Rogue distributors sell massive amounts of fakes. One company is fighting back.

The Government Accounting Office revealed to the US Senate on Nov. 8 that it had carried out a sting operation this year, targeting electronics parts counterfeiters.

A real Law and Order thriller, with great import to the electronics industry, hides beneath clinical governmental prose submitted as testimony by the Office to the recent Senate Armed Services Committee hearings.

Thrilling perhaps, but a cautionary tale if ever there were one. The operation demonstrates a steadily increasing level of efficiency in the global electronics counterfeiting black market. The counterfeiters are fast on the draw, and getting smarter.

First the background: The recent Senate Armed Services Committee hearings exposed to the public in a big way what industry and government have known for some time. The unspeakable has been spoken: There is a flood of counterfeit microchips into the military, including in critical weapons systems. Even to a company like ours, which has been working with an agency of the US Department of Defense since June on a pilot to address the problem, it is enough to take one’s breath away. Upwards of one million counterfeit parts have been identified by the Committee, and that is probably just the tip of the iceberg.

“It is,” warned Sen. Carl Levin (D-MI), co-chair of the committee, “putting our military men at risk and costing us a fortune.” And he went on: “According to the semiconductor industry, each year counterfeiting costs $7.5 billion in revenue and a loss of 11,000 jobs.”

But the GAO, not satisfied with stats, went a very convincing step further. Its operation went like this:

• A fictitious company was created, complete with a fictitious owner, imaginary employees, mailing and email addresses, a website, and a listing on the Central Contractor Registration.
• The fictitious company (we’d love to know its name) then successfully joined two Internet sites claiming to vend military-grade electronic parts.

The “company” then requested quotes on three kinds of part numbers:

• Authentic part numbers for obsolete and rare parts;
• Authentic part numbers with postproduction date codes (date codes after the last date the part was manufactured; and,
• Totally bogus part numbers. Yes, they made them up. (The GAO had checked with the Defense Logistics Agency of the DoD to verify that the numbers never did in fact identify any electronic parts.)

Quotes accepted, the vendors dutifully delivered 13 components, which were then submitted by the GOA to SMT Corp., an independent distributor known for rigorous verification testing of electronics. SMT was able to complete testing on seven by the time of the Senate hearings.

The result?

None of the seven was authentic. Not one. As for the bogus parts, those that never actually existed, well, they do now. They were delivered by the distributor, replete with the imaginary codes requested by the GAO.

The parts included two voltage regulators and one operational amplifier, which, in the event of failure, according to the GAO, “could pose risks to the functioning of the electronic system where the parts reside.” Let’s look more closely at one of those parts: The operational amplifier of the sort that failed its tests may be commonly found in the Army and Air Force’s Joint Surveillance and Target Attack Radar System (JSTARS); the Air Force’s F-15 Eagle fighter plane; and the Air Force, Navy, and Marine Corps’ Maverick AGM-65A missile. Risks indeed.

The counterfeiters, in short, are utterly ruthless, nimble, and getting increasingly better at their copies. They have enabled rogue distributors to get away with selling massive amounts of counterfeits into the military supply chain – the recent sentencing in the VisionTech case comes to mind. (Ed.: In that case, one company employee was convicted and sentenced to 38 months in prison, and the owner committed suicide.)

As is well known in the industry, several initiatives are under way to confront the crisis. Our company’s DNA-marking technology, now in pilot together with the DLA and a major chip manufacturer, is of one of them. Integrated with the best of existing tests, we believe DNA marking has the potential to strongly mitigate the risk of counterfeit chip infiltration.

The GAO sting shows that any solution must be more than administrative, more than a change in procedures. It must be technical – measurable, cost-effective, noninvasive if possible, and utterly reliable. A technical solution is not only urgent, it is possible.

Dr. James A. Hayward is president and CEO of Applied DNA Sciences (adnas.com); james.hayward@adnas.com.