Counterfeiting electronic devices creates critical vulnerabilities in the supply chain – that collapses US hard power

a. The Integrity of Supply Chains and Critical Infrastructures.

When counterfeit computer and networking devices enter the supply chain, for example, they directly “undermine the reliability of our communications and transportation networks and create national security vulnerabilities. In addition, nation states target U.S. civilian industries for trade secret theft to obtain information that can be used to advance their domestic industries and military capabilities.”126

There are particularly significant consequences when the supply chain is one operated for the benefit of the U.S. Department of Defense (DOD). The existence of counterfeit parts in the DOD supply chain can, for example, delay or threaten military and intelligence missions, affect the integrity of sensitive data and secure networks, cause weapon or other system failures, and ultimately endanger the lives of service members. Almost anything is at risk of being counterfeited, including microelectronics used in fighter jets and missile guidance systems, fasteners used in aircraft, and materials used in engine mounts.127

The DOD supply chain is vast, covering over 4.7 million parts that are used in, for example, communication and weapon systems, at a cost of approximately $100 billion.128 “DOD draws from a large number of suppliers in a global supply chain—in both the acquisition phase and throughout a system’s operational and sustainment phases—providing multiple opportunities for the risk of counterfeit parts into these systems.”129 In particular, contractors rely on thousands of subcontractors and suppliers, including the original component manufacturers that assemble microcircuits and the mid-level manufacturers subcontracted to develop the individual subsystems that make up a complete system or supply.

United States of America v. Peter Picone

Case No. 3:13-cr-oo128 (D. Conn.)

In October 2015, an individual was convicted for conspiring with suppliers in China and Hong Kong to sell thousands of counterfeit integrated circuits, bearing the trademarks of approximately 35 major electronics manufacturers, intended for use in nuclear submarines by the U.S. Navy. Source: IPEC FY 2015 Annual Report

Based on an audit of reports submitted through the Government-Industry Data Exchange Program (GIDEP)—a program that allows government and industry participants to share information on nonconforming parts, including suspect counterfeit parts, via a web-based database—the Government Accountability Office found that 526 reports of suspected counterfeit parts were entered for fiscal years 2011 through 2015.130

Similarly, private supply chains are being infiltrated, resulting in counterfeit products unknowingly being passed along and sold directly to industries and consumers alike. With respect to industrial supply chains, the U.S. has identified sixteen (16) critical infrastructure sectors whose assets, systems, and networks, whether physical or virtual, are considered so vital to the United States that their incapacitation or destruction would have a debilitating effect on security, National economic security, National public health or safety, or any combination thereof.131 These critical infrastructure sectors span across various industries, including for example, information technology; critical manufacturing (e.g., electrical equipment, transportation equipment, etc.); food and agriculture; healthcare and public health; and energy.

The diversity of counterfeit and faulty goods not only creates extra costs for businesses and consumers, but can also corrupt critical infrastructure sectors and jeopardize public safety. From counterfeit electronic components used in information technology systems to counterfeit automotive parts; from counterfeit pharmaceuticals to counterfeit fertilizers and pesticides that contaminate food supplies, these and other products and components introduce potential problems along the supply spectrum, posing a growing threat to governments, industry and consumers.