Local customs officials have apprehended executives of a distribution company involved in the smuggling of U.S.-made semiconductor integrated circuit (IC) chips, classified as strategic items, into China after importing them for domestic use. This marks the first instance of customs discovering the use of South Korea as a transit route for exporting foreign-made semiconductors to China.
The Seoul Main Customs Office announced on Jan. 25 that it had referred the 40-something CEO and executives of Company A, which distributes overseas electronic components in South Korea, to the Seoul Central District Prosecutors’ Office without detention on charges of violating the Foreign Trade Act, the Customs Act, and the Act on the Regulation of Concealment of Criminal Proceeds.
According to customs, from August 2020 to August of last year, these individuals operated Company A and purchased communication semiconductor IC chips made by a renowned U.S. semiconductor company and imported for domestic use through domestic telecommunications equipment development companies. They then smuggled these chips to China 144 times by sending them via air transport without declaring them to customs. These chips, designated as strategic items in 2020, convert analog signals to digital in communication relays and are subject to export and import restrictions without government permission due to their potential use in the manufacture of weapons of mass destruction.
The investigation revealed that 96,000 semiconductor IC chips worth approximately 13.9 billion won (US$11.6 million) were smuggled through Company A, with 53,000 of these chips, valued at 11.8 billion won, being classified as strategic items. The IC chips in question, produced by a U.S.-based semiconductor manufacturer, are supplied domestically only through official Korean distributors, which require an end-user certificate and a non-re-exportation commitment from the importer for distribution management. Thus, importing by entities other than the end-user, like Company A, is normally impossible.
Company A circumvented these restrictions by having domestic telecommunications equipment development companies import more IC chips than needed through official Korean distributors, then obtained the excess for smuggling. The chips were repackaged in small quantities and disguised as sample products for shipment to China without obtaining the necessary export permission from the Minister of Trade, Industry, and Energy.
Their profit-making scheme was meticulously planned. They inflated the value of semiconductor components worth only 4 million won to 7.5 billion won when exporting them to Hong Kong, falsely declaring this to customs and submitting fabricated documents to banks to receive the smuggling proceeds. The remainder of the funds was brought into the country through illegal means such as money laundering.