3 Chinese Nationals Arrested in Milford for Scheme to Illegally Export Military-Grade Semiconductors

Three Chinese nationals have been arrested on federal criminal complaints in connection with a scheme to obtain and illegally export sophisticated semiconductors stolen from the U.S. military.

Daofu Zhang, 50, Jiang Guanghou Yan, 33, and Xianfeng Zuo, 37, were all charged in Milford Thursday morning. They each appeared in court and were ordered held.

As alleged in the criminal complaints, 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 each.

After the undercover agent advised Yab that the Xilinx components could be stolen from a U.S. Navy base, Yan allegedly 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,” the complaint alleges. 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, and they were arrested today attempting to take delivery of the Xilinx semiconductors from the undercover agent.

“The Justice Department and our federal law enforcement partners are committed to prosecuting those who would supply our armed forces with counterfeit electronic components, as well as those who attempt to steal sophisticated U.S. military components and distribute them to places unknown,” stated U.S. Attorney Deirdre Daly said in a prepared statement released to the media.

The complaint charges Zhang, Yan, and Zuo with violating the International Emergency Economic Powers Act, which carries a maximum penalty of 20 years of imprisonment and a $1 million fine; and receipt of stolen government property, which carries a maximum penalty of 10 years of imprisonment and a $250,000 fine.

Zhang and Yan are also charged with trafficking in counterfeit goods, which carries a maximum penalty of 10 years of imprisonment and a $2 million fine; and mail fraud, which carries a maximum penalty of 20 years of imprisonment and a $250,000 fine.

In addition, Zhang and Zuo are charged with conspiracy, which carries a maximum penalty of five years of imprisonment and a $250,000 fine.