[Federal Register Volume 71, Number 231 (Friday, December 1, 2006)]
[Notices]
[Pages 69540-69543]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-9419]


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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