Agencies Join to Target Counterfeit Military Parts

(Corrects 14th paragraph to show 200, not 2,000 cases)

U.S. law enforcement and defense officials are banding together to intercept counterfeit military parts sold to the government, according to a federal immigration agency.

The effort, called Operation Chain Reaction, involves Immigration and Customs Enforcement, Customs and Border Protection, the Federal Bureau of Investigation, the Defense Criminal Investigative Service and Air Force, Navy and Army investigative units.

The agencies will rely on the National Intellectual Property Rights Coordination Center, a government task force focused on intellectual property theft, ICE said.

“Counterfeiting has evolved to such a great extent that intellectual-property thieves will sell just about anything that will make them a buck, with no regard for the integrity of the federal supply chain or the safety of our war fighters,” ICE Director John Morton said in a statement.

Immigration and customs investigators made 19,959 seizures of suspected counterfeit materials valued at $1.4 billion in fiscal 2010, a 34 percent increase from 2009, according to ICE.

Senate Armed Services Committee Chairman Carl Levin told reporters at a press conference that China has refused to issue visas to panel investigators looking for the source of counterfeit electronics being supplied to U.S. weapons systems.

Committee Probe

The committee in March began a probe into counterfeit parts, including microprocessors that were purchased by the Air Force for the flight control computers in Boeing Co. (BA)’s F-15 fighter jets and microcircuits for the U.S. Missile Defense Agency.

Chinese officials “cannot help themselves by denying access to their country for people on an official Senate mission,” said Levin, a Michigan Democrat. “That will hurt them.”

Levin and Arizona Senator John McCain, the panel’s top Republican, sent letters to the Chinese consulate in Washington to request the visas. The lawmakers said at the press conference that the Chinese officials had asked them to postpone the investigators’ trip.

The investigators have received reports that counterfeit electronic parts originated from Shenzhen, in Guangdong province, Levin said.

The Senate’s investigation involves “law enforcement and China’s judicial sovereignty, which should be respected,” Wang Baodong, the spokesman of the Chinese embassy in the U.S., said in an e-mailed statement. “We’ve been telling the congressmen’s offices that such issues are supposed to be raised through the normal channel of China-U.S. law enforcement cooperation, and we’re ready to stay in touch with the U.S. side.”

45 Active Investigations

The Defense Criminal Investigative Service, which is part of the Defense Department Inspector General’s office, has 45 active probes of counterfeit goods, according to James Ives, who is in charge of investigative operations.

The Government Accountability Office, Congress’s investigative arm, found last March that suppliers who knowingly misrepresent the identity or pedigree of parts have the potential to “seriously disrupt the Department of Defense supply chain, delay missions and affect the integrity of weapon systems.”

ICE investigated about 2,000 intellectual-property cases in fiscal year 2010, resulting in 365 arrests, 216 indictments and 170 convictions, according to the agency.

Ives said the DCIS also is investigating over 200 allegations of substandard or non-conforming parts that do not meet military specifications. The cases may involve counterfeits or improperly made parts, he said.

Lynn Warning

Deputy Defense Secretary Bill Lynn, in an article in Foreign Affairs last year on the Pentagon’s strategy to counter cyber intrusions, said that “already, counterfeit hardware has been detected in systems that the DOD has procured.”

Pentagon spokesman Colonel David Lapan said on Tuesday that Defense Department personnel have participated in the Senate Armed Services Committee’s investigation. Personnel from the Defense Logistics Agency, the U.S. Air Force and Navy were among those who took part, Lapan said in an e-mailed statement.

The GAO report disclosed the Army took delivery of counterfeit seatbelt clasps, the Navy computer routers and the Air Force microprocessors.

Ives pointed to the case of a Saudi national living in Texas who was found guilty in January 2010 of trafficking in counterfeit Cisco Systems Inc. (CSCO) “Gigabit Interface Converters” for a Marine Corps contract in Iraq.

The man bought 200 converters online from a Hong Kong-based Chinese vendor for $25 each. He billed the Marines $595 apiece before he was caught.

To contact the reporters on this story: Jeff Bliss in Washington at jbliss@bloomberg.net; Tony Capaccio in Washington at acapaccio@bloomberg.net; Roxana Tiron in Washington at rtiron@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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