Procurement: Death By Counterfeit

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November 15, 2011: The United States recently announced that it had uncovered 1,800 instances of suspected counterfeit parts (involving over a million individual components) sold to suppliers of weapons and equipment to the Department of Defense. China was the largest source of such counterfeit parts, partly because corruption in China prevents the government there from cracking down. Then there's the growing number of Chinese companies that will try to improve their profits by putting more and more of the cheaper counterfeit parts in shipments of legitimate ones to customers they have established relationships with. This may seem counterproductive, but it appeals to many Chinese businessmen.

This counterfeit parts scam is not just directed at the United States. It's a growing problem for the Russian military, and even the Chinese armed forces. Counterfeiting of luxury goods (perfume, women's accessories, music CDs, etc.) is pretty well-known. While this poses a threat to the profits of some high-end businesses, it generally doesn't rise to the level of a national security issue. But that has been changing. Each year, American customs officials are seizing over a billion dollars in counterfeit goods that were shipped to the United States. The amount keeps rising each year, despite energetic efforts to curb counterfeits. The stuff is just too profitable. A lot of this stuff consisted of items the military buys. That included such diverse stuff as electronic chips and metal fasteners.

While there have been no Americans killed because of counterfeit parts, there are a growing number of maintenance problems related to the sub-standard parts (which fail sooner). Eliminating that problem is expensive, as it means spending more to inspect Chinese parts, or buying more expensive parts from more reliable non-Chinese suppliers.

Over the last five years, the U.S. Department of Defense has discovered an increasing number of replacement parts and computer equipment they bought that included counterfeit components. That is, items produced by an unlicensed manufacturer, usually in Asia, that are labeled and marketed as the real thing. Generally counterfeits are superficially indistinguishable from the real thing, but tend to be of lower quality. In short, counterfeit components in critical systems could behave in ways not anticipated, or create dangerous situations by failing in unanticipated ways.

Counterfeit parts have already been involved in causing accidents in civilian aviation and failures in other sectors as well. But there's more. Counterfeit electronic parts can have components added that make it easier for someone to take control of a network the component is part of. This is the sort of thing people at the CIA have long contemplated, but with all the counterfeit electronic components, particularly networking items like routers, coming out of China, the risk of installing "infected" components is now less theoretical. But the main problem is simply substandard, counterfeit components, which will not perform as well, or for as long, as the originals.

And it's not just the United States. Russian aviation officials were alarmed when, upon inspecting 60,000 aircraft parts, they found that nearly a third of them were counterfeits. While most of the substandard fake parts came from neighboring countries, many were made in Russia. While China wins first place when it comes to stealing technology and producing counterfeit goods, Russia is solidly in second place, turning out about a third as many counterfeit goods as China. Russia's neighbors, many former parts of the Soviet Union, have the same bad habits. But Russia and China together produce about 80 percent of counterfeits.

Western nations would like to get both Russia and China to crack down on the counterfeiting. That has not been easy. In both countries, the counterfeiting is a multi-billion dollar a year industry, run by guys who know how to bribe the right politicians. The counterfeiters have another incentive to keep the prosecutors at bay; counterfeiting kills. Phony medicines and aircraft engine parts have both been linked to deaths in Africa and Asia, where the imitation goods are often sold. If brought to justice, Chinese and Russian counterfeiters would likely be executed.

 

 


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