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Exclusive Amazon turns to U.S. blacklist Chinese firm to meet the needs of thermal camera

China's Zhejiang Dahua Technology Co Ltd (002236.SZ) this month shipped 1,500 cameras to Amazon in a deal valued at nearly $10 million, one of the people said. At least 500 Dahua systems-the blacklisted firm-are for use in the U.S. by Amazon, another person said.

The Amazon procurement, which has not been reported previously, is legal because the rules control U.S. government contract awards and exports to blacklisted firms but do not stop sales to the private sector.

The United States, however, "considers that transactions of any kind with listed entities carry a 'red flag' and recommends that U.S. companies proceed with caution," according to the website of the Bureau of Industry and Security here. Dahua has contested the appointment.

The deal is coming in like the U.S. Food and Drug Administration warned of a shortage of temperature-reading devices and said that certain pandemic uses of thermal cameras lacking regulatory approval by the agency would not be halted. Top U.S. maker FLIR Systems Inc (FLIR.O) faced a week-long order backlog, forcing it to prioritize hospital products and other critical facilities.

Amazon declined to confirm its purchase from Dahua, but said its hardware complied with national, state and local law, and its temperature controls were to "support the health and safety of our employees, who continue to provide critical service in our communities." The company added that it was implementing "multiple" manufacturers' thermal imagers, which it declined to name. These vendors include Infrared Cameras Inc, previously reported by Reuters, and FLIR, according to staff at Amazon-owned Whole Foods who have seen the deployment. FLIR has declined to comment on its clients.

Dahua, one of the world's biggest manufacturers of camera surveillance, said it doesn't discuss customer commitments and adheres to applicable laws. Dahua is committed to "mitigating the spread of COVID-19" through technology that detects "anomalous elevated skin temperature - with high precision," it said in a statement.

The U.S. Commerce Department, which maintains the blacklist, has declined to comment. In enforcing regulations during the public health crisis, the FDA said it would use discretion as long as thermal systems lacking compliance posed no "undue risk" and fevers were confirmed by secondary assessments.

Dahua's thermal cameras were used during the pandemic in hospitals, airports, train stations, government bureaux, and factories. International Business Machines Corp (IBM.N) placed an order for 100 units, and the Chrysler automaker placed an order for 10 units, said one of the sources. In addition to selling thermal technology, according to research and reporting firm IPVM, Dahua makes white label security cameras resold under dozens of other brands such as Honeywell.

Honeywell said Dahua manufactures some but not all of its cameras, and it holds products to its cybersecurity and compliance standards. IBM and the parent of Chrysler Fiat Chrysler Automobiles NV (FCHA.MI) did not comment.

Last year, the Trump Administration added Dahua and seven other tech firms to the blacklist for acting against U.S. foreign-policy interests, saying they were "implicit" in "China's campaign of repression, mass arbitrary detention, and high-tech surveillance of Uighurs, Kazakhs, and other members of Muslim minority groups."

Dahua said "any factual basis" was lacking in the U.S. decision. Beijing denied minority mistreatment in Xinjiang and urged the U.S. to remove companies from the list.

A provision of U.S. law, scheduled to take effect in August, will also prevent the federal government from initiating or renewing contracts with a company using "any equipment, system, or service" from firms including Dahua as "a substantial or essential component of any system." Amazon's cloud unit is a major contractor with the U.S. intelligence community, and has been fighting against Micros.

Top industry associations have been asking Congress for a year-long delay because they say the law would dramatically reduce government supplies, and the U.S. State Secretary Mike Pompeo stated last week that there were forthcoming policies clarifying the implementation of the law.

The coronavirus has infected employees from dozens of Amazon warehouses, sparked small protests over allegedly unsafe conditions and prompted unions to demand closures of sites. Temperature controls help Amazon stay in operation, and the cameras-a faster, socially distant alternative to thermometers on the forehead-can speed up lines to enter buildings. Amazon said the type of temperature reader it's using varies by construction.

Dahua's camera compares a person's radiation to a separate infrared calibration device to see if someone has a fever. It uses face detection technology to track walking subjects, and to make sure that they are looking for heat in the right place.

According to a San Francisco technology demonstration, an additional recording device keeps snapshots of faces the camera has spotted, and their temperatures. Optional software for facial recognition can collect images of the same subject over time to determine, for example, who a virus patient might have been near in a temperature control line.

Amazon said facial recognition is not used on any of its thermal cameras. Civil liberties groups have warned that the software would be able to strip people of privacy and lead to arbitrary apprehension if police rely on it. U.S. authorities have also worried that equipment manufacturers like Dahua could hide a technical "back door" for intelligence-seeking Chinese government agents.

In response to questions about the thermal systems, Amazon said in a statement, "None of this equipment has network connectivity, and there will be no visible, collected, or stored personal identifiable information." Dahua made the decision to market its technology in the United States before the FDA issued guidance on thermal cameras in the pandemic. According to Evan Steiner, who sells surveillance equipment from a range of manufacturers in California through his company EnterActive Networks LLC, its supply attracts many US customers not deterred by the blacklist.

"You're seeing a lot of companies doing all they can to prepare for their workforce to come back preemptively," he said.