Chinese Counterfeit COTS Create Chaos For The DoD
By Paul Kruczkowski, Editor
On November 8, the Senate Armed Services Committee (SASC) held a hearing to explore the so-called “flood” of Chinese counterfeit electronic parts that have infiltrated the Department of Defense (DoD) supply chain since 2009. According to reports reviewed during the hearing, counterfeit electronic parts have been installed or delivered to the military for use in thermal weapons sights, on THAAD missile mission computers, and on military aircraft including the C-17, C-130J, C-27J, P-8A Poseidon, AH-64, SH-60B, and CH-46. The hearing focused on three cases where suspect counterfeit electronic parts were installed on military systems and subsystems manufactured by Raytheon, L-3, and Boeing.
While investigations into the Chinese counterfeit parts are ongoing, what the preliminary SASC hearing uncovered is of great concern. Senators and defense industry leaders discussed the sources of counterfeit electronic parts and how they are made, as well as the cost and potential impact of counterfeit electronic parts on defense systems. The investigations also revealed that, in many instances, defense contractors were aware of the counterfeit parts but did not report them to the DoD in a timely manner.
Evidence Leads To China
During the hearing, committee members presented findings from several investigations into electronic part counterfeiting. One of these was a January 2010 Department of Commerce Bureau of Industry and Security report entitled “Defense Industrial Base Assessment: Counterfeit Electronics.” The report was based on a survey of 387 companies and organizations in the DoD’s supply chain — electronic parts manufacturers, distributors, assemblers, defense contractors, and the DoD itself. According to the report, the number of incidents of counterfeit parts increased from 3,868 in 2005 to 9,356 in 2008. The survey identified China as the source of counterfeit parts nearly 5 times more frequently than any other country.
The Armed Services Committee launched its own investigation into counterfeit parts in the DoD supply chain in March 2011. Committee staff read more than 100,000 pages of documents identifying counterfeit parts, and also interviewed dozens of people from all segments of the DoD supply chain. The investigation revealed 1,800 cases of suspected counterfeit parts since 2009, which accounted for a million individual electronic parts. The committee then selected 100 of those cases to trace the origin of the parts. More than 70% of them were traced back to China, and many more were tracked to known resale locations for Chinese electronics in the United Kingdom and Canada.
Many of the counterfeit electronic parts discovered in the DoD supply chain were salvaged from electronic waste shipped to Hong Kong from the United States and the rest of the world. The electronic waste ends up in counterfeiting districts of mainland China, such as Shantou in Guangdong Province, where electronic parts are burned off of old circuit boards, washed in a river, and dried on sidewalks. The parts are then sorted, and the original identifying marks are sanded off. Finally, the parts are recoated to hide the sanding marks, and state of the art equipment is used to print new counterfeit markings on the parts. The parts often look brand new after this process and are easily distributed around the world via the Internet.
Raytheon’s VP of Supply Chain Operations Vivek Kamath, who testified at the SASC hearing, said: “the amazing thing about [Chinese electronic counterfeiting] is it’s very open. There is nothing discreet about it. And it’s just almost as if it’s just accepted as another business model in the country.” So far, the Chinese government refuses to take action against counterfeiting industry.
Threat To The U.S.
Counterfeit electronic parts clearly threaten the performance and reliability of U.S. defense systems, even if the parts pass acceptance tests. In the case of the U.S. Navy SH-60B helicopter, for example, the counterfeit parts affect the forward looking infrared (FLIR) system, which provides night vision capability to the pilot and laser targeting for Hellfire missiles. If the FLIR system fails, the pilot’s ability to identify targets and avoid hazards at night is compromised, and the SH-60B cannot conduct surface attacks using its Hellfire missiles. The reliability of the FLIR system puts the helicopter’s availability in question and endangers the lives of soldiers that use the platform.
The SASC also acknowledged a secondary issue: how the rampant theft of U.S. intellectual property by Chinese counterfeiters severely impacts our economic security. According to the Semiconductor Industry Association (SIA), counterfeiting puts the current jobs of 200,000 American semiconductor workers at risk. SIA estimates that counterfeiting costs U.S. semiconductor manufacturers $7.5 billion a year in lost revenue and costs workers nearly 11,000 U.S. jobs.
DoD Defenseless?
Unfortunately, the U.S. defense industry is extremely vulnerable to the threat of counterfeit electronic parts. Many defense systems rely on commercial off-the-shelf (COTS) parts, which sometimes are manufactured for only a few years before being replaced by newer technology. Defense systems, on the other hand, often remain in service for decades, requiring an available supply of the now-obsolete parts. However, the DoD does not generate enough demand for the manufactures to extend production of these parts, so the DoD and its contractors are forced to source them from independent brokers and distributors. This greatly increases the risk of purchasing counterfeit parts.
What does the DoD need to do to defend itself from this counterfeit threat? The SAIC’s hearing revealed a great deal, but it is only the tip of the iceberg. More facts will be uncovered as the investigation continues. Rigorous testing of incoming components may prevent some counterfeit parts from entering the supply chain, but as long as the electronic counterfeiting business is allowed to operate unfettered in China, it will be very difficult for the U.S. defense industry to protect its systems from this threat.
What do you think the DoD should do to stem the tide of counterfeit electronic components entering the defense supply chain? Can defense contractors and the U.S. government even stop the counterfeits on their own, or does the Chinese government need to crack down on the counterfeit industry for this issue to be resolved? Tell us what you think in the comment section below.
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