Latter in January, Korean customs officials arrested the CEOs of Company A – a domestic enterprise acting as an intermediary in shipping a batch of $11.8 billion worth of chips manufactured from the U.S. to China, disregarding the previously imposed US-China embargo policies. This marks the first case where customs recored South Korea as a transit route for exporting foreign-produced semiconductors to China.
On January 25, The Seoul Main Customs Office reported that they had transferred the CEO of Company A, specializing in foreign electronic component distribution in South Korea, to the central district prosecutor’s office in Seoul. This person didn’t have to take any detention for violating foreign customs law, the Trade Act, and the Customs Act.
According to customs, from August 2020 to August 2023, Company A imported communication semiconductor chips from a U.S. semiconductor company for domestic use through telecommunications equipment development companies. However, they subsequently smuggled these chips to China 144 times by air freight without declaring them to customs. These chips, indicated as strategic items in 2020, convert analog signals into digital signals in communication relays and are restricted for import and export without government’s approval due to their potential use in mass destruction weapons.
The investigation revealed that 96,000 semiconductor chips valued at approximately 13.9 billion won (11.6 million USD) were smuggled through Company A, with 53,000 chips worth 11.8 billion won intended for shipment to China sorted as strategic items. Those semiconductor chips were produced by a U.S.-based semiconductor manufacturer and were only supplied domestically through official South Korean distributors. This requires end-user certificates and a commitment not to re-export from the importer to manage distribution. Therefore, the importation by entities other than end users, such as Company A, are often deemed impossible.
Company A circumvented these restrictions by requiring domestic telecommunications equipment developers to import more semiconductor chips than needed through official Korean distributors, then collect excess for smuggling. Those chips were repackaged in small quantities and disguised as sample products to be shipped to China without the required export license from the Minister of Trade, Industry and Energy.
Their profit scheme was meticulously planned. They inflated the value of the semiconductor components from 4 million won to 7.5 billion won when exporting to Hong Kong, and made false declarations to customs, and submitted fake documents to banks to receive the numbers. The remaining money is brought into the country through illegal means such as money laundering.
Previously, the U.S. had implemented various economic embargoes on China including the semiconductor industry. In particular, Washington had banned signal conversion chips (chip models that convert analog signals to digital signals) due to concerns that Beijing (China) might use strategic semiconductor chips for military purposes to disrupt the global political order. The number of chips Company A planned to smuggle into China was assessed to fall under this category of strategic semiconductor chips (signal conversion chips).