[Federal Register: December 1, 2006 (Volume 71, Number 231)]
[Notices]
[Page 69540-69543]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01de06-55]
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DEPARTMENT OF COMMERCE
Bureau of Industry and Security
Action Affecting Export Privileges; Data Physics Corporation,
Data Physics China, Data Physics China, Sri Welaratna, Bill Chen
Data Physics Corporation, 2025 Gateway Place, Suite 260, San
Jose, California 95110. Data Physics China, 1605B Westgate Tower,
1038 Nanjing Road West, Shanghai, P.R. China 200041. Data Physics
China, RM. 1509, Building 2, Xinquduan Jiayan, No. 5 Changchunquia
Road, Haidian District, Beijing, P.R. China 100089. Sri Welaratna,
President, Data Physics Corporation, 2025 Gateway Place, Suite 260,
San Jose, California 95110. Bill Chen, Manager, AKA: Yuequan Chen,
Data Physics China, RM. 1509, Building 2, Xinquduan Jiayan, No. 5
Changchunquia Road, Haidian District, Beijing, P.R. China 100089,
Respondents.
Order Renewing Order Temporarily Denying Export Privileges
Pursuant to section 766.24 of the Export Administration Regulations
(``EAR''),\1\ I hereby grant the Bureau of Industry and Security's
request for renewal of the Order Temporarily Denying the Export
Privileges of Respondents, Data Physics Corporation, Data Physics China
(Shanghai and Beijing Offices), Sri Welaratna and Bill Chen for 180
days as I find that renewal of the TDO is necessary in the public
interest to prevent an imminent violation of the EAR.
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\1\ 15 CFR Parts 730-774 (2006). The EAR are issued under the
Export Administration Act of 1979, as amended (50 U.S.C. app. 2401-
2420 (2000)) (``EAA''). Since August 21, 2001, the EAA has been in
lapse and the President, through Executive Order 13222 of August 17,
2001 (3 CFR, 2001 Comp. 783 (2002)), as extended most recently by
the Notice of August 3, 2006 (71 FR 44,551, (August 7, 2006)), has
continued the EAR in effect under the International Emergency
Economic Powers Act (50 U.S.C. 1701-1706 (2000)) (``IEEPA'').
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I. Procedural History
On May 12, 2006, I signed an Order Temporarily Denying the Export
Privileges of the Respondents for 180 days on the grounds that its
issuance was necessary in the public interest to prevent an imminent
violation of the EAR (``TDO''). Pursuant to Section 766.24(a), the TDO
was issued ex parte and went into effect on May 23, 2006, the date it
was published in the Federal Register. The TDO is valid through
November 19, 2006.
On October 13, 2006, the Bureau of Industry and Security (``BIS''),
through its Office of Export Enforcement, filed a written request for
renewal of the TDO against the Respondents for 180 days and served a
copy of its request on the Respondents in accordance with Section 766.5
of the EAR. On November 6, 2006, Data Physics Corporation, Data Physics
China (Shanghai and Beijing Offices) and Sri Welaratna (collectively
referred to hereinafter as ``Data Physics Group'') filed a written
opposition to the request for renewal of the TDO. The Data Physics
Group also requested the production of documents and a hearing. I
approved Data Physics Group's two requests for production of documents
as good cause was shown and I ordered that BIS produce the relevant
nonprivileged documents by 1 p.m. on November 3, 2006. BIS served the
Data Physics Group with its responses in a timely manner and a hearing
on the record was held on the request for renewal on November 8, 2006
at the U.S. Department of Commerce in Washington, DC. BIS and the Data
Physics Group each presented oral arguments.
II. Discussion
(A) Legal Standard
Pursuant to section 766.24(d)(3) of the EAR, the sole issue in
determining whether to continue a TDO is whether the TDO should be
renewed to prevent an imminent violation of the EAR. ``A violation may
be `imminent' either in
[[Page 69541]]
time or in degree of likelihood.'' 15 CFR 766.24(b)(3). This includes a
violation that ``is about to occur, or that the general circumstances
of the matter under investigation or case under criminal or
administrative charges demonstrate a likelihood of future violation.''
Id. Significant, deliberate, and covert violations are more probative
of imminence and the likelihood of future violations than lesser
technical ones. Id. A ``lack of information establishing the precise
time a violation may occur does not preclude a finding that a violation
is imminent, so long as there is sufficient reason to believe the
likelihood of a violation.'' Id.
(B) Arguments
BIS's request for renewal of the TDO was based upon the facts
underlying the issuance of the initial TDO as well as evidence of
continued actions by the Respondents that demonstrate a willingness to
disregard U.S. export controls. The initial TDO was issued as a result
of evidence that showed the Data Physics Corporation and Data Physics
China (Shanghai and Beijing offices), with the knowledge of Data
Physics' President Sri Welaratna, and manager, Bill Chen, engaged in
conduct prohibited by the EAR by knowingly selling and exporting
spherical couplings and a test shaker, items subject to the EAR, to
China HaiYang Electro Mechanical Technology Academy (a.k.a. ``3rd
Academy'' or ``Beijing 3 yuan''), an entity engaged in the design,
development, production and use of cruise missile systems, without an
export license as required by Section 744.3 of the EAR. The evidence
further showed that the Respondents attempted to conceal the identity
of the end-user by using a false customer name--the ``27th Locomotive
Factory.'' The new evidence presented by BIS in support of the renewal
of the TDO includes documents indicating that Data Physics Corporation
exported to an entity in China after it had been informed by BIS's
Office of Export Enforcement that the end-user was of missile
proliferation concern, that the Data Physics Group may be soliciting an
illegal transaction, failing to submit evidence to BIS in accordance
with certain license conditions, and negotiating export transactions
while the TDO was in effect.
In its opposition to the request for renewal of the TDO, the Data
Physics Group challenges BIS's evidence that was the basis for the
initial TDO as well as the new evidence that was included in the
request for renewal of the TDO.\1a\ Data Physics made multiple
arguments opposing the basis for the initial TDO, including arguing
that the 27th Locomotive was a legitimate end-user, that the
transactions posed no traditional ``red flags,'' the evidence
supporting BIS's claim that it was exporting to the 3rd Academy is not
credible as it is based on hearsay statements of a terminated employee
who retracted his statements, and the documents obtained from a Data
Physics computer were not probative of Data Physics and the President's
knowledge. The Data Physics Group also presented evidence arguing that
the new evidence submitted by BIS in support of the renewal (the export
to Shanghai Xinyue Instruments Factory, that the Data Physics Group may
be soliciting an illegal transaction, failing to submit evidence to BIS
in accordance with certain license conditions and negotiating export
transactions while the TDO was in effect) was not correct and/or was
insufficient to prove that renewal of the TDO was appropriate.
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\1a\ None of the Respondents appealed the initial TDO.
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III. Findings
As to the new evidence submitted by BIS in support of its request
for renewal of the TDO, I find that the Data Physics Group, through its
written submission and oral arguments, provided sufficient evidence to
rebut a significant part of BIS's evidence concerning the issues that
the Data Physics Group may be soliciting an illegal transaction,
failing to submit evidence to BIS in accordance with certain license
conditions, and negotiating export transactions while the TDO was in
effect, and that BIS did not provide further evidence to rebut this
evidence presented by the Data Physics Group.
However, I do find that the evidence presented by BIS in its
renewal request as to Data Physics Corporation's export to the Shanghai
Xinyue Instrument Factory is persuasive and credible evidence that
proves that the TDO should be renewed to prevent an imminent violation
of the EAR and that the Data Physics Group did not provide sufficient
or persuasive evidence to rebut BIS's evidence. First, it is
uncontested that Data Physics Corporation exported a vector vibration
controller, an item subject to the EAR, in September 2005 to the
Shanghai Xinyue Instrument Factory in China without a BIS export
license or otherwise consulting with BIS after Data Physics and its
President, Sri Welaratna, were advised by Special Agent in Charge
(``SAC'') Salcido that the Shanghai Xinyue Instrument Factory was of
missile proliferation concern. While the Data Physics Group tried to
dispute the significance of this transaction by arguing that the
notification by SAC Salcido occurred in 2002, the notification was in
response to a March 2002 letter from Data Physics' President, Sri
Welaratna, to OEE regarding sponsorship of three visitors from Shanghai
Xinyue Instrument Factory by Data Physics, and BIS has not placed
Shanghai Xinyue on the Entity List or any other list, I find those
arguments unpersuasive and troubling as the evidence on this export
further demonstrates the Respondents' willingness to knowingly export
to entities of missile proliferation concern without seeking advice or
authorization from the U.S. Government prior to exporting.
Significantly, in between the time of SAC Salcido's E-mail notification
to Mr. Welaratna and Data Physics that Shanghai Xinyue is of missile
proliferation concern and the September 2005 export to Shanghai Xinyue
by Data Physics, two significant events happened. First, the export
occurred after OEE executed a search warrant on Data Physics
Corporation in connection with believed illegal exports. In April 2005,
OEE agents executed a search warrant at Data Physics and during
execution of the search warrant, OEE agents found copies of Part 744 of
the EAR in the office of the Data Physics manager who is responsible
for export compliance. Second, this Data Physics manager attended a May
2005 BIS sponsored seminar on export training during which an OEE agent
gave a presentation that focused on Part 744 of the EAR, the Enhanced
Proliferation Control Initiative, and specifically recommended doing
research on customers, including Internet searches, prior to
exporting.\2\ Notwithstanding these events, Data Physics still exported
a vector vibration controller to the Shanghai Xinyue Instrument
Factory, an entity of missile proliferation concern, without any
consultation with BIS after having been notified by OEE that the end-
user was of missile proliferation concern. Significantly, the evidence
indicates that Data Physics only checked the BIS Entity List and other
lists before exporting a vector vibration controller to Shanghai
Xinyue. This limited action by Data Physics is
[[Page 69542]]
particularly troubling as the uncontested facts prove that Data Physics
and its President, SRI Welaratna, know that Data Physics sells and
exports item that have military end-uses, including for the design,
development and production of missiles, and were notified that Shanghai
Xinyue was of missile proliferation concern. While, I find this
evidence alone is a sufficient basis for renewal of the TDO against all
Respondents, I also find that the evidence serving as the basis of the
initial TDO is a further basis for renewal of the TDO against all
Respondents.
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\2\ The Data Physics Group contests that OEE recommended
conducting Internet searches. The basis of this challenge was that
the advice regarding conducting Internet searches was not included
in the power point slides.
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As to the evidence underlying the initial TDO, I do not find the
Data Physics Group provided sufficient credible evidence to rebut BIS's
credible and persuasive evidence that Respondents knowingly
participated in the sale and unauthorized exports of spherical
couplings and a test shaker, items subject to the EAR, to the 3rd
Academy, an entity engaged in the design, development, production and
use of cruise missile systems, and took actions to conceal these
transactions by using a false end-user name. This evidence is the basis
of the TDO. I further find that the evidence before me, presented both
in the written submissions and oral arguments, regarding the
Respondents knowingly selling and exporting spherical couplings and a
test shaker to the 3rd Academy without an export license reveals
violative actions that were significant, deliberate and covert and
indicate a likelihood of future violations absent continuation of the
TDO. Hence, on this basis alone I find that renewal of the TDO is
appropriate.
First, the Data Physics Group incorrectly contends that BIS is
arguing that the 27th Locomotive does not exist, and that if it does
exist, that it would not use the type of equipment at issue. The
evidence submitted by BIS does not go to the existence of the 27th
Locomotive but to the fact that the Respondents used the name of the
27th Locomotive in attempts to conceal the fact it was selling and
exporting spherical couplings and a test shaker to the 3rd Academy, an
entity engaged in the design, development, production and use of cruise
missile systems. I find that these arguments raised by the Data Physics
Group are not on point and unpersuasive.
The Data Physics Group further argues that there were no
traditional ``red flags'' relating to exports to the 27th Locomotive as
the 27th Locomotive is not on DIS's Entity List or any other such list.
This argument too is unpersuasive as BIS is basing its charges on
Section 744.3 of the EAR and because of the internal Data Physics' e-
mails that clearly and unequivocally provide that references for the
customer Beijing 3 Yuan (a.k.a 3rd Academy) should be referred to as
the 27th Locomotive. This evidence is persuasive and indicates that
several Data Physics employees (not just Bill Chen) were aware of
attempts to conceal the identity of the 3rd Academy. Further, Data
Physics Corporation is a company of less than 40 employees and it knows
that the items it sells, including spherical couplings and test
shakers, have military end-uses. Hence, I find these arguments of the
Data Physics Group to be unpersuasive.
The Data Physics Group also argues that a significant portion of
BIS's evidence, statements from a disgruntled former Data Physics
employee who was terminated and who subsequently retracted his
statements, is not credible and is hearsay and, as such, is
inadmissible. Again, the Data Physics Group's arguments fall short. The
evidence submitted by BIS in support of its initial TDO clearly shows
that there is independent evidence that corroborates the allegations
from the former employee. Specifically, there is a series of e-mails
between the former employee, Bill Chen, and at least two other current
Data Physics employees that expressly provide that the customer name of
the 27th Locomotive should be used when referring to the 3rd Academy or
Beijing 3 Yuan. The evidence is admissible \3\ and based upon the
corroborating evidence, I find the statements persuasive. In addition,
the Data Physics Group also contended that Bill Chen was gone from the
company and that any threat did not continue. I disagree. Bill Chen is
on administrative leave from Data Physics and at least one of the
employees involved in the e-mail exchange directing the 3rd Academy to
be referred to as the 27th Locomotive is still with Data Physics.
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\3\ The Federal Rules of Evidence do not apply and evidence that
was relevant and material was entertained and given appropriate
weight. 15 CFR 766.13.
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Further, the Data Physics Group tried to argue that BIS's evidence
that the 3rd Academy is engaged in design, development, production and
use of cruise missile systems was not reliable as it consisted of
searches from the Internet. These arguments also were not persuasive.
Again the evidence is admissible and the Data Physics Group did not
provide any evidence as to what types of activities the 3rd Academy is
engaged in. Rather, their arguments focused on whether the 27th
Locomotive was a legitimate end-user. Hence, all the evidence on the
3rd Academy before me provides that the 3rd Academy is engaged in the
design, development, production and use of cruise missile systems.
The Data Physics Group further argues that the e-mails and other
documents reflecting communications between Bill Chen and other Data
Physics employees which contained the statements that the 3rd Academy
should be referred to as the 27th Locomotive were not known to any Data
Physics employees in the United States and do not demonstrate an intent
by certain Respondents to conceal the true identity of the end-user
from BIS. I disagree. These e-mails were obtained from Bill Chen's Data
Physics' lap top computer which was in the United States and Mr. Chen
worked in the United States and China for Data Physics. Further, the
exports to the 3rd Academy could not have been handled by just one or
two persons. In fact, e-mails were seized at Data Physics California
headquarters that had 27th Locomotive in the subject line but had ``3
Yuan 3 * * *'' hand written in the upper right hand corner.\4\ Further,
the Data Physics Group did not provide any credible evidence to explain
the statements directing the 3rd Academy be referred to as the 27th
Locomotive. In fact, while several affidavits submitted by the Data
Physics Group contained explicit statements that ``I do not recall ever
hearing any references to the customer 27th Locomotive using another
entity name, nor do I recall seeing documentation that referred to this
entity under another name;'' the affidavit from an individual who was
included in the e-mails does not contain a similar statement.
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\4\ The Data Physics Group has submitted evidence that this is
Bill Chen's handwriting.
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A find that the evidence presented by BIS demonstrates that the
Respondents have violated the EAR, that such violations have been
significant, deliberate and covert, and that there is a likelihood of
future violations. As such a Temporary Denial Order (``TDO'') is needed
to give notice to persons and companies in the United States and abroad
that they should continue to cease dealing with the Respondents in
export transactions involving items subject to the EAR. Such a TDO is
consistent with the public interest to preclude violations of the EAR.
Accordingly, I find that renewing the TDO naming Data Physics
Corporation, its two offices in China, Sri Welaratna and Bill Chen
should be continued for 180 days as it is necessary in the public
[[Page 69543]]
interest to prevent an imminent violation of the EAR.
The Data Physics Group also requested that to the extent the TDO is
renewed that it be limited to exports and reexports to China. Based
upon the evidence, I disagree.
IV. ORDER
It Is Therefore Ordered:
FIRST, that the Respondents, DATA PHYSICS CORPORATION, 2025 Gateway
Place, Suite 260, San Jose, California, 95110, and DATA PHYSICS CHINA,
1605B Westgate Tower, 1038 Nanjing Road West, Shanghai, P.R. China,
200041, and DATA PHYSICS CHINA, RM. 1509, Building 2, Xinquaduan
Jiayan, No. 5 Changchunquia Road, Haidian District, Beijing, P.R.
China, 100089, SRI WELARANTNA, President, Data Physics Corporation,
2025 Gateway Place, Suite 260, San Jose, California, 95110, and BILL
CHEN, Manager, AKA: Yuequan Chen, Data Physics China, RM. 1509,
Building 2, Xinqudauan Jiayan, No. 5 Changchunquia Road, Haidian
District, Beijing, P.R. China, 100089 (collectively the ``Denied
Persons''), may not, directly or indirectly, participate in any way in
any transaction involving any commodity, software or technology
(hereinafter collectively referred to as ``item'') exported or to be
exported from the United States that is subject to the Export
Administration Regulations (``EAR''), or in any other activity subject
to the EAR, including, but not limited to:
A. Applying for, obtaining, or using any license, License
Exception, or export control document;
B. Carrying on negotiations concerning, or ordering, buying,
receiving, using, selling, delivering, storing, disposing of,
forwarding, transporting, financing, or otherwise servicing in any way,
any transaction involving any item exported or to be exported from the
United States that is subject to the EAR, or in any other activity
subject to the EAR; or
C. Benefiting in any way from any transaction involving any item
exported or to be exported from the United States that is subject to
the EAR, or in any other activity subject to the EAR.
Second, that no person may, directly or indirectly, do any of the
following:
A. Export or reexport to or on behalf of the Denied Persons any
item subject to the EAR;
B. Take any action that facilitates the acquisition or attempted
acquisition by the Denied Persons of the ownership, possession, or
control of any item subject to the EAR that has been or will be
exported from the United States, including financing or other support
activities related to a transaction whereby the Denied Persons acquires
or attempts to acquire such ownership, possession or control;
C. Take any action to acquire from or to facilitate the acquisition
or attempted acquisition from the Denied Persons of any item subject to
the EAR that has been exported from the United States;
D. Obtain from the Denied Persons in the United States any item
subject to the EAR with knowledge or reason to know that the item will
be, or is intended to be, exported from the United States; or
E. Engage in any transaction to service any item subject to the EAR
that has been or will be exported from the United States and which is
owned, possessed or controlled by the Denied Persons, or service any
item, or whatever origin, that is owned, possessed or controlled by the
Denied Persons if such service involves the use of any item subject to
the EAR that has been or will be exported from the United States. For
purposes of this paragraph, servicing means installation, maintenance,
repair, modification or testing.
Third, that, after notice and opportunity for comment as provided
in section 766.23 of the EAR, any other person, firm, corporation, or
business organization related to any of the Denied Persons by
affiliation, ownership, control, or position of responsibility in the
conduct of trade or related services may also be made subject to the
provisions of this Order.
Fourth, that this Order does not prohibit any export, reexport, or
other transaction subject to the EAR where the only items involved that
are subject to the EAR are foreign-produced direct product of U.S.-
origin technology.
In accordance with the provisions of Section 766.24(e) of the EAR,
the Respondents may, at any time, appeal this Order by filing a full
written statement in support of the appeal with the Office of the
Administrative Law Judge, U.S. Coast Guard ALJ Docketing Center, 40
South Gay Street, Baltimore, Maryland 21202-4022.
In accordance with the provisions of Section 766.24(d) of the EAR,
BIS may seek renewal of this Order by filing a written request not
later than 20 days before the expiration date. The Respondents may
oppose a request to renew this Order by filing a written submission
with the Assistant Secretary of Commerce for Export Enforcement, which
must be received not later than seven days before the expiration date
of the Order.
A copy of this Order shall be served on the Respondents and shall
be published in the Federal Register.
This Order is effective immediately and shall remain in effect for
180 days.
Entered this 17th day of November, 2006.
Darryl W. Jackson,
Assistant Secretary of Commerce, for Export Enforcement.
[FR Doc. 06-9419 Filed 11-30-06; 8:45 am]
BILLING CODE 3510-DT-M