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Stiff Fines And Jail Time For Those Convicted Of Selling Counterfeits To The Military; New Acquisition Regulations Will Be Written
By Richard A. McCormack
editor@manufacturingnews.com
Any company or individual who knowingly sells counterfeit electronic parts or components used in military weapons systems had better beware: the Department of Defense is no longer going to sit back and let it happen.
In the 2012 Defense Authorization Act, Congress has imposed stiff fines and jail time to anyone found guilty of trafficking in electronic parts that knowingly use a counterfeit mark, "including labels, patches, stickers, wrappers, badges, emblems, medallions, charms, boxes, containers, cans, cases, handtags, documentation or packaging of any type or nature, knowing that a counterfeit mark has been applied thereto, the use of which is likely to cause confusion, to cause mistake or to deceive."
The penalties are stiff. An individual will be fined $2 million and faces a jail term of up to 10 years, or both. A company will be fined $5 million. "For a second offense an individual would be fined up to $5 million or imprisoned for up to 20 years, "or both." A company will be fined up to $15 million.
If a defective counterfeit part causes a personal injury or death, an individual found guilty of supplying the product will face a $5 million fine and up to 20 years in prison. A company will be fined up to $15 million. "In a prosecution, the defendant shall have the burden of proof, by a preponderance of the evidence of any such affirmative defense," says the Defense Authorization bill under section 818 "Detection and Avoidance of Counterfeit Electronic Parts."
A new era of regulations will soon be promulgated to reduce the risk of counterfeits. DOD is directed by Congress to assess all of its acquisition policies and systems for the detection and avoidance of counterfeit parts. This assessment will be conducted over six moths and will include revised guidelines for dealing with counterfeits, including training personnel to find them and creating a system to trace, inspect and report on fakes. DOD will develop rules to deal with a supplier "who has repeatedly failed to detect and avoid counterfeit electronic parts or otherwise failed to exercise due diligence in the detection and avoidance of such parts, including consideration of whether to suspend or debar a supplier until such a time as the supplier has effectively addressed the issues that led to such failures."
DOD will create a reporting system for military personnel to enter suspected counterfeit parts into a database called the Government Industry Data Exchange Program. Within 270 days of the passage of the Authorization Bill, DOD is directed to write new regulations under the Federal Acquisition Regulation (FAR) to address the detection and avoidance of counterfeits. These regulations will cover all contractors who supply electronic parts, including products that contain electronic parts.
Contractors will be "responsible for detecting and avoiding the use or inclusion of counterfeit electronic parts or suspect counterfeit electronic parts in such products and for any rework or corrective action that may be required to remedy the use or inclusion of such parts," says the 2012 Authorization bill. The contractors will have to pay the cost of remediation.
DOD is further directed to purchase parts from original manufactures or their authorized dealers "or from trusted suppliers who obtain such parts exclusively from the original manufacturers."
If the parts are no longer being made by the original manufacturers, they must be purchased from "trusted suppliers." DOD is told to create regulations that "establish requirements for notification" to the DOD when a contractor or subcontractor obtains parts from "any source other than" the original manufacturer or trusted distributor.
DOD will also become more active in the trusted supplier program, by establishing qualification requirements, policies and procedures to identify "trusted suppliers that have appropriate policies and procedures in place to detect and avoid counterfeit electronic parts and suspect counterfeit electronic parts."
Trusted suppliers will be subject to reviews and audits from DOD. They must assume responsibility for the authenticity of parts provided. And they must adhere to industry standards for identifying trusted suppliers.
The Department of Homeland Security will also get involved. It will create a new system "for the enhanced targeting of electronic parts imported from any country."
The National Defense Authorization Act for Fiscal Year 2012 (Conference Report to accompany HR 1540) is located at www.rules.house.gov/Media/file/PDF_112_1/legislativetext/HR1540conf.pdf.
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