At first glance this case appears to be yet another example of the attempted acquisition of controlled U.S. origin products by China. However, the court documents filed by the Justice Department in this case (see below) include some interesting facts, including the methods that U.S. law enforcement is using to combat prohibited exports and the means by which prospective buyers will take to acquire controlled U.S. products.
According to the complaint in support of the arrest warrant, Mr. Zhang first came to the attention of U.S. law enforcement because of his affiliation with two Taiwanese citizens who submitted a request via a website operated by Immigration and Customs Enforcement's Homeland Security Investigations directorate, part of the Department of Homeland Security. The website "purports to be for a company that deals in high-technology commodities, including commodities with aerospace and military applications." The website allows visitors to submit online requests via email
According to the court documents, in April 2012 the two Taiwanese citizens later contacted an undercover agent via telephone to negotiate the acquisition of "multiple tons" of carbon fiber. "During the conversation the undercover agent explained to them that an export license would be required to export the type of carbon fiber that they were seeking. The buyers mentioned that obtaining an export license "would be problematic because the acquisition related to a 'military matter' and was therefore sensitive."
The Taiwanese buyers requested the undercover agent whether he could ship the carbon fiber to a third-country that would not require an export license. When the undercover agent declined to do so, the prospective buyer asked if the carbon fiber could be mislabeled. The potential customer then requested the undercover agent to sell a "trial order" of three case cases of the carbon fiber.
With respect to payment, they parties agreed to meet with the undercover agent in the U.S. to pay for the goods in cash. The agent declined payment via cash and suggested a wire transfer made to a U.S. bank. The buyers later wire transferred $1000 to a U.S. bank account maintained by the U.S. Government. The Taiwanese buyers then suggested traveling to the U.S. to arrange a "multi-million dollar" purchase.
In July 2012, the Taiwanese buyers contacted Mr. Zhang to discuss exporting a sample of the carbon fiber back to China. A second undercover agent, purporting to be the U.S. based seller, informed Mr. Zhang that it is illegal to ship the samples to China without the proper export license. The second undercover officer emailed Mr. Zhang to set up a face-to- face meeting in the U.S. regarding the transaction.
Before the meeting, Mr. Zhang requested to be provided with samples of the carbon fiber. Mr. Zhang subsequently met with the undercover agent and mentioned that he had an urgent need for the carbon fiber as it was connected to the test flight of a Chinese fighter plane. Mr. Zhang sought to purchase the sample so he could send it to China to be analyzed for authenticity. Mr. Zhang was arrested after he arrived at the meeting.
Mr. Zhang faces up to 20 years in prison and a fine of up to $1 million when he is sentenced in November 2013.
The particular type of carbon fiber involved in this case was made by Toray Industries and is classified as ECCN 1C210.a. Items classified as ECCN 1C210.a are controlled for nuclear non-proliferation and anti-terrorism reasons. As a result, an export license is required to export the this type of carbon fiber to China and many other countries.
This is not the first time that individuals have been arrested and charged for trying to procure this type of carbon fiber. In 2008, three individuals in the U.S. and Singapore were indicted for conspiring to export the identical product to China's Academy of Space Technology. In that case, one of the persons was sentenced to 46 months in prison, one individual was sentenced to one year in prison and the last person was received probation. One of the individuals was also assessed a civil penalty of $100,000 by BIS and received a 25 year denial order.
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Our law clerk Andrew Azorsky contributed to this report.
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