Getting Tough on Counterfeit PartsGetting Tough on Counterfeit Parts

The Federal Government is getting serious about counterfeit components in Department of Defense (DoD) systems.

Replacing parts in older IT equipment can have serious consequences when the parts are counterfeit. This affects both enterprises and government agencies.

The Federal Government is getting serious about counterfeit components in Department of Defense (DoD) systems. From a report by U.S. Senator Carl Levin, "Background Memo: Senate Armed Services Committee Hearing on Counterfeit Electronic Parts in the DOD Supply Chain" posted November 7, 2011:

"In March 2011, Chairman Carl Levin and Ranking Member John McCain announced a Senate Armed Services Committee investigation into counterfeit electronic parts in the Department of Defense's supply chain. Counterfeit electronic parts pose a risk to our national security, the reliability of our defense systems, and the safety of our military men and women. The proliferation of counterfeit goods also damages our economy and costs American jobs. The report is based on thousands of incidents analyzed by the Commerce Department--9,356 counterfeit incidents in 2008. One of the DoD problems is keeping the equipment operating for many years--often, the original manufacturers no longer offer the parts.

Even though the report is about the Department of Defense's supply chain, the information is relevant to the non-government IT community. The sources can be counterfeiting parts for the non-DoD market, whether government or private enterprise. Older IT systems may also be infiltrated by counterfeit parts. Counterfeit parts are a concern to companies that refurbish and resell IT systems.

Counterfeit Sources
Counterfeit parts can come from anywhere in the world. The parts found in the DoD supply chain were discovered by the DoD in 70 companies and contractors. The Senate post points out that 70% of all counterfeit parts come from China. The next 20% come from Canada and the U.K. These last two are known resell points for counterfeit parts originating in China. The DoD's definition of counterfeit parts, which is widely accepted by defense contractors, includes previously used parts that are made to look new, and are sold as new, in addition to newly fabricated parts that are counterfeit.

Making and Selling Counterfeit Parts
The counterfeit parts are usually salvaged electronic waste from the U.S. that has been shipped to Hong Kong. The parts are then shipped to China. One of the locations is the district of Shantou in Guangdong province. The desired parts are removed from the circuit boards. They are washed and then sanded to remove the old part number and date code and anything else that might identify the part. The parts are recoated to hide the sanding marks. Next, false markings are placed on the counterfeit part. The fake parts are then shipped to Shenzhen or other city to be sold on the open market and over the Internet.

The Risks
The Senate post stated, "The use of an electronic part that has been subject to the counterfeiting process can undermine the performance and reliability of defense systems. The risk to national security that arises from using these parts can include reduced reliability and availability of defense systems. Even when counterfeit parts pass acceptance testing, that risk remains."

Military Systems Affected
A number of military systems have been discovered to contain counterfeit parts. Counterfeit parts have been found in thermal weapons sights on THAAD missile mission computers. Multiple aircraft have had counterfeit parts installed including the C-17, C-130J, C-27J, P-8A Poseidon, AH-64, SH-60B, and CH-46. What is troubling is that these aircraft were produced by Raytheon, L-3 and Boeing, companies that should not have been fooled.

The NDAA Regulations
The National Defense Authorization Act (NDAA) of 2012 is focused on defense contractors who do not screen their equipment for counterfeit parts. There can be civil and criminal liability for contractors who do not eliminate counterfeit electronic parts in military equipment, according to the Forbes article, "NDAA May Put Defense Contractors In Prison For Counterfeit Parts," posted on February 14, 2012.

The Forbes article notes that the NDAA moves the burden of screening for counterfeit parts onto defense contractors. Forbes also points out that the provisions of the NDAA include civil and criminal penalties, with the possibility of life in prison when counterfeit parts result in death. The NDAA legislation makes it a crime for a first offense punishable by a fine of up to $2 million for individuals and $5 million for companies.

Even though the report is about the Department of Defense's supply chain, the information is relevant to the non-government IT community. The sources can be counterfeiting parts for the non-DoD market, whether government or private enterprise. Older IT systems may also be infiltrated by counterfeit parts. Counterfeit parts are a concern to companies that refurbish and resell IT systems.

Counterfeit Sources
Counterfeit parts can come from anywhere in the world. The parts found in the DoD supply chain were discovered by the DoD in 70 companies and contractors. The Senate post points out that 70% of all counterfeit parts come from China. The next 20% come from Canada and the U.K. These last two are known resell points for counterfeit parts originating in China. The DoD's definition of counterfeit parts, which is widely accepted by defense contractors, includes previously used parts that are made to look new, and are sold as new, in addition to newly fabricated parts that are counterfeit.

Making and Selling Counterfeit Parts
The counterfeit parts are usually salvaged electronic waste from the U.S. that has been shipped to Hong Kong. The parts are then shipped to China. One of the locations is the district of Shantou in Guangdong province. The desired parts are removed from the circuit boards. They are washed and then sanded to remove the old part number and date code and anything else that might identify the part. The parts are recoated to hide the sanding marks. Next, false markings are placed on the counterfeit part. The fake parts are then shipped to Shenzhen or other city to be sold on the open market and over the Internet.

The Risks
The Senate post stated, "The use of an electronic part that has been subject to the counterfeiting process can undermine the performance and reliability of defense systems. The risk to national security that arises from using these parts can include reduced reliability and availability of defense systems. Even when counterfeit parts pass acceptance testing, that risk remains."

Military Systems Affected
A number of military systems have been discovered to contain counterfeit parts. Counterfeit parts have been found in thermal weapons sights on THAAD missile mission computers. Multiple aircraft have had counterfeit parts installed including the C-17, C-130J, C-27J, P-8A Poseidon, AH-64, SH-60B, and CH-46. What is troubling is that these aircraft were produced by Raytheon, L-3 and Boeing, companies that should not have been fooled.

The NDAA Regulations
The National Defense Authorization Act (NDAA) of 2012 is focused on defense contractors who do not screen their equipment for counterfeit parts. There can be civil and criminal liability for contractors who do not eliminate counterfeit electronic parts in military equipment, according to the Forbes article, "NDAA May Put Defense Contractors In Prison For Counterfeit Parts," posted on February 14, 2012.

The Forbes article notes that the NDAA moves the burden of screening for counterfeit parts onto defense contractors. Forbes also points out that the provisions of the NDAA include civil and criminal penalties, with the possibility of life in prison when counterfeit parts result in death. The NDAA legislation makes it a crime for a first offense punishable by a fine of up to $2 million for individuals and $5 million for companies.