We requested a retired NCIS agent about his expertise preventing the proliferation of counterfeit and demanding fraudulent components within the U.S. navy.
A retired particular agent with the Naval Legal Investigative Service (NCIS) wrote an article within the January/February 2023 version of Fraud Journal entitled “Battling Fraudulent Product Substitution“. Within the article, Stewart Thompson talks about his experiences utilizing proactive approaches to fight product substitution at Naval Air (NAVAIR) Techniques Command in Patuxent River, Maryland.
Product substitution is completely different from different forms of procurement fraud, similar to worth fixing, price mischarging, bribery, and subcontractor kickbacks. Counterfeit/non-conforming components can imply the distinction between life and dying, particularly when put in in navy plane and weapon methods. In keeping with Thompson, aggressive enforcement within the type of proactive operations is commonly the best strategy to cease these unhealthy actors; generally, it’s the one method.
Product substitution is simply as a lot a risk to mission readiness, lack of life and plane, and nationwide safety as we speak because it was a dozen years in the past, particularly within the throes of a world provide chain disaster and an elevated demand for out of date chips. We requested Stewart Thompson some questions to spotlight a very powerful takeaways from his article.
Q. What elements contributed to the success of the NCIS/NAVAIR proactive product substitution mannequin?
It was the primary time that NCIS’s Fraud, Cybercrimes, and International Counterintelligence Divisions labored collectively on the issue of counterfeit/faulty components within the DOD provide chain. Former Assistant U.S. Lawyer (AUSA) Sherri Schornstein described the work as “groundbreaking”. Second, NCIS collaborated with quite a lot of organizations inside and out of doors of NAVAIR. Third, the visionary management of NAVAIR Commanders ADM Walter Massenburg and ADM David Venlet, set a powerful ethical tone on the prime. This tradition of security fostered an overriding concern for product integrity and led to the creation of the Vital Security Merchandise (CSI) Workplace during which particular emphasis was positioned on important components to forestall catastrophic lack of life and plane. Fourth, the embedded NCIS agent proactively recruited sources, interviewed witnesses, made undercover buys, and researched pink flags similar to a disproportionate proportion of deficiency experiences, failed exams and inspections, prior felony investigations, and terminations for default and comfort, which led to the identification of suspect contractors.
Q. Are you able to inform us how the primary case that NAVAIR/NCIS labored on collectively to cease the trafficking of counterfeit built-in circuits to the U.S. Army obtained began?
As background, in 2006, the Semiconductor Trade Affiliation (SIA) created an Anti-Counterfeiting Process Power to coordinate with legislation enforcement within the investigation of counterfeit semiconductors. I had given fraud briefings to NAVAIR’s Workplace of Basic Counsel (OGC) and Techniques Engineering Division. Subsequently, BAE Techniques, a first-rate Authorities contractor, and a NAVAIR engineer contacted me and reported receiving suspect counterfeit microcircuits from a dealer that had bought them from VisionTech Elements. The appliance of those components was to be used in navy plane computer systems to establish hostile plane, Identification Buddy Foe (IFF). I seized the suspect components, together with Certificates of Conformance (CoC), as proof. A SIA member, an authentic element producer (OCM), examined the components and decided they have been counterfeit. In coordination with Homeland Safety Investigations (HSI) Nationwide Mental Property Rights Coordination Heart (IPRC) and the Assistant U.S. Lawyer’s Workplace, NAVAIR/NCIS made further covert purchases of microcircuits from VisionTech, which SIA additionally examined and recognized as being bogus.
Q. Are you able to give different examples how the NCIS/NAVAIR teaming association improved mission readiness and doubtlessly saved lives?
One SIA member reported that the Protection Logistics Company (DLA), which buys components from producers and suppliers for the warfighter, had procured counterfeit digital microcircuits from distributors that have been subsequently requisitioned by Hill Air Power Base and utilized in a number of U.S. Air Power platforms. NCIS instantly notified the AF Workplace of Particular Investigations (OSI) and DLA’s Fraud Counsel.
In one other occasion, an organization that provided catapult tools, important to plane safely taking off and touchdown aboard ships, to the DLA, did not weld JBD (jet blast deflector) brackets in accordance with the drawing specification; the failure of those components resulted in in depth injury to a provider and adversely impacted mission readiness for all carriers within the fleet. NCIS/NAVAIR labored with NAVAIR Depot Lakehurst to conduct inspections, make emergency repairs, present engineering help, and quarantine the discrepant components as proof in a possible felony continuing.
As well as, DLA created emergency funding to supply/procure further components. NAVAIR Lakehurst issued a Class 1 Product High quality Deficiency Report (PQDR), due to the potential for lack of life, mission and property and issued a particular bulletin to all carriers to interchange the faulty components. In one more case, DLA provided NAVAIR Depot Jacksonville with sheets stamped as being carbon metal. Since DLA and the contractor supplied no CoCs or take a look at experiences, and its meant use was for a CSI utility (retainer tube for fighter plane), engineering examined a pattern. The fabric failed chemical evaluation and didn’t even qualify as carbon metal. The contractor had marked the fabric to make it seem as if it have been in keeping with contract specs. But, with out testing, one would have by no means identified that the half had been manufactured out of the flawed materials.
Q. Are you able to describe strategies that counterfeit built-in circuits (IC(s)) have been launched into the DOD provide chain?
Investigations revealed that digital waste (e-waste) that’s shipped from the USA to China is commonly returned to the U.S. within the type of counterfeit components. For instance, circuit boards are heated over flames or with soldering irons to take away {the electrical} parts, that are then washed in rivers or unnoticed within the rain and humidity. The ICs are then sanded and remarked, typically with military-grade markings, to make them seem as new, to allow them to be offered at a premium worth. {The electrical} parts are then exported from China to ready distributors within the U.S., which promote them to different distributors or to DOD prime contractors. One other methodology is for distributors to reap the dies from semiconductors by drilling and de-caping the case and eradicating the center. The die is then shipped to Thailand with remarking/encasement directions after which returned to the DOD distributor in a “like new” situation for resale. In one other occasion, a contractor floor down markings of real decrease pace laptop processors and remarked the parts to make them seem as if they operated at a better pace to adapt with contract specs.
Q. Are there steps that Congress and business can take to mitigate the specter of non-conforming/counterfeit components within the DOD provide chain?
Congress has taken some motion because the Senate Armed Companies Committee (SASC) launched a report in 2012 detailing 1,800 cases of suspected counterfeit components discovered within the navy between 2009 and 2011. This has resulted within the passage of the Nationwide Protection Authorization Act (NDAA) – 2012 and amendments to deal with weaknesses within the DOD provide chain, i.e., requiring contractors to buy semiconductors from OCMs or their licensed distributors “every time potential” and to implement a counterfeit avoidance testing and reporting packages.
As well as, Congress handed a invoice, enhancing penalties for criminals, recognizing that promoting counterfeit navy parts must be handled otherwise than promoting different counterfeit merchandise, as a result of it poses a extra critical threat to well being, life, and nationwide safety. For the reason that SASC hearings, a number of recycling export payments have been launched within the Home to cease the move of e-waste to China; not one of the payments have handed.
The newest invoice, The America COMPETES Act of 2022, comprises language to cease the move of e-waste to China and different international locations which can be identified to counterfeit electronics; nevertheless, the Home and the Senate have been unable to agree on frequent language within the convention committee. As well as, NASA and the DOD have adopted Society of Automotive Engineers (SAE) AS5553(A) and different aerospace requirements, which standardize practices to detect, mitigate, keep away from, procure and report counterfeit digital parts.
Would it not be potential for Congress to construct on the semiconductor counterfeit legislative language to require purchases of important security gadgets, similar to mechanical parts, to be traceable to the OCM or Authentic Gear Producer (OEM)? It appears cheap for Congress to mandate that DOD keep traceability documentation for CSI fasteners, O-rings, and electrical connectors, displaying proof of producing and high quality certifications from the approved producer via all intermediate ranges to supply to DOD. As well as, a requirement for the Protection Contract Administration Company (DCMA) to conduct bodily product inspection of CSIs, at the least randomly of CSI distributors/producers, is one thing Congress would possibly take into account legislating.
Q. Your article factors out the problem of creating “intent to defraud” in a felony prosecution. What are some ways in which prosecutors can show “intent to defraud”?
Legal instances require that the defendant have a selected intent to defraud. It’s a excessive bar. Fraudulent intent may be inferred if, for instance, a contractor makes use of numerous firm names to import counterfeit microcircuits into the USA to thwart detection by Customs and Border Safety (CBP) inspectors. In one other instance, CBP provides contractors the chance to contest seizures of suspected counterfeit items. Ought to the businesses decline to problem them, then it might be suggestive of a responsible thoughts.
As well as, if OCMs mail licensed or registered “stop and desist” letters to contractors which can be allegedly infringing on the OCMs’ logos and the contractors proceed to import suspected counterfeit components, then it means that they’re conscious of the felony scheme. One other potential instance of fraudulent intent is DOD high quality inspectors analyzing and rejecting a contractor’s components as failing to adapt to contract specs; nevertheless, regardless of this, the contractor ships the identical components to the navy underneath a vacation spot acceptance contract or sells them to a DOD distributor together with a falsified CoC.
Interviews of former and present staff of a suspect contractor have additionally been worthwhile sources of data to point out proof {that a} contractor did not conduct contractually required testing and falsified take a look at experiences. As well as, making a number of undercover buys of non-conforming components from a suspect contractor is necessary to point out that the primary purchase of faulty components wasn’t an accident; this repeated sample of unlawful conduct makes it simpler to acquire a felony conviction and has a normal deterrent impact on different unhealthy actors desirous about participating in comparable felony exercise.
David Cenciotti is a journalist primarily based in Rome, Italy. He’s the Founder and Editor of “The Aviationist”, one of many world’s most well-known and browse navy aviation blogs. Since 1996, he has written for main worldwide magazines, together with Air Forces Month-to-month, Fight Plane, and plenty of others, masking aviation, protection, conflict, business, intelligence, crime and cyberwar. He has reported from the U.S., Europe, Australia and Syria, and flown a number of fight planes with completely different air forces. He’s a former 2nd Lt. of the Italian Air Power, a personal pilot and a graduate in Laptop Engineering. He has written 5 books and contributed to many extra ones.
