June 15, 2012    Volume 19, No. 10

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Boeing's Planes Are Riddled With Chinese Counterfeit Electronic Components

By Richard A. McCormack

The Senate Armed Services Committee's year-long investigation into counterfeit electronic parts in military weapons systems has revealed a problem that goes beyond the military. In looking at a small segment of the defense supply chain, the committee's investigative staff found 1,800 cases of counterfeit electronic parts in critical military weapons systems. "The total number of individual suspected parts involved in those cases exceeded one million," says the investigation.

Some of these counterfeits, however, are used in military systems that are based on commercial products, meaning the counterfeit parts scourge is broader in scope than those in the private sector either know or have acknowledged. For many defense contractors deep in the supply chain who were found to be purchasing fake Chinese parts, the military represents only a portion of their sales.

The problem goes well beyond the lower tier of suppliers, however. The Pentagon's P-8A Poseidon aircraft is a modified version of the Boeing 737 commercial airliner. As described by the Armed Services Committee investigation, the aircraft is riddled with illegal Chinese electronic parts.

A "critical" counterfeit part used for ice detection "had literally fallen out of its socket and was found rattling around inside the module," according to the Senate Armed Services Committee. The Navy told Boeing that it "should not have been on the airplane originally and should be replaced immediately."

Investigators from the Armed Services Committee were intrigued by the story and went on a hunt. They found that BAE Systems, which manufactured the module for Boeing, "discovered that the part, and hundreds of others from the same lot, was a previously used part made to appear new," according to the Senate Armed Services Committee. "While BAE notified Boeing about the suspect parts in January 2010, it took Boeing more than a year and a half to notify the Navy." It was only because of the Senate investigation that any of the parties acknowledged the situation. The Committee staff produced a series of e-mails from those involved that described how they should deal with the investigators.

Committee staff dug further and found that BAE purchased the parts from Tandex Test labs in California, which failed to test the parts before selling them to BAE. "The company had bought the parts from an independent distributor in Florida, who, the Committee discovered, purchased them from an affiliate of A Access Electronics in Shenzhen, China."

Having gotten this far, the Committee staff wanted to trace the part (and others) to its original supplier in China. But China denied issuing visas to the Committee staff conducting the investigation. "Rather than acknowledging the problem and moving aggressively to shut down counterfeiters, the Chinese government has tried to avoid scrutiny," says the Armed Services Committee investigation.

The Boeing P-8A was plagued by other Chinese counterfeits, including field programmable gate arrays in Honeywell-supplied distance measuring equipment. In that case, too, the Committee staff described the runaround it got from Boeing.

Rockwell Collins also was implicated in counterfeits used on the Boeing P-8A. The company had purchased parts from MVP Micro and Labra Electronics, "two independent distributors whose operators were indicted in October 2009 for conspiracy, trafficking in counterfeit goods and mail fraud in connection with the importation of counterfeit electronic parts from China," says the Armed Services report.

"On April 4, 2012, Boeing notified the Committee of another suspect counterfeit part," according to the staff. This one was associated with parts supplied by Xilinx on two digital video recorder units provided to Boeing by L3 Communications Systems.

In all, the Armed Services Committee looked into 100 specific cases of counterfeit military parts, 70 percent of which were traced to China. One of the witnesses who worked with the Committee said that there are factories in China with 10,000 to 15,000 people "set up for the purpose of counterfeiting."

Committee staff found counterfeit parts in essential military systems, such as the Missile Defense Agency's Terminal High Altitude Area Defense (THAAD) missile; on helicopters (SH-60B, AH-64 and CH-46); and on aircraft (C-17, C-130J, C-27J).

The investigation "revealed failures by defense contractors and DOD to report counterfeit parts and gaps in DOD's knowledge of the scope and impact of such parts on defense systems," says the study. "The investigation exposed a defense supply chain that relies on hundreds of un-vetted independent distributors to supply electronic parts for some of our most sensitive defense systems."

The Senate Armed Services Committee investigation has become a rarity in Congress. Most committees are overwhelmed with dealing with day-to-day issues associated with legislation and oversight. But Senate Armed Services Committee Chairman Carl Levin (D-Mich.) is also chairman of the Senate Governmental Affair's permanent subcommittee on investigations. He believes it is important for Congress to conduct investigations. He and Sen. John McCain (R-Ariz.) placed five staff members on the task and they had a year to penetrate defense supply chains and analyze the depth of the problem.

They found that 30 percent of the counterfeit electronic parts and components are still in production. There is no reason for the government and its contractors to be acquiring such parts if buyers are using authorized manufacturers and distributors, according to the Senate Committee. Requiring DOD to buy parts currently in production from authorized manufacturers and distributors should reduce 30 percent of the counterfeit problem. But the remaining 70 percent are parts that are out of production or are obsolete.

Last year's National Defense Authorization Act included provisions to deal with these counterfeits. It requires the Secretary of Defense to issue new acquisition policies that require contractors to establish "aggressive inspection and testing practices." Any counterfeit parts found must be reported. It is also important for there to be enhanced inspections at the border, though if the market is being flooded as it is now, the problem has to be dealt with at the source, according to the Committee. But China refuses to cooperate.

The Committee investigators also tracked cases of counterfeit electronics in the Navy's SH-60B helicopter's night vision system back through the supply chain. They found that the parts were sold to Raytheon by a defense subcontractor in Texas, and through a complex web of companies that "spanned four states and three countries, originating with a company called Huajie Electronics Ltd. in Shenzhen, China," says their investigation.

The staff followed another trail of counterfeit semiconductors used on military aircraft and supplied by L-3 Display Systems to defense contractor Alenia. Both companies failed to alert the Air Force that the products were defective. The Committee staff said the chips were purchased from an electronics distributor in California that had purchased them from Hong Dark Electronic Trade, a company in Shenzhen China.

"In addition to the memory chips, the Committee's investigation revealed that in 2009 and 2010, L-3 Communications purchased tens of thousands of Hong Dark supplied electronic parts that entered the defense supply chain." The Air Force estimates that Hong Dark has supplied 84,000 counterfeit electronic parts to the U.S. military that are now "installed on DOD aircraft."

The 73-page investigation, "Inquiry Into Counterfeit Electronic Parts in the Department of Defense Supply Chain" (Report 112-167), is located at http://armed-services.senate.gov/Publications/Counterfeit%20Electronic%20Parts.pdf.

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