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Chinese Chip Distributor Pleads Guilty to Scheme to Steal and Illegally Export Military-Grade Semiconductors

Kristal Snider
ERAI Inc.

On December 10, 2015 three Chinese nationals (DAOFU ZHANG, 40; JIANG GUANGHOU YAN, also known as “Ben,” 33; and XIANFENG ZUO, 37) were arrested on federal criminal complaints in connection with a scheme to obtain and illegally export sophisticated semiconductors stolen from the U.S. Military. 
 
ZHANG, YAN, and ZUO operated businesses in China and elsewhere that engage in the purchase and sale of electronic components, including integrated circuits. Federal law enforcement agents began investigating YAN and a Chinese company known as HK Potential in 2012 for trafficking in counterfeit semiconductors.  In October 2014 and in March 2015, YAN sold a total of 45 counterfeit Intel microprocessors to an undercover agent who had advised YAN that the components would be used on a U.S. Navy contract involving submarines.
 
The complaints further allege that in July 2015 YAN asked whether the undercover agent could obtain 22 Xilinx semiconductors, military grade, for which YAN would pay $37,000.00 each.  After the undercover agent advised YAN that the Xilinx components could be stolen from a U.S. Navy base, YAN offered to provide fake Xilinx components that could be substituted for the stolen components in order to prevent detection of the theft.  When asked whether the fake Xilinx components would work, YAN replied that “the fake one just look the same” but were “not ok for function.”  In November 2015, YAN shipped eight of the fake Xilinx components to the undercover agent.
 
ZHANG, YAN, and ZUO traveled to the U.S. on December 6, 2015 and were immediately arrested while attempting to take delivery of the Xilinx semiconductors from the undercover agent.
 
On April 15, 2016 ZHANG pleaded guilty to one count of conspiracy to traffic in counterfeit goods. He is scheduled to be sentenced on Friday, July 8, at which time he faces a maximum term of imprisonment of 10 years and a fine of up to $2 million.
 
On March 7, YAN pleaded guilty to one count of conspiracy to traffic in counterfeit goods and one count of attempt to export integrated circuits without the required export license.
 
On March 16, 2016, ZUO, pleaded guilty to one count of conspiracy to traffic in counterfeit goods.
 
ZUO and YAN are also awaiting sentencing.
 
Additional Reading:

http://www.justice.gov/usao-ct/pr/three-chinese-nationals-arrested-scheme-steal-and-illegally-export-military-grade


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