America’s Military Breached by Counterfeit Electronics

In 2016, the United States allocated $598 billion to defense spending. A substantial portion of the funding went towards defense systems and equipment that contain electronic components critical to the success of our warfighter’s mission. Due to the defense systems dependence on these electronic parts and the ever shortening life cycles of electronic components, the DOD supply chain is highly susceptible to the introduction of counterfeits. The presence of counterfeit electronic components can be seen through a number of different sources.

Background

In 2011, the Senate Armed Services Committee (SASC) investigated the problem of counterfeits in the DOD supply chain. In so doing it identified vulnerabilities throughout the supply chain that allowed counterfeit parts to infiltrate crucial defense systems, thereby risking national security and the lives of those who protect it. The investigation further identified that 70 percent of all counterfeits come from China and a majority of the remaining counterfeits could be traced back through the supply chain to China.

One of the examples cited in the SASC’s report were counterfeit integrated circuits (IC), in an ice detection module found on the Navy’s P-8A Poseidon airplane. The P-8A is a modified Boeing 737 that incorporates anti-submarine and anti-surface warfare capabilities. After the Navy purchased the aircraft from Boeing, the manufacturer of the ice detection system, BAE Systems, discovered the IC’s were counterfeit. Upon further examination it was concluded the IC’s had been sanded down, resurfaced and remarked to appear new. When traced back through the supply chain, it was found that BAE purchased the components from a US supplier. However, the US supplier originally purchased the IC’s from a company in Shenzhen, China.

The technique of resurfacing electronic components was highlighted by the Institute of Electrical and Electronics Engineers (IEEE) in an article titled Response to Counterfeit IC’s in the Supply Chain, in their 2008 Annual Technology Report. The report found that historically counterfeits were “clones” or copies of high value components; however with the maturing of the electrical industry coupled with the increasing number of obsolete units, opportunities for counterfeiters have expanded. This has allowed for the use of traditional counterfeiting methods which include remarking the product type or speed of high end components.

Another indicator of the prevalence of counterfeit components is the scope of enforcement efforts that have been initiated to identify and interdict these bogus parts. Two of the initial efforts included operations “Cisco Raider” and “Network Raider” as identified by the Federal Bureau of Investigation (FBI). These actions specifically targeted counterfeit network hardware, to include network routers, switches, network cards and modules manufactured by Cisco and other well-known companies. Both of these efforts were international multiagency efforts that include the FBI, Homeland Security Investigations (HSI), Customs and Border Protection (CBP), Royal Canadian mounted Police (RCMP), Canadian Border Services Agency (CBSA), Defense Criminal Investigative Service (DCIS) and the Internal Revenue Service (IRS). These two efforts alone resulted in the issuance of more the 35 search warrants, 40 convictions and the seizure of $220 million in counterfeit network hardware.

Response

Due to the breadth of the infiltration and potentially devastating consequences congress, law enforcement and industry partners have undertaken multiple efforts to combat this problem.

In 2012, congress introduced a bipartisan amendment to the National Defense Authorization Act (NDAA). The intent of the amendment was to stop the importation of counterfeit electronic parts into the United States through the following measures: addressing weaknesses in the defense supply chain, implementing aggressive counterfeit avoidance practices across the entire defense industry, and actually defining what constituted a counterfeit or suspected counterfeit part.

While the amendment was passed in 2011, it wasn’t until the final rule was issued in 2014, that the Defense Federal Acquisition Regulation Supplements (DFARS) were changed to include the following; the definitions for counterfeit electronic part, suspect counterfeit part, electronic part and obsolete electronic part; the required reporting of counterfeit or suspect parts would be done through the Government-Industry Data Exchange Program (GIDEP); mandated that contractors and subcontractors have a review/detection process in place to identify counterfeit/suspect parts; and that contractors and subcontractors would not be held civilly liable for the reporting of counterfeit parts.

In 2011, the National Intellectual Property Rights Coordination Center (NIPRCC) initiated Operation Chain Reaction (OCR), a joint taskforce initiative comprised of sixteen law enforcement agencies. While there were efforts by individual agencies to identify and interdict counterfeit items entering the federal supply chain, OCR was the first time that IPR Center members had collectively addressed the issue. Since its inception OCR has resulted in numerous arrests, convictions and the forfeiture of millions of dollars. As a result, OCR was cited in the Joint Strategic Plan on Intellectual Property Enforcement.

In 2015, the Counterfeit Avoidance Accreditation Program (CAAP) was developed through industry efforts to mitigate the risk of introducing counterfeit parts into the supply chain for the aviation, space and defense industries. The program uses a managed approach that brings together technical experts from both industry and government, to ensure compliance with the standards associated with the prevention and detection of counterfeit parts. Industry partners work together to define operational program requirements, establish requirements for accreditation and grant accreditation. On March 2, 2017 Rockwell Collins become the first company in the world to achieve CAAP accreditation for its supply chain management procedures.