home AECA, Export Controls, Trade Security & Related Home-based Business Owner Faces Jail Time, $300,000 Fine

Home-based Business Owner Faces Jail Time, $300,000 Fine

The U.S. maintains a series of laws and regulations that control who is allowed access to defense articles (i.e., tanks, guns, military sensors, etc.) as well as other high-end controlled technology known as dual-use items. We do not want bad actors, and others, using these things against the U.S. in the battlefield or marketplace of ideas.

A few years ago,university Professor John Reece Roth (pictured) was convicted after a jury trial in U.S. District Court in Knoxville, of conspiracy, wire fraud, and 15 counts of exporting “defense articles and services” without a license. Roth obtained a U.S. Air Force (USAF) contract to develop plasma actuators to control the flight of small, subsonic, unmanned, military drone aircraft. During the course of that contract, he allowed two foreign national students to access export controlled data and equipment, and export some of the data from the contract on a trip to China. (Source: DOJ)

You may not hear much about it in the news, however, every now and then, someone goes to prison for breaking these laws. Most of the time export control violations involve large defense contractors and smaller suppliers that support that industry. Hefty fines are the usual punishment.  Yet every now and then prison time is meted out to deserving individuals who do things that harm U.S. national security and interests.

In 2008 John Reece Roth, a 75 year old University of Tennessee professor was sentenced to prison for violating the Arms Export Control Act (AECA). He started to serve his a four-year prison sentence in 2012. His crime? Essentially he sharing controlled research without U.S. government permission with Iranian and Chinese students. The punishment was needed. It sent a signal to research universities throughout the United States that the ivory tower were not impenetrable to U.S. export control laws. Universities are breeding grounds for foreign nationals looking to steal sensitive technology and research data.

This new case recently announced by the Department of Justice caught my attention because it involves the owner of a home-based business. In fact it is a very small and minority-owned business. I’m stressing that it is a small and minority-owned business because there is a federal program overseen by the Small Business Administration to help boost small businesses owned by women and minorities (the agency should be abolished, but that is off topic and we’ll discuss it some other day). For our purposes just remember for that export controls and small business compliance is one of the soft underbellies of trade security. It is targeted by economic competitors as well as nefarious types to steal information they could otherwise not legally procure.

According to the information published by the Justice Department, Hwa Chih-kwang “obtained contracts to supply circuit boards to the U.S. Navy, by falsely claiming the boards would be manufactured in the United States. Instead Chih-kwang illegally sent restricted information to a company in Taiwan for the boards to be manufactured there. ” You can read the DOJ press release here.

Chih-kwang was given the technical data by the Navy to build the circuit boards that could not be sent outside the U.S. without a license. Chih-kwang sent the data to Taiwan so he could build the boards cheaply. He did this many many times from a home-based business.  Under the terms of the plea agreement, prosecutors will recommend the company pay a $300,000 fine and Chih-kwang serve a sentence in the range of 15-21 months in prison.

Like research universities, foreign governments, foreign companies, and foreign nationals with bad intentions target small and family-owned businesses for emerging technologies. This could be the first recent case of a home-based business being prosecuted for an export control violation of this type. Chih-kwang is facing significant jail time as well as monetary fines. It is a good reminder that these rules apply to individuals as well as businesses of any size.


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