Sweeping New Regs Coming On Counterfeit Electronics

By James A. Hayward

September 17, 2012

Viewpoint author Hayward is a molecular biologist and chairman and CEO of Applied DNA Sciences, a provider of DNA marking technology.

The National Defense Authorization Act for Fiscal Year 2012—specifically, Section 818—has caused turmoil within the electronics and aerospace businesses. In a few weeks, the new law will bare its teeth in the form of strict new electronics anti-counterfeiting requirements for defense contractors. The new legal language aims at nothing less than eliminating counterfeit electronics from the military supply chain, and it imposes unprecedented penalties for failing to comply. By early October, the law directs, the Defense Department must add anti-counterfeiting requirements to the document that governs all sales to the military, the Defense Federal Acquisition Regulation Supplement.

Even before the October deadline, the atmosphere was heating up regarding the flood of counterfeit parts. In August, the Defense Logistics Agency (DLA) chief, Vice Adm. Mark Harnitchek, said the agency was taking four major steps against counterfeits. One step involves a new technology, DNA marking. It uses botanical DNA to engineer molecules that can uniquely mark and authenticate components, for example by putting the DNA into the ink used to print lot codes. The DLA is requiring that contractors use DNA marking on certain especially high-risk Federal Supply Class 5962 microelectronics.

Driving these game-changing events is what appears to be a consensus among federal officials that the risks have become too high and the financial burden too great for inaction on the flood of counterfeit electronics. Last November, one Senate Armed Services Committee investigation found 1 million suspected counterfeit parts in the military supply chain.

In brief, Section 818 states that contractors must “monitor and detect” counterfeits and absorb rework and replacement charges. If there is a pattern of non-compliance, they face legal action, even debarment. Prime contractors are responsible for stricter controls around their own suppliers and subcontractors. All told, it could be argued that implicit in Section 818 is a new contractual standard of care for defense companies on electronics counterfeits.

It is difficult to overestimate the potential impact of Section 818. The Council of Defense and Space Industry Associations has sent an open letter to the Defense and Homeland Security departments, asking for additional time for implementation, adding, “Three months is simply not enough time to fundamentally change the nature of the existing global supply chain for the defense industrial base.”

If the intent of the new language is to “fundamentally change” the defense-industrial base, then new, advanced technologies and methods are clearly necessary. As the council's letter points out, time is indeed short and planning must begin now. In any case, it is clear that the plans, methods and technologies chosen to fight counterfeits now will powerfully shape the industry and federal response to this new legal requirement.

But what will it take to achieve compliance? It seems clear that a 21st-century solution will be necessary for this longstanding problem—new, more advanced technologies. That is not to cast negative light on existing anti-counterfeiting procedures, methodologies and standards. Especially in the last two years, both government and industry have been actively tracking the problem and developing options for response to what amounts to a national security crisis.

The problem is that the counterfeiters have not stood still either. In the last 10 years, electronics counterfeiting has morphed from an opportunistic criminal activity into an organized black market. Counterfeiters can too often make an end run around the industry's controls, especially when parts shortages occur or post-production chips are needed. Worse, counterfeits are not only purveyed by rogue actors, but also are sometimes surreptitiously introduced into the supply chain of even trusted vendors, including authorized distributors, as in the case of returns. All this means that existing standards, though necessary, are no longer sufficient.

The time to start planning for new anti-counterfeiting systems is now. Some distributors, such as Connecticut-based SMT Corp., have introduced sophisticated inspection and testing equipment to identify fakes. Industry standards committees, including SAE and the Independent Distributors of Electronics Association, have been working to refine new anti-counterfeiting procedures and processes. The clock is ticking. But one thing is clear, new technologies can be key to thwarting counterfeits in electronics critical to national security.

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