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Cablegate: Extrancheck: Post Shipment Verification: Arrow Asia Pacific

VZCZCXYZ0005
RR RUEHWEB

DE RUEHHK #2563/01 2780919
ZNR UUUUU ZZH
R 050919Z OCT 07
FM AMCONSUL HONG KONG
TO RUCPDOC/USDOC WASHDC
INFO RUEHC/SECSTATE WASHDC 3120
RHMFIUU/HQ BICE INTEL WASHINGTON DC

UNCLAS HONG KONG 002563

SIPDIS

USDOC FOR 532/OEA/LHINES/DFARROW
USDOC FOR 3132 FOR FCS/OIO REGIONAL DIRECTOR WILLIAM ZARIT
BICE FOR OFFICE OF STRATEGIC INVESTIGATIONS

SIPDIS

E.O. 12958: N/A
TAGS: BMGT BEXP HK ETRD ETTC
SUBJECT: EXTRANCHECK: POST SHIPMENT VERIFICATION: ARROW ASIA PACIFIC
LTD WHSE

REF: A) USDOC 06986 B) HK00909

1.Unauthorized disclosure of the information provided below is
prohibited by Section 12C of the Export Administration Act.

2. As per reftel A request and at the direction of the Office of
Enforcement Analysis (OEA) of the USDOC Bureau of Industry and
Security (BIS), Export Control Officer Philip Ankel (ECO) conducted
a post shipment-verification (PSV) at Arrow Asia Pacific Ltd., 20
Floor, Tower Two, Ever Gain Plaza, 88 Container Port Road, Kwai
Chung, Hong Kong (Arrow Asia). The items in question are various
electronic integrated circuits exported to Arrow on or about May 6,
2007 and valued at USD 37,849. On the applicable shippers export
declaration (SED), these items are classified under export control
classification number (ECCN) 3A001 and, if properly classified,
would be controlled for national security (NS) reasons. The
exporter was Analog Devices of Norwood, Massachusetts.

3. A search of the web reveals that Arrow Asia is a business unit
of Arrow Electronics, Inc, a New York Stock Exchange listed company
with 2006 U.S. sales of USD 13.6 billion (www.arrow.com). Arrow
Electronics, Inc. acts as supply channel partner for more than 600
suppliers and 140,000 original equipment manufacturers, contract
manufacturers and commercial customers. In Asia, Arrow Asia
operates fifty sales offices, four distribution centers and 12 local
warehousing facilities in eleven countries/territories.

4. On September 11, 2007, ECO met with several representatives from
Arrow Asia including Mr. Victor K.C. Cheung, Logistics Director, Mr.
Albert W.H. Chan, Operation Controls Manager, Mr. Kam K.F. Leung,
Transportation and Export Control Manager, and Ken T.K. Ng, Shipping
Supervisor. Representatives of Arrow Asia provided background on
the company consistent with the information noted above and on the
company's web site. They stated that Arrow Asia has approximately
1,600 employees in the region.

5. Mr. Leung also provided a detailed overview of the company's
export control compliance system. That system is based, in large
part, on commercial software designed to compare customers and
orders against established lists of parties of concern as well as
reasons for control based on the country of destination and
applicable ECCN. Mr. Leung stated that the company's software
screens all potential customers prior to opening a customer account
and accepting orders. Arrow Asia also obtains from all new
customers an end-user certificate, which include a certification
that the items will be used only for civil and not military or WMD
applications and that they will not be re-exported or sold to third
parties except in compliance with applicable export and re-export
laws. Only after these initial formalities are completed may a new
client account be created. When an order is received, the company's
software checks the licensing requirements for the applicable ECCN
and determines whether a license will be required for the shipment.
A manual review by export control compliance staff must be completed
for all transactions where a license requirement is noted by the
software. No sale may be completed absent release by export control
personnel (typically after a license has been obtained). Mr. Ng
stated that Arrow Asia obtains a company registration certificate
from all new customers to confirm corporate existence. Mr. Ng
further stated that the company screens both the registered address
and the "ship to" address on all orders it receives against the
applicable licensing requirements. Mr. Leung demonstrated the
system to the ECO at the conclusion of the meeting.

6. The conversation then turned to the particular transaction in
question, namely a shipment apparently destined for Centre Bright
(HK) Limited. OEA provided ECO with an invoice from the exporter
stating that one of multiple orders placed by Arrow Asia was
destined for its customer, Centre Bright. ECO showed the meeting
participants the invoice and asked for further background on this
transaction. There was some confusion around the room at this point
about what actually occurred with this order. Mr. Leung eventually
stated that he recalled that this order had originally been accepted
but had subsequently been put on hold when it was determined that
Centre Bright is on BIS's Unverified List. This list is a
compilation of companies where BIS has been unable to satisfactorily
complete a PSV or pre-license check (PLC) for reasons outside of the
control of the U.S. government. The PSV of Centre Bright that
prompted the inclusion of Centre Bright on the Unverified List is
detailed in reftel B and occurred in 2005. In that case, the ECO at
that time stated that the transaction described by the Centre Bright
representative had many suspicious characteristics including a
customer without contact details (aside from a mainland China cell
phone number) who preferred to pay for controlled commodities in
cash. In that case, the ECO recommended that Centre Bright be
included on the Unverified List since significant portions of the
purported transaction could not be verified. Note: Inclusion on the
Unverified List does not, by itself, impose any new licensing
requirements. However, such inclusion is considered to be a "red


flag". Where such red flags exist, parties have an affirmative
obligation to inquire about the end-use, end-user and ultimate
country of destination.

7. When the ECO inquired what happened next, Mr. Ng stated that
Centre Bright cancelled its order. Shortly thereafter, Arrow Asia
received an order for an identical number (668) of the same items
from another company, namely Victory Wave Holdings. Mr. Ng provided
copies of the applicable transaction documents and corporate
registration documents for Victory Wave Holdings Limited. The
packet includes the Arrow Asia standard End-User Statement signed by
Hong Chun Tai on behalf of Victory Wave Holdings. The packet also
included an invoice showing sale of the 668 items and listing ECCN
3A001(a)(5)(a)(3). This subcategory of ECCN most likely does not
require a license to Hong Kong but would most likely require a
license to mainland China. The packet also included the applicable
import license issued by Hong Kong TID for the items stating that
the goods are for local (Hong Kong) consumption.

8. ECO requested more information on how it transpired that the
transaction with Victory Wave Holdings was completed when an
identical Centre Bright order for 668 Analog Devices AD6645ASW-105
integrated circuits had recently been cancelled. Mr. Cheung stated
that he would investigate the matter further and provide more
background on how the transaction occurred once he had obtained such
information. He suggested that any judgments about the nature of
the transaction be deferred until further information could be
obtained. ECO will provide OEA additional information when he
obtains it from Arrow Asia.

9. A subsequent review of the Hong Kong Companies Registry
information revealed that Victory Wave Holdings Limited is related
to Centre Bright. The review also revealed that several additional
Hong Kong companies are also related to both Victory Wave Holdings
Limited and/or Centre Bright. These relationships are detailed
below.

10. Victory Wave Holdings Limited: This company was established in
February 2007 and has limited paid-up share capital (the Hong Kong
equivalent of USD 1,000). Its Director is listed as Hong Kong
resident Wong, Yung Fai. Its registered address is listed as Unit
2401A, 24Fl, Park-In Comm Ctr, 56 Dundas St, Mongkok, Hong Kong.
The signatory for Victory Wave Holdings Limited on the Arrow Asia
End-User Statement is listed as Hong Chun Tai. Corporate records
obtained when the Centre Bright PSV was completed show Wong Wai
Chung and Hong Chun Tai as the sole shareholders of Centre Bright.
In short, one of the shareholders of Centre Bright (Hong Chun Tai)
apparently signed the Victory Wave Holdings Limited End-User
Statement.

11. Exodus Microelectronics Company Limited: This company was
established in March 2003. Its registered address is Unit 6B, Block
1, International Centre, 2-8 Kwei Tei Street, Shatin, Hong Kong. It
likewise has nominal share capital (the Hong Kong equivalent of USD
1,000). Its directors are listed as Hong Kong residents Hong, Chun
Tai and Wong, Yung Fai. In short, one of this company's directors
(Hong, Chun Tai) is also a director in Centre Bright and the
signatory for Victory Wave Holdings Limited. Another of its
directors (Wong, Yung Fai) is also a director of Victory Wave
Holdings Limited.

12. Echelon Microsystems Limited: This company was established on
April 25, 2007. Its registered address is Unit 2006, 10F Carnarvon
Plaza, 20 Carnarvon Rd., Hong Kong. It has the Hong Kong equivalent
of USD 1000 authorized share capital but no paid-up share capital.
Its director is listed as Wong, Yung Fai. In short, this company
shares a director with Victory Wave Holdings Limited, Exodus
Microelectronics Company Limited and Omniway Technology Limited
(referenced below).

13. Omniway Technology Limited: This company was also established
on April 25, 2007 (on the same day as Echelon Microsystems Limited).
Its registered address is Unit 503, 5/FL Silvercord Tower 2, 30
Canton Rd., Hong Kong. It has the Hong Kong equivalent of USD 1000
authorized share capital but no paid-up share capital. Its director
is listed as Wong, Yung Fai. In short, this company shares a
director with Victory Wave Holdings Limited, Exodus Microelectronics
Company Limited and Echelon Microsystems Limited.

14. SBC International (Success Business Center): This company
advertises itself as a leading company register agency in Hong Kong
and mainland China. It has 18 offices in Hong Kong and mainland
China with over 400 professional staff to provide business advice
and business registration services. More information is available
at www.sbc.com.hk/English. The addresses of Victory Wave Holdings
Limited, Echelon Microsystems Limited and Omniway Technology Limited


correspond to SBC International branch offices in Hong Kong.

15. Other companies: A review of Hong Kong Companies Registry
information reveals additional companies that are related to Centre
Bright. In particular, Centre Bright director and shareholder Wong,
Wai Chung, was also a director in Square Holdings Limited, a company
that was dissolved in 2004. Co-directors in that company were also
directors in the following additional companies (that are still
listed as operational) in Hong Kong: Bescom Development Limited
(established in 1993), Beijing Technology Limited, China Urban
Transport Engineering and Consulting Limited, Pacific Telecom
Development Limited, Radio Frequency Engineering Limited, Boland
(H.K.) Limited and Goahead World Limited.

16. The ECO suspects that at least some of the companies affiliated
with Centre Bright and Victory Wave Holdings Limited have been
established as conduits for Centre Bright purchases (Centre Bright
is still operational and maintains a web site at
www.centrebright.com). ECO further suspects that several of these
companies have received exports of items from the United States and
recommends that OEA review those exports to determine what further
action is warranted in respect of those shipments and companies.
ECO also recommends that OEA review exports listing the addresses of
these companies as ship-to addresses. The ECO also recommends that
BIS conduct a commodity classification to confirm the ECCN and
licensing requirements of the items that are the subject of this
check.

17. The ECO recommends that this check be classified as
Unfavorable. That recommendation is based on the apparent
circumvention of Arrow's compliance software hold on transactions
with Centre Bright and the eventual sale of the items to Victory
Wave Holdings, a company affiliated with Centre Bright.

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