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May, 2018

US Justice Department charges California man with selling fake China-made semiconductors 

Original article: United States Department of Justice

A California-based seller of electronic components has been arrested and charged with selling counterfeit semiconductors with military applications from China. Rogelio Vasquez acquired "old used and/or discarded" ICs from China, then refurbished the devices and sold them as new - infringing on the marks of Xilinx, Analog Devices and Intel - to unsuspecting customers, U.S. federal authorities say. Overall, the indictment charges Vasquez with "nine counts of wire fraud, 20 counts of trafficking in counterfeit goods, and one count of trafficking in counterfeit military goods."

Analysis:

The most serious of the charges against Vasquez is trafficking in counterfeit military goods. Semiconductors are the computing brains of sophisticated electronic equipment used by the military. A 2012 report on counterfeit parts in the U.S. Department of Defense supply chain points out that U.S. fighter pilots use night-vision systems powered by tiny transistors to identify targets, while soldiers and Marines use radios and GPS devices [also powered by microelectronics] to stay in contact with their units and receive notifications of potential threats. Failure of just one electronic part could have dire consequences for military personnel, the report added.  


Testifying before the Senate Armed Forces Committee in November 2011, Brian Toohey, president of the Semiconductor Industry Association (SIA), called counterfeit ICs "a ticking time bomb, adding that they "place our citizens and military personnel in unreasonable peril." The SIA estimates that fake ICs cost U.S. semiconductor firms $7.5 billion a year. 


Years later, the problem remains serious, in part because some U.S. IC firms manufacture semiconductors offshore. "Loss of American control of this vital component and its attendant supply chain raises the risks of compromise of one of our most important technologies," wrote John Adams, president of security consulting firm Guardian Six LLC and a former U.S. Army brigade general, in a 2017 post on the Alliance for American Manufacturing website. 


Adams points out that the Defense Department requires semiconductors that meet military specifications – customized devices made for secure computing functions – "for which there is no commercial demand." If Washington continues to send IC work offshore, "the domestic knowledge base needed to produce these specialty components in a secure setting may eventually disappear," he wrote. 


Defective counterfeit semiconductors could cause catastrophic failure in a military scenario. Worse yet, chips could be infected with malware - which would allow the enemy to access the computers of individual pieces of equipment or even entire systems. In the 2015 fiction work Ghost Fleet: A Novel of the Next World War, malware that has infected China-made semiconductors in U.S. military hardware allows the PRC and Russia to deactivate Washington's weapons and communications systems, leading to the fall of Hawaii and its occupation by Chinese forces. 


It's a nightmare scenario - and one that could happen to any country. That's one of the reasons Chinese President Xi Jinping has doubled down on efforts to build an indigenous semiconductor-manufacturing base. "Internationally, if you don’t have the advantage of core technologies, you don’t have the political momentum. We must make a big effort in key fields and areas where there is a stranglehold," Xi said in 2013, according to a May New York Times report. 

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