The Gazette, Colorado Springs February 06, 2012

Indictment issued in satellite parts-smuggling case

By Jakob Rodgers

TA Chinese immigrant has been charged in connection with a plot to ship hundreds of sophisticated satellite computer chips from Colorado Springs to China in boxes disguised as baby formula.

Philip Chaohui He is slated to be arraigned Wednesday on federal charges he tried to smuggle goods from the United States — satellite parts that are covered by an export ban on militarily-sensitive items.

The computer chips were radiation-hardened, meaning they can be used in space. It’s illegal to ship such “defense articles” to China because of an arms embargo established in 1990.
Federal prosecutors allege He set the elaborate plot into motion in May, beginning a seven-month operation that spanned three countries, according to a grand jury indictment.

Federal investigators allege He — who is also known as Philip Hope or Philip Chaohui — purchased 312 integrated circuits in May from Aeroflex Colorado Springs, Inc., a company near Garden of the Gods Road and Centennial Boulevard.

He allegedly paid the bulk of the nearly-$550,000 price tag with nearly $490,000 wired from a bank in China, the indictment said.

In the following weeks, Aeroflex became worried that He would illegally ship the chips outside the U.S, the indictment said. But when questioned by the company, He said the chips would only be used in America for Sierra Electronic Instruments, a firm where He was the only employee, prosecutors allege.

Y.R. Hladkyj, general counsel for Aeroflex Colorado Springs, Inc., declined to comment.
Two-and-a-half months later, He received the first shipment of electronics.

That shipment allegedly contained computer chips normally used in a satellite’s on board computer, the indictment said. Prosecutors suspect He drove a vehicle to Tijuana, Mexico shortly after getting the chips and flew from there to Mexico City and finally to Shanghai.

A second shipment, which contained chips that are often used in space-based computer hard drives, arrived in October, the indictment said.

Prosecutors say He drove the second shipment of 200 chips to a dock in California. The chips were in the trunk of his car hidden in five boxes labeled “milk powder” in Chinese, prosecutors said.

After using a card issued by the Transportation Services Administration to access the dock, prosecutors said He met with men from a Chinese-flagged freighter. The freighter, which was owned by the state-controlled China Communications Construction, was bound for Shanghai, prosecutors claim.

Chinese satellite and space efforts are largely controlled by the People’s Liberation Army, which also runs a string of state-owned companies in China.

Plots similar to the one allegedly involving He are common out of China — either for companies eager for sophisticated parts, or for companies looking to duplicate technology from the United States.

“They will steal everything that isn’t nailed down at both ends,” said John Pike, an analyst for the Virginia-based defense think tank GlobalSecurity.org. “And if they find something that is nailed down at both ends, they’ll go get a crow bar.”