills, Department of Commerce Assistant Secretary for Export Enforcement; and Andrew J. Shapiro, Assistant Secretary of State for Political-Military Affairs.

The Charges
Today in the District of Connecticut, the Justice Department filed a three-count criminal information charging UTC, PWC and HSC.  Count One charges PWC with violating the Arms Export Control Act in connection with the illegal export of defense articles to China for the Z-10 helicopter.  Count Two charges PWC, UTC and HSC with making false statements to the U.S. government in their belated disclosures relating to the illegal exports.  Count Three charges PWC and HSC with failure to timely inform the U.S. government of exports of defense articles to China.

While PWC has pleaded guilty to Counts One and Two, the Justice Department has recommended that prosecution of UTC and HSC on Count Two, and PWC and HSC on Count Three be deferred for two years, provided the companies abide by the terms of a deferred prosecution agreement with the Justice Department.  As part of the agreement, the companies must pay $75 million and retain an Independent Monitor to monitor and assess their compliance with export laws for the next two years.
The Export Scheme

Since 1989, the United States has imposed a prohibition upon the export to China of all U.S. defense articles and associated technical data as a result of the conduct in June 1989 at Tiananmen Square by the military of the People’s Republic of China.  In February 1990, the U.S. Congress imposed a prohibition upon licenses or approvals for the export of defense articles to the People’s Republic of China.  In codifying the embargo, Congress specifically named helicopters for inclusion in the ban.

Dating back to the 1980s, China sought to develop a military attack helicopter.  Beginning in the 1990s, after Congress had imposed the prohibition on exports to China, China sought to develop its attack helicopter under the guise of a civilian medium helicopter program in order to secure Western assistance.  The Z-10, developed with assistance from Western suppliers, is China’s first modern military attack helicopter.

During the development phases of China’s Z-10 program, each Z-10 helicopter was powered by engines supplied by PWC.  PWC delivered 10 of these development engines to China in 2001 and 2002.  Despite the military nature of the Z-10 helicopter, PWC determined on its own that these development engines for the Z-10 did not constitute “defense articles,” requiring a U.S. export license, because they were identical to those engines PWC was already supplying China for a commercial helicopter.

Because the Electronic Engine Control software, made by HSC in the United States to test and operate the PWC engines, was modified for a military helicopter application, it was a defense article and required a U.S. export license.  Still, PWC knowingly and willfully caused this software to be exported to China for the Z-10 without any U.S. export license.  In 2002 and 2003, PWC caused six versions of the military software to be illegally exported from HSC in the United States to PWC in Canada, and then to China, where it was used in the PWC engines for the Z-10.

According to court documents, PWC knew from the start of the Z-10 project in 2000 that the Chinese were developing an attack helicopter and that supplying it with U.S.-origin components would be illegal.  When the Chinese claimed that a civil version of the helicopter would be developed in parallel, PWC marketing personnel expressed skepticism internally about the “sudden appearance” of the civil program, the timing of which they questioned as “real or imagined.”  PWC nevertheless saw an opening for PWC “to insist on exclusivity in [the] civil version of this helicopter,” and stated that the Chinese would “no longer make reference to the military program.” PWC failed to notify UTC or HSC about the attack helicopter until years later and purposely turned a blind eye to the helicopter’s military application.

HSC in the United States had believed it was providing its software to PWC for a civilian helicopter in China, based on claims from PWC.  By early 2004, HSC learned there might an export problem and stopped working on the Z-10 project.  UTC also began to ask PWC about the exports to China for the Z-10.  Regardless, PWC on its own modified the software and continued to export it to China through June 2005.

According to court documents, PWC’s illegal conduct was driven by profit.  PWC anticipated that its work on the Z-10 military attack helicopter in China would open the door to a far more lucrative civilian helicopter market in China, which according to PWC estimates, was potentially worth as much as $2 billion to PWC.
Belated and False Disclosures to U.S. Government

These companies failed to disclose to the U.S. government the illegal exports to China for several years and only did so after an investor group queried UTC in early 2006 about whether PWC’s role in China’s Z-10 attack helicopter might violate U.S. laws.  The companies then made an initial disclosure to the State Department in July 2006, with follow-up submissions in August and September 2006.

The 2006 disclosures contained numerous false statements.  Among other things, the companies falsely asserted that they were unaware until 2003 or 2004 that the Z-10 program involved a military helicopter.  In fact, by the time of the disclosures, all three companies were aware that PWC officials knew at the project’s inception in 2000 that the Z-10 program involved an attack helicopter.

Today, the Z-10 helicopter is in production and initial batches were delivered to the People’s Liberation Army of China in 2009 and 2010.  The primary mission of the Z-10 is anti-armor and battlefield interdiction.  Weapons of the Z-10 have included 30 mm cannons, anti-tank guided missiles, air-to-air missiles and unguided rockets.

“PWC exported controlled U.S. technology to China, knowing it would be used in the development of a military attack helicopter in violation of the U.S. arms embargo with China,” said U.S. Attorney Fein.  “PWC took what it described internally as a ‘calculated risk,’ because it wanted to become the exclusive supplier for a civil helicopter market in China with projected revenues of up to two billion dollars.  Several years after the violations were known, UTC, HSC and PWC disclosed the violations to the government and made false statements in doing so.  The guilty pleas by PWC and the agreement reached with all three companies should send a clear message that any corporation that willfully sends export controlled material to an embargoed nation will be prosecuted and punished, as will those who know about it and fail to make a timely and truthful disclosure.”

“Due in part to the efforts of these companies, China was able to develop its first modern military attack helicopter with restricted U.S. defense technology.  As today’s case demonstrates, the Justice Department will spare no effort to hold accountable those who compromise U.S. national security for the sake of profits and then lie about it to the government,” said Assistant Attorney General Monaco.  “I thank the agents, analysts and prosecutors who helped bring about this important case.”

“This case is a clear example of how the illegal export of sensitive technology reduces the advantages our military currently possesses,” said ICE Director Morton.  “I am hopeful that the conviction of Pratt & Whitney Canada and the substantial penalty levied against United Technologies and its subsidiaries will deter other companies from considering similarly ill-conceived business practices in the future.  American military prowess depends on lawful, controlled exports of sensitive technology by U.S. industries and their subsidiaries, which is why ICE will continue its present campaign to aggressively investigate and prosecute criminal violations of U.S. export laws relating to national security.”

“Today’s charges and settlement demonstrate the continued commitment of the Defense Criminal Investigative Service (DCIS) and fellow agencies to protect sensitive U.S. defense technology from being illegally exported,” said DCIS Special Agent in Charge Bradley.  “Safeguarding our military technology is vital to our nation’s defense and the protection of our war fighters both home and abroad.  We know that foreign governments are actively seeking U.S. defense technology for their own development.  Thwarting these efforts is a top priority for DCIS.  I applaud the agents and prosecutors who worked tirelessly to bring about this result.”

“Preventing the loss of critical U.S. information and technologies is one of the most important investigative priorities of the FBI,” said FBI Special Agent in Charge Mertz.  “Our adversaries routinely target sensitive research and development data and intellectual property from universities, government agencies, manufacturers, and defense contractors.  While the thefts associated with economic espionage and illegal technology transfers may not capture the same level of attention as a terrorist incident, the costs to the U.S. economy and our national security are substantial.  Violations of the Arms Export Control Act put our nation at risk and the FBI, along with all of our federal agency partners, are committed to ensuring that embargoed technologies do not fall into the wrong hands.  Those who violate these laws should expect to be held accountable.  An important part of the FBI’s strategy in this area involves the development of strategic partnerships.  In that regard, the FBI looks forward to future coordination with UTC and its subsidiaries to strengthen information sharing and counterintelligence awareness.”

“Protecting national security is our top priority,” said Assistant Secretary of Commerce for Export Enforcement Mills.  “Today’s action sends a clear signal that federal law enforcement agencies will work together diligently to prevent U.S. technology from falling into the wrong hands.”

Assistant Secretary Shapiro, of the State Department’s Bureau of Political and Military Affairs, said, “Today’s $75 million settlement with United Technologies Corporation sends a clear message:  willful violators of U.S. arms export control regulations will be pursued and punished.  The successful resolution of this case is the byproduct of the tireless work of our compliance officers and highlights the relentless commitment of the State Department to protect sensitive American technologies from being illegally transferred.”

U.S. Attorney Fein commended the many agencies involved in this investigation, including ICE’s Homeland Security Investigations (HSI) in New Haven; the DCIS in New Haven; the New Haven Division of the FBI; the Department of Commerce’s Boston Office of Export Enforcement.  He also praised the Office of the HSI Attaché in Toronto, which was essential to the initiation and investigation of this matter, and the State Department’s Office of Defense Trade Controls Compliance in the Bureau of Political-Military Affairs, for its critical role in the global resolution of this matter.

The prosecution is being handled by Assistant U.S. Attorneys Stephen B. Reynolds and Michael J. Gustafson from the U.S. Attorney’s Office for the District of Connecticut, with assistance from Steven Pelak and Ryan Fayhee of the Counterespionage Section of the Justice Department’s National Security Division.

ALPINE AEROSPACE CORPORATION SETTLES ARMS CONTROL VIOLATIONS WITH U.S. STATE DEPARTMENT

FROM U.S. STATE DEPARTMENT

The Department of State has reached administrative agreement with Alpine Aerospace Corporation and TS Trade Tech Incorporated of New Jersey to resolve violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR) related to the export of significant military equipment.

The two companies, which share common ownership, procure and sell replacement parts to the aerospace industry. Many of the parts procured and sold by the Companies are designated as defense articles pursuant to § 38 of the AECA and the United States Munitions List (USML), § 121.1 of the ITAR and require authorization from the Department prior to export. Following an October 2010 filing of criminal information in the District Court for the District of New Jersey, the companies approached the Department to propose an administrative settlement and disclose additional violations.

From July 2005 through January 2007, the two companies arranged several foreign sales without obtaining the proper approvals prior to exporting, and in some instances, cited licenses that did not cover the companies' exports. In addition, the companies failed to obtain the appropriate non-transfer and use certifications for export of significant military equipment.

The Department proposed the following charges, which are resolved by the concluded agreements along with additional violations disclosed to the Department. Alpine engaged in six exports of parts for use on a Hawk missile system, and in a separate violation, failed to obtain a DSP-83 Non-Transfer and Use Certificate for these exports. Alpine cited an existing export license on export control documents for the exports which did not, in fact, authorize the export of parts for the Hawk missile system. TS Trade engaged in one export of aircraft parts and associated equipment without authorization.

Under the terms of the agreements, Alpine agrees to a civil penalty of $30,000 and TS Trade Tech agrees to a civil penalty of $20,000. The civil penalties are to be suspended on the condition that they are to be used for pre- and post-Consent Agreement expenditures for remedial compliance measures. Any portion of the penalty that is not so used will be forfeited at the conclusion of the thirty-month term of the agreements. The companies will implement additional remedial compliance measures, provide additional training to staff and principals, and will undergo two external audits of their compliance programs.

The companies have acknowledged the seriousness of the ITAR violations and have cooperated with the Department, expressed regret for their actions and taken steps to improve their compliance with law and regulations. For these reasons, the Department has determined that an administrative debarment of the companies is not appropriate at this time.