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CA Engineer Pleads Guilty in Smuggling

Wednesday, September 11, 2013

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A former Bay Bridge engineer has admitted trying to smuggle U.S. defense circuitry  onto a ship registered to a Chinese manufacturer that supplied steel for the new bridge.

Philip Chaohui He, who also goes by Philip Hope, pleaded guilty Sept. 3 to conspiracy to violate the Arms Export Control Act and to smuggle goods from the United States, the U.S. Immigration and Customs Enforcement department announced on Friday (Sept. 6).

He attempted to illegally export to China radiation-hardened computer memory circuits used in satellite communications, valued at almost $550,000, according to court documents.

Aeroflex
Aeroflex

Philip Chaohui He, a former engineer for Caltrans on the Bay Bridge project, pleaded guilty to conspiracy charges after he allegedly purchased $550,000 worth of high-tech United States defense circuits and tried to send them to China.

He, a Chinese national and lawful permanent resident of the U.S., was residing in Oakland, CA. A former civil engineer for the California Department of Transportation (Caltrans), He was assigned to review documents and answer questions for the joint-venture contractor, American Bridge/Fluor Enterprises, on the $6.4 billion San Francisco-Oakland Bay Bridge project, a Caltrans spokesperson told The San Francisco Chronicle.

'Sensitive' American Technology

He was fired from Caltrans 10 days after his arrest for repeatedly failing to show up for work, a Caltrans spokesperson told several media outlets. The spokesperson said that He had had no access to information that was not publicly available and that the items he had allegedly transported had no relation to his work with Caltrans.

He is currently in federal custody and is scheduled to be sentenced on Dec. 18 by Senior U.S. District Court Judge Wiley Y. Daniel. He faces up to five years in federal prison and a fine of up to $250,000.

Under the original Dec. 15, 2011, indictment, He was charged with conspiracy to violate the Arms Export Control Act and smuggle goods from the U.S.; attempted export of defense articles in violation of the Arms Export Control Act; and smuggling goods from the U.S.—charges that could have landed him in federal prison for up to 35 years and fines of up to $1.5 million.

The circuits are categorized as defense articles within the International Trafficking in Arms Regulations, which requires licensing from the U.S. State Department's Directorate of Defense Trade Controls for lawful export. Under the arms regulations, it is U.S. policy to deny licenses and other approvals for exports of defense articles destined for China.

Chinese steel manufacturers
Zhenhua Port Machinery Company

He allegedly tried to smuggle the circuits in boxes baby formula onto a ship that was registered to the Chinese manufacturer of steel used in the Bay Bridge project.

"We have specific laws designed to protect sensitive American technology from getting into the wrong hands overseas," said U.S. Attorney John Walsh, District of Colorado. "Defendant He attempted to smuggle export-controlled radiation-hardened computer chips to China, and faces serious punishment for his criminal activity."

Hidden in 'Milk Powder'

The December 2011 indictment alleged that He purchased 312 circuits from Aeroflex Incorporated in Colorado Springs, a manufacturer of "high-technology solutions to the aerospace, defense cellular and broadband communications markets," according to its website. He made the purchase through Oakland-based Sierra Electronic Instruments, a company for which he was the only employee.

According to the indictment, He drove to the Port of Long Beach, CA, on Dec. 11, 2011, where he entered a controlled access point using a Transportation Worker Identification Credential issued by the Transportation Services Administration, which allows for unescorted access in the port and onto vessels

There, he met with two men in front of a docked ship registered to Zhenhua Port Machinery Company Ltd., a subsidiary of the China state-owned corporation China Communications Construction.

ZPMC manufactured the steel for the Bay Bridge after winning the project in 2006 with a $250 million bid, which reportedly saved $400 million on labor and materials. The company recently touted its work on the Bay Bridge, saying it was "the contractor of the 45,000-ton steel structure of the entire bridge." According to ZPMC, it finished its part of the project five months ahead of schedule, thus receiving a $62 million bonus.

During his three and a half years working for Caltrans, He never traveled to China for work purposes and did not have contact with ZPMC, according to The San Franciso Chronicle.

He allegedly concealed 200 of the circuits in plastic baby formula containers, placed inside five boxes that were sealed and labeled as "milk powder" in Chinese.

Oakland Bay Bridge
Zhenhua Port Machinery Company

The main parts of the recently opened Bay Bridge are made from steel manufactured in China. Chinese steel imports increased by 33 percent in the first four months of 2013, the Wall Street Journal previously reported. 

The 200 circuits were the second order He received from Aeroflex; the first order, received in July 2011, contained 112 cicrcuits. Several weeks after receiving the first shipment, He reportedly drove across the U.S. border, entering into Tijuana, where he boarded a plane and traveled from Tijuana to Mexico City to Shanghai.

Money Transfers

On April 28, 2011, an unindicted co-conspirator sent two wire transfers totaling about $489,720 from a bank in China to He's bank account in California, the indictment states. A few weeks later, He placed the order with Aeroflex and provided the full payment of $549,654.

After Aeroflex stated its concern that the circuits might be exported outside the U.S., He allegedly provided Aeroflex with false certification that SEI was buying the circuits for end-use in the U.S. only, also acknowledging that he knew the items were controlled by U.S. Export Laws.

 "The Arms Export Control Act is designed to prevent having our technology illegally exported and ultimately used against us," said Kumar C. Kibble, special agent in charge of Homeland Security Investigations in Denver.

"Our HSI special agents in Colorado Springs, San Francisco and Los Angeles worked together with our law enforcement partners to investigate Philip He and eliminate the threat he posed to this country."

Rise of Chinese Steel

In June, a Wall Street Journal article reported that Chinese-made steel was being used for several bridge projects throughout the United States, including the Bay Bridge project. According to the article, Chinese steel imports to the U.S. increased by 33 percent in the first four months of 2013 and by more than 60 percent between 2011 and 2012.

   

Tagged categories: Bridges; Contractors; Department of Transportation (DOT); Enforcement; Laws and litigation; Steel

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