Senators: Fake Electronics Endanger Troops

A flood of counterfeit electronics parts made in China is making its way into U.S. military equipment and putting troops' lives in danger, Senate lawmakers warned Tuesday.

In an extraordinary hearing, Senate Armed Services Committee Chairman Sen. Carl Levin detailed the ways that decades-old parts were sold as new to U.S. defense contractors, which installed them in new equipment in service today.

The presence of the fakes means they could fail in "life or death situations," senators said, when troops are relying on their electronics in combat or other extreme cases. "A counterfeit semiconductor is a ticking time bomb," said committee witness Brian Toohey, president of the U.S. Semiconductor Industry Association.

Lawmakers' and witness statements made it sound as though the problem is criminal fraud, not deliberate sabotage, but they also said Chinese officials would not cooperate with a Senate investigation or step in to stop the counterfeiting.

The system works like this: Old circuit boards and other electronics, dubbed "e-waste," make their way to the Chinese city of Shenzen, where workers pry off components, wash them in a river and change their markings to make them look new. Counterfeiters use new digital printing equipment to put different markings on the old chips, then package them as today's latest models. The parts can sell for as much as 70 percent less than the real thing.

Levin described how a chain of companies brings these fake chips from the Shenzen markets to U.S. military equipment. He began with the example of a Forward-Looking Infrared sensor aboard a Navy SH-60B Seahawk helicopter, built with fake components that might stop it from working correctly. The helicopter crew needs its FLIR sensor to operate at night and to use one of its key anti-surface weapons, the Hellfire missile.

"So, how did a suspect counterfeit part end up in a night vision and targeting system intended for a Navy helicopter in the Pacific Fleet?" Levin asked. "The Electromagnetic Interference Filters were sold to Raytheon by a company called Texas Spectrum Electronics, a defense subcontractor in Texas.  Those three FLIRs contained transistors that Texas Spectrum bought in July 2010 from a company called Technology Conservation Group or TCG."   

"TCG, it turns out, is both an electronics recycling company and an electronics distributor.  The transistors at issue were mixed in among 72 pounds of miscellaneous excess inventory that a Massachusetts company called Thomson Broadcast sent to TCG as "E-scrap."  … Where did Thompson Broadcasting get the parts?  They bought them in April 2008 from a company called E-Warehouse in California. And E-Warehouse? They bought them from Pivotal Electronics, an electronics distributor in the UK.  We asked Pivotal where they bought them.  Their answer?  Huajie Electronics Ltd. in Shenzhen, China."

Levin also described fake parts discovered in the instrument panels aboard the C-27J Spartan cargo plane and in the ice-detection equipment aboard the Navy's P-8 Poseidon anti-submarine plane. The three examples he gave "are just a drop in the bucket," he said.

Levin said committee investigators have tried to visit the fakes factories in Shenzen, but Chinese officials would not let them enter the country. In fact, he said, China warned the Senate committee that its report could be "damaging" to the countries' relationship. Levin and lawmakers on both parties lashed out at China's reluctance to cooperate with the probe or to crack down on the counterfeiters.

"This is a serious issue, and the Chinese government can stop it," said the committee's ranking Republican, Sen. John McCain. "If the Chinese government doesn't stop it, it continues to pose a national security risk."

Levin and Massachusetts Republican Sen. Scott Brown were frustrated that as it stands today, taxpayers are responsible for the cost of replacing fake components.  "Unless you can prove they were intentionally counterfeit, we end up paying for it," Levin said.

But he wants that to change -- Levin said he wants to change the Defense Department's acquisition procedures so that contractors are responsible for the costs of fake parts. That will encourage them to pay closer attention to quality control before they deliver the electronics equipment on which troops rely, he believes.

Toohey, of the Semiconductor Industry Association, also told lawmakers that Congress should change a law restricting who may inspect semiconductors when they enter the United States. New customs policies that would enable outside authorities to authenticate imported chips might help stanch the flow of fakes, he said.

The problem, said another witness, is that the fakes keep getting better. Thomas Sharpe, vice president of component distributor SMT Corp., said although counterfeit electronics have always been a problem, "it's growing much worse as the counterfeiters are changing their processes to get in front of the processes we're currently using to detect their processes."

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