Recently, Yi-Chi Shih, of Hollywood Hills, CA was sentenced to more than five years in prison for scheming to illegally export integrated circuits with a military end-use to China. In addition, he was also ordered to pay a fine of $362,968 for restitution and $300,000 to the IRS. Aside from these convictions, Y-Chi Shih was also convicted on mail fraud, conspiracy to gain unauthorized access to a computer, and making false statements.
Monolithic Microwave Integrated Circuits, or MMICs, are used in a variety of civil applications, including home satellites and mobile phones, but they are also heavily used in military applications such as missile guidance systems and electronic warfare. MMICs are controlled in Category 3 of the Export Administration Regulations (EAR) and a license is required for export to China. Shih posed as a domestic customer and gained access into the company’s private computer system in order to obtain access to the MMICs. The MMICs were then exported to China for use by AVIC 607, a company owned by the People’s Republic of China. AVIC is on the Military End User List (MEU) which expands licensing requirements on exports, reexports and transfers (in-country) of items that are intended for military end use or military end users in China.
Yi-Chi Shih used a company he owned, Pullman Lane Productions, LLC, to hide funds received from various Chinese entities in order to finance the MMICs from the company he was defrauding. Through Pullman Lane, Shih received funds from a Chinese-based company which had been placed on the Entity List.
Unfortunately, even the best companies can fall victim to frauds and scams. However, there are some things that you can do to help prevent this:
- Look out for red flags. These can include a customer’s address or name being similar to one of the parties listed on a restricted party list or a customer who is reluctant to provide end-use information. Red flags should be resolved before any export takes places. BIS provides a complete list of red flags, however, listen to your gut when something doesn’t seem right. When appropriate, obtain an End-User Statement to protect your company.
- Screen all parties to a transaction. Companies should screen both the name and the address and any potential hits should be thoroughly reviewed before any transactions take place. Be extremely vigilant when it comes to higher risk items such as integrated circuits and higher risk countries. Be sure to review ownership of the company to ensure that there isn’t ownership by a restricted party which exceed the mandated thresholds. If needed, seek out assistance in determining if you have a restricted party.
- Disclose any violations. If you’ve made a mistake, the best thing to do is to disclose it as soon as possible. Voluntary disclosures can go a long way in mitigating fines and penalties. Additionally, if there is a potential violation or you have reason to believe that a violation is about to occur, you should report it to the Department of Commerce for them to thoroughly investigate it. This can be done confidentially. By doing this, you could be protecting the national interests of the United States and other companies by falling victim to fraud.
Even the most compliant companies are not bulletproof. If you need assistance navigating these regulations, please contact Export Solutions for a free consultation
Emmalie Armstrong is a Trade Compliance Consultant with Export Solutions – a firm specializing in U.S. import/export regulations.