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.