Another year, another counterfeiter. The United States Attorney for the District of Connecticut announced in December that component distributor Jeffrey Warga, 61, of North Kingstown, R.I., waived his right to indictment and pleaded guilty before a U.S. District Judge in Hartford to one count of conspiracy to commit wire fraud.
What is particularly notable about this incident is the following: From approximately July 2005 until November 2008, the U.S. Attorney's Office charges, Warga and others engaged in a scheme to defraud their business customers, including a Connecticut company, by falsely representing that the electronic parts they sold were not from Asia when, in fact, the parts had been purchased from companies located in Asia; were new parts from the original manufacturer when, in fact, the parts were used; and were authentic parts when, in fact, Warga and his co-conspirators knew the parts were counterfeit parts.
The parts were “misrepresented” as new and authentic. If the devices were flagged as false before they made it into end-products, that’s an indication that anti-counterfeiting efforts are working. But the issue of “representation” is a sticky one, particularly as it pertains to the defense and aerospace supply chains. Proving that a device is authentic is harder than it seems.
A profile of Warga’s company, Bay Components LLC, states it was a supplier to the Department of Defense. The timeframe cited – 2005 to 2008 — was well before the National Defense Authorization Act (NDAA) was passed. The NDAA tightens the government’s supply chain so that incidents of counterfeiting are reduced.
The NDAA and related efforts are of particular interest to electronics distributors. As it was drafted, the NDAA allows defense contractors to source from “trusted suppliers.” It also requires that components be traceable back to the original component manufacturer (OCM).
Authorized distributors are franchised by OCMs and therefore can represent parts as manufacturer-direct. Non-authorized distributors frequently source from the open market which buys and sells parts from OEM and EMS excess. Counterfeit parts have been mixed with authentic parts in the open market and resold as genuine. Component traceability may be compromised in the open market as parts pass from factories to distributors, OEMs and EMS companies and then resold. Documents attesting to component authenticity are easily forged. Therefore, authorized distributors say the only way to guarantee against counterfeits is to source through authorized distribution.
Many devices used in defense applications are no longer manufactured by component suppliers. Defense and aerospace equipment has a lifespan that often exceeds the components that they use. Once components are declared end-of-life (EOL) they are often sold into the open market. Because the open market is the only source for some of these components, defense contractors want to be able to source from “trusted suppliers” and not just authorized distributors. Many non-authorized distributors have adopted rigorous test procedures for all incoming and outgoing components and are audited by their customers.
There is no easy solution to counterfeiting. In addition to the NDAA, the electronics industry has drafted a number of standards to combat counterfeiting. The U.S. Defense Logistics Agency (DLA) has been using plant DNA to ensure traceability of components. Companies such as Rochester Electronics re-manufacture devices that have been declared EOL.
Tougher penalties may also help. According to the U.S. Attorney's Office, the charge of conspiracy to commit wire a fraud carries a maximum term of imprisonment of 20 years. The Bay Components, LLC case is being prosecuted by Assistant U.S. Attorney Felice M. Duffy. A sentencing date has not been scheduled.
New methods to battle counterfeiting continue to be developed. Expect more of the same in 2015.