Aviza Technology China is the newest Chinese company granted Validated End-User (VEU) status by the U.S. Commerce Department. This status means that the company is approved to receive certain sensitive controlled commodities from the United States without individual export licenses.[1] After a “rigorous national security review,”[2] Aviza can receive these items at five specified “eligible destinations” in China.[3] But the attached documents show that one of these approved locations may in fact be owned by a company penalized by sanctions that the United States imposed in 2006 for proliferation to Iran and/or Syria. Other companies in China that became the first VEUs in October 2007[4] posed a similar problem. A Wisconsin Project analysis showed that two of those five companies were linked to proliferators, to violators of U.S. export controls, and to China’s military production complex.[5] This repeated failure of the selection process to choose “trusted” customers and locations continues to cast doubt on the wisdom of the VEU program itself.
One of the approved destinations for Aviza is “Beijing Bonded: CIES, Electronics Building, A23, Fuxing Road, Beijing, China 100036.”[6] This is a warehouse owned by CIES,[7] until recently a wholly-owned subsidiary company of China National Electronics Import and Export Corporation (CEIEC).[8] And CEIEC is a state-owned firm that was under State Department sanctions (along with all of its subsidiaries) from December 2006 until December 2008.[9] The Wisconsin Project’s original VEU analysis discussed at length the diversion and proliferation risks posed by CEIEC, including with respect to nuclear-usable pressure transducers (ECCN 2B230)[10] – which are now eligible for shipment to the CIES warehouse without prior U.S. government scrutiny.[11] Responding to queries from U.S. customers after the sanctions were imposed, CIES claimed that in 2005 it underwent restructuring and formally changed its name from “CEIEC International Electronics Service Company” to “China International Electronics Service Co., Ltd. (CIES).”[12] CIES claimed that after this change it was no longer a subsidiary of CEIEC, and had “no relationship” with its former parent company, so the U.S. sanctions “should not include” it.[13] However, the Wisconsin Project has discovered evidence that suggests a continuing relationship between the “eligible destination” warehouse owner CIES and the proliferator CEIEC.
At least 70 shipments from “CEIEC International Electronics Service Company” arrived in the United States in 2008. And such shipments continued to arrive in 2009, even though a company with that name is no longer supposed to exist.[14] In fact, a search of bills of lading shows that as many shipments arrived in 2008 under the name of the supposedly-defunct predecessor company (“CEIEC International Electronics Service Company”) as did bearing the name of the successor company (“China International Electronics Service Co., Ltd.”).[15] And all of these shipments give the same company address, “Electronics Building, A23, Fuxing Road, Beijing, China 100036” — the address that has now been declared an approved destination by the Commerce Department.[16] It appears that CIES continues to identify itself either as part of CEIEC or as related to it in some way.
Furthermore, the approval by the Commerce Department of this specific address is also problematic because the address is used by the recently sanctioned CEIEC itself,[17] including its defense electronics department.[18] The address, therefore, simultaneously qualifies as a “red flag” (for military and proliferation concerns) and a “trusted” location. This could lead to confusion among U.S. exporters.
These findings pose serious questions that the Commerce Department must answer:
- Who controls CIES, the owner of the “eligible destination” warehouse? CIES claims that it is now owned privately by nine shareholders, rather than by CEIEC.[19] But who are these shareholders, and do they have connections to CEIEC? If not, why does CIES continue to use its previous name (including “CEIEC”) on bills of lading?
- How can this warehouse be considered a safe destination, free from diversion risk, if it is in the building where CEIEC and its defense electronics department have their headquarters?
- How will the Commerce Department ensure that the “eligible destination” warehouse is not accessible to individuals (current or former employees of CEIEC and its subsidiaries) who were involved in the proliferation practices for which CEIEC was sanctioned, or may pose a risk of such involvement in the future?
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Newest Designation Reinforces Concerns About Validated End-User Program
Footnotes:
[1] “New BIS Program Changes Export Rules on Targeted Products for Select Companies in China,” U.S. Department of Commerce, Bureau of Industry and Security, http://www.bis.doc.gov/news/2007/china10182007.htm, accessed on June 8, 2009.
[2] “BIS Announces Modifications, Additions, to Validated End-User Program,” Department of Commerce, Bureau of Industry and Security, April 29, 2009, available at http://www.bis.doc.gov/news/2009/bis_press04292009.htm, accessed on June 8, 2009.
[3] “Additions and Revision to the List of Approved End-Users and Respective Eligible Items for the People’s Republic of China (PRC) Under Authorization Validated End-User (VEU),” Department of Commerce, Bureau of Industry and Security, Federal Register Vol. 74, No. 81, pp. 19382-19385, April 29, 2009 (attached).
[4] “New BIS Program Changes Export Rules on Targeted Products for Select Companies in China,” U.S. Department of Commerce, Bureau of Industry and Security, http://www.bis.doc.gov/news/2007/china10182007.htm, accessed on June 8, 2009.
[5] Wisconsin Project on Nuclear Arms Control, “In China We Trust?” available at http://www.wisconsinproject.org/pubs/reports/2007/inchinawetrust.pdf.
[6] “Additions and Revision to the List of Approved End-Users and Respective Eligible Items for the People’s Republic of China (PRC) Under Authorization Validated End-User (VEU),” Department of Commerce, Bureau of Industry and Security, Federal Register Vol. 74, No. 81, pp. 19382-19385, April 29, 2009 (attached).
[7] Company Introduction, China International Electronics Service Co., Ltd. World Wide Web site,
http://www.cies.com.cn/index-e.htm, accessed on May 5, 2009.
[8] “Explanations on the Sanctions by US Government to CEIEC,” China International Electronics Service Co., Ltd. World Wide Web site, http://www.cies.com.cn/zysm.htm, accessed on May 22, 2009 (attached).
[9] “Imposition of Nonproliferation Measures Against Foreign Persons, Including a Ban on U.S. Government Procurement,” Department of State, Bureau of International Security and Nonproliferation, Federal Register Vol. 72, No. 3, p. 606, January 5, 2007 (attached).
[10] Wisconsin Project on Nuclear Arms Control, “In China We Trust?” pp. 7-8, available at http://www.wisconsinproject.org/pubs/reports/2007/inchinawetrust.pdf.
[11] “Additions and Revision to the List of Approved End-Users and Respective Eligible Items for the People’s Republic of China (PRC) Under Authorization Validated End-User (VEU),” Department of Commerce, Bureau of Industry and Security, Federal Register Vol. 74, No. 81, pp. 19382-19385, April 29, 2009 (attached). Also eligible is equipment for the manufacturing of semiconductor devices or materials: anisotropic plasma dry etching equipment (ECCN 3B001.c.1.a) and automatic loading multi-chamber central wafer handling systems (ECCN 3B001.e).
[12] “Explanations on the Sanctions by US Government to CEIEC,” China International Electronics Service Co., Ltd. World Wide Web site, http://www.cies.com.cn/zysm.htm, accessed on May 22, 2009.
[13] “Explanations on the Sanctions by US Government to CEIEC,” China International Electronics Service Co., Ltd. World Wide Web site, http://www.cies.com.cn/zysm.htm, accessed on May 22, 2009.
[14] See attached sampling of bills of lading from 2007-2009.
[15] This comparison is based on bill of lading searches for “CEIEC International Electronics Service” and “China International Electronics Service.”
[16] “Additions and Revision to the List of Approved End-Users and Respective Eligible Items for the People’s Republic of China (PRC) Under Authorization Validated End-User (VEU),” Department of Commerce, Bureau of Industry and Security, Federal Register Vol. 74, No. 81, pp. 19382-19385, April 29, 2009; see also attached bills of lading.
[17] Contact: World Trade, China National Electronics Import and Export Corporation World Wide Web site, http://www.ceiec.com.cn/english/type/dept.aspx?code=07004, accessed on June 8, 2009; Contact: System & Equipment, China National Electronics Import and Export Corporation World Wide Web site, http://www.ceiec.com.cn/english/type/dept.aspx?code=03003, accessed on June 8, 2009.
[18] Contact List, Defence Electronics Department of CEIEC, China National Electronics Import & Export Corporation World Wide Web site, http://www.ceiec.com.cn/english/type/dept/aspx?code=02003, accessed on May 20, 2009.
[19] “Explanations on the Sanctions by US Government to CEIEC,” China International Electronics Service Co., Ltd. World Wide Web site, http://www.cies.com.cn/zysm.htm, accessed on May 22, 2009.