DOJ:CHINA NUCLEAR INDUSTRY HUAXING CONSTRUCTION PLEADS GUILTY

(The following is a reformatted version of a press release
issued by The U.S. Justice Department and received via
electronic mail. The release was confirmed by the sender.) 
DECEMBER 3, 2012 
PEOPLE’S REPUBLIC OF CHINA CORPORATE ENTITY PLEADS GUILTY PLEA
TO CONSPIRACY AND FELONY EXPORT VIOLATIONS STEMMING FROM
ILLEGAL EXPORT OF HIGH-PERFORMANCE COATING TO NUCLEAR REACTOR IN
PAKISTAN 
Company Agrees to $3 Million in Criminal and Civil Fines 
WASHINGTON - The China Nuclear Industry Huaxing
Construction Co. Ltd., (Huaxing), a corporate entity owned,
operated and/or controlled by the People’s Republic of China
(PRC), pleaded guilty today to conspiring to violate the
International Emergency Economic Powers Act (IEEPA) and the
Export Administration Regulations (EAR), and other related
charges, announced Ronald C. Machen Jr., U.S. Attorney for the
District of Columbia, and Eric L. Hirschhorn, U.S. Department of
Commerce Under Secretary for Industry and Security. 
It is believed that today’s plea marks the first time that a PRC
corporate entity has entered a plea of guilty in a U.S. criminal
export matter.  The case’s combined $3 million in criminal and
administrative fines represent the government’s continued
determination to pursue substantial monetary penalties for
export violations. 
Huaxing is headquartered in Nanjing, China.  Its
guilty plea is the result of a long-term investigation of
illegal exports of high-performance epoxy coatings from the
United States to the Chashma II Nuclear Power Plant in Pakistan,
which Huaxing was building as part of a nuclear cooperation pact
between the PRC and Pakistan.  Chashma II is owned by the
Pakistan Atomic Energy Commission (PAEC), an entity on the
Department of Commerce’s Entity List. The investigation was led
by the Department of Commerce’s Bureau of Industry and Security
(BIS). 
As part of its plea agreement, Huaxing agreed to the
maximum criminal fine of $2 million, $1 million of which will be
stayed pending its successful completion of five years of
corporate probation.  The terms of Huaxing’s probation will
require it to implement an export compliance and training
program that recognizes Huaxing’s obligation to comply with U.S.
export laws.  Through an administrative agreement with the
Department of Commerce, Huaxing has also agreed to pay another
$1 million immediately and be subject to multiple third-party
audits over the next five years to ensure the efficacy of its
compliance with U.S. export laws. 
Huaxing’s guilty plea is related to the December
2010 guilty plea of PPG Paints Trading (Shanghai) Co. Ltd. (PPG
Paints Trading), a Chinese subsidiary of Pittsburgh-based PPG
Industries, to a four-count information in the U.S. District
Court for the District of Columbia.  Together, PPG Paints
Trading and its parent company, PPG Industries, paid $3.75
million in criminal and administrative fines and more than
$32,000 in restitution.  In November 2011, Xun Wang, the highest
ranking executive at the Chinese PPG subsidiary, pleaded guilty
to conspiracy and agreed to cooperate with the government’s
investigation. 
Huaxing entered the guilty plea today and was
sentenced in accordance with the terms of the plea agreement by
the Honorable Judge Emmet G. Sullivan in the U.S. District Court
for the District of Columbia. 
“In 2010, the Chinese subsidiary of PPG Industries pleaded
guilty to the conspiracy to export high-performance coatings for
use in the Pakistani nuclear reactor.  In 2011, the former
managing director of that subsidiary, a Chinese national, pled
guilty. Now, Huaxing -- the PRC-corporate entity that bought the
coatings for application in the Pakistani reactor -- has
accepted responsibility for its role in the crime,” said U.S.
Attorney Machen.  “The lesson here is clear: we will pursue
violations of U.S. export controls wherever they occur in the
world, we will prosecute both individuals and corporate wrong-doers, and a corporation’s status as foreign-owned, or even
state-owned, will not bar enforcement of those laws in U.S.
courts.” 
“Having a corporate entity plead guilty to such egregious
violations demonstrates our resolve in combatting diversion of
legitimate commerce,” said Under Secretary Hirschhorn.  “BIS
Special Agents in the Office of Export Enforcement will continue
to leverage their unique authorities to disrupt and prosecute
corporate and individual violators.” 
According to count one of the information filed with
the court, beginning in or about June 2006 through in or about
March 2007, Huaxing conspired to export PPG Industries’ high-performance coatings from the United States to Chashma II, via
China, without first having obtained the required export license
from the Bureau of Industry and Security in violation of the
EAR.  Chashma II is a PAEC power plant under construction near
Kundian, Punjab province, Pakistan. 
The PAEC is the science and technology organization in Pakistan
responsible for Pakistan’s nuclear program including the
development and operation of nuclear power plants in Pakistan.
In November 1998, following Pakistan’s first successful
detonation of a nuclear device, the Commerce Department’s Bureau
of Industry and Security added PAEC, as well as its subordinate
nuclear reactors and power plants, to the list of prohibited end
users under the EAR. 
As a restricted end-user, a U.S. manufacturer
seeking to export, re-export, or transship any items subject to
the EAR to the PAEC or its nuclear power plants or reactors,
would need first to obtain a license from the Department of
Commerce in the District of Columbia. 
According to count one of the Information, in January 2006, PPG
Industries sought such an export license for the shipments of
coatings to Chashma II. The Commerce Department denied that
license application in June 2006.  Following that denial, the
information states, Huaxing agreed upon an arrangement whereby
the high-performance coatings would be sold to a third-party
distributor in China which, in turn, would deliver the coatings
to Huaxing for application at Chashma II.  Further, members of
the conspiracy stated, or caused to be stated, that the coatings
were to be used at a nuclear power plant in China, the export of
goods to which did not require a license from the Department of
Commerce. Through these means, the transactions were thus
structured to evade U.S. export law by concealing that the true
end-user of the coatings was Chashma II. 
Counts two through four of the information state that Huaxing
violated IEEPA and the EAR when it willfully exported, re-exported, and transshipped and/or attempted to export, re-export
and transship three shipments of the high-performance coatings
destined for Chashma II between June 2006 and March 2007 without
the required Commerce Department license.  The total value of
the three illegal exports in question was approximately $32,000. 
In announcing the guilty plea and sentencing, U.S. Attorney
Machen and Under Secretary
Hirschhorn commended Special Agents James Fuller and Donald
Pearce, who worked under the direction of Special Agent in
Charge Sidney M. Simon and Assistant Special Agent in Charge
Jonathan Carson, as well as Senior Attorney R. Elizabeth
Abraham, all of the Department of
Commerce’s Bureau of Industry and Security.  They also thanked
Assistant U.S. Attorney G.
Michael Harvey, of the U.S. Attorney’s Office for the District
of Columbia, who prosecuted this matter. 
(bjh) NY 
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