Oct. 3 (Bloomberg) -- The U.S. charged 11 people with involvement in an illegal scheme to export high-tech microelectronics to Russian military and intelligence agencies.
The case is “the first-ever criminal prosecution of a large-scale Russian military procurement network operating within the United States,” said Robert Nardoza, a spokesman for Loretta Lynch, U.S. attorney in Brooklyn, New York. A federal indictment dated Sept. 28 was unsealed today.
One of the accused is Alexander Fishenko, 46, an owner and executive of both the Houston-based export firm Arc Electronics Inc. and a Russia-based procurement firm, Apex System LLC. He is also charged with operating as an unregistered agent of the Russian government, the Justice Department said. Most of the other defendants were employees of Arc or Apex, the government said.
The microelectronics involved are subject to strict government controls, the Justice Department said. They can be used in radar and surveillance systems, weapons guidance systems and detonation triggers, according to the government. Arc shipped at least $50 million worth of microelectronics and other technology to Russia without an export license, the government said in a memorandum today to U.S. Magistrate Judge George C. Hanks Jr. in Houston.
Eight of the individuals have been arrested and are expected to appear in federal court in Houston today, Nardoza said. Three are at large, he said.
The defendants if convicted face as long as 20 years in prison on the most serious charges, violating the International Emergency Economic Powers Act and the Arms Export Control Act.
Fishenko, who was born in the then-Soviet Republic of Kazakhstan and graduated from Leningrad Electro-Technical Institute in St. Petersburg, Russia, immigrated to the U.S. in 1994 and initially worked in a Houston-area Circuit City store, prosecutors said in their memo to Hanks.
He secured U.S. citizenship in 2003, and told the government that he had no prior military experience, prosecutors said. Elsewhere, he claimed to have served in a Soviet military intelligence unit in the 1980s, they said in the memo. Fishenko founded Arc in 1998 and maintains significant contact with Russia, according to the government.
Prosecutors said in the memo that they have “overwhelming” evidence against Fishenko, including hundreds of e-mail and telephone communications. The government claimed he made many statements indicating his attempt to evade U.S. export controls and conceal his procurement functions.
On March 23, Fishenko directed an employee of a Russian firm to “make sure that our guys don’t discuss extra information, such as this is for our military client,” according to the memo. Prosecutors said Fishenko discussed falsifying end-user information in a Jan. 27 phone conversation with an employee at another Russian company, stating: “If you are making it up, make it up pretty, correctly, and make sure it looks good.”
A letter recovered during the investigation revealed that one of the end users of Arc’s exported electronics was the Federal Security Service, successor to the KGB spy agency, according to the memo. The U.S.-made memory chips and microprocessors supplied by Arc also appeared to be similar to those used in Russian anti-ship missiles and for the development of the MiG-35 fighter jet, according to the memo.
Many sophisticated components for electronic weapons, which include the technology exported by Arc, can’t be sourced in Russia, prosecutors said.
Arc conducted much of its business using shell companies located in countries including the British Virgin Islands, Panama and Belize, and exported goods primarily from New York’s John F. Kennedy International Airport, prosecutors said.
“The defendants tried to take advantage of America’s free markets to steal American technologies for the Russian government,” Lynch said in a statement. “But U.S. law enforcement detected, disrupted and dismantled the defendants’ network.”
Representatives for the Federal Security Service in Moscow had no immediate comment on the arrests. A lawyer for Fishenko, Jamie Joiner, didn’t immediately respond to a request for comment.
The case is U.S. v. Fishenko, 1:12-cr-626, U.S. District Court, Eastern District of New York (Brooklyn).
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