The electronics industry has tried a number of mechanisms to prevent counterfeit ICs and other components from entering the supply chain. Unfortunately, counterfeits remain all too common.
The U.S. Department of Justice announced it has charged distributor PRB Logics Corp. of Orange County, California, with the sale of counterfeit components. The counterfeit ICs could have been used in military applications, according to the DOJ.
Rogelio Vasquez has been charged in a 30-count indictment that alleges he acquired old, used and/or discarded integrated circuits from Chinese suppliers that had been repainted and remarked with counterfeit logos. The devices were further remarked with altered date codes, lot codes or countries of origin to deceive customers and end users into thinking the integrated circuits were new, according to the indictment. Vasquez then sold the counterfeit electronics as new parts made by manufacturers such as Xilinx, Analog Devices and Intel.
All of these techniques are used widely by counterfeiters. Some of the alterations are visible to the eye; others require sophisticated testing to be detected.
Vasquez, who is also known as “James Harrison,” was arrested without incident at his residence by federal authorities.
The indictment charges Vasquez with nine counts of wire fraud, 20 counts of trafficking in counterfeit goods, and one count of trafficking in counterfeit military goods, according to the DOJ. The charge related to counterfeit military goods alleges that Vasquez sold eight integrated circuits that appeared to be manufactured by Xilinx, knowing that such goods were counterfeit military goods, “the use, malfunction, and failure of which were likely to cause serious bodily injury and death, the disclosure of classified information, impairment of combat operations, and other significant harm to a combat operation, a member of the Armed Forces, and to national security.”
The electronics industry’s preferred solution to combat counterfeiting is sourcing through authorized channels only. Authorized distributors are audited by suppliers and receive components straight from the suppliers' factory. Authorized distributors also trace parts to verify they've remained in the authorized channel.There are also best practices to avoid counterfeiting, and some departments within the U.S. government have marked parts with plant DNA to make them traceable.
The wire fraud charges allege that Vasquez instructed his Chinese suppliers to remark ICs and instructed a testing laboratory in China to provide two versions of its report – one of which accurately showed integrated circuit test results and the second of which was a “sanitized version” that did not contain results of “any visual inspection and permanency or other marking tests, which would have revealed that the ICs were used, remarked and/or in poor condition,” the DOJ reported.
Counterfeits usually appear in the non-authorized channel, also known as the gray market. Non-authorized distributors are not franchised by suppliers, but many of them have taken stringent steps to avoid counterfeit components. These companies have differentiated themselves from brokers that buy components at a low price and resell them at a premium.
A federal grand jury returned the PRB Logics indictment on April 27. Federal prosecutors on April 23 filed an asset forfeiture complaint against $97,362 in cash seized from Vasquez’s residence in 2016. The asset forfeiture complaint outlines the investigation into counterfeit ICs and notes, “the sale of counterfeit [integrated circuits] into the stream of commerce is a significant problem for the U.S. military, due to the increased risk of equipment failure from using salvaged, sub-standard, or wrong components.”
The charges of wire fraud and trafficking in counterfeit military goods each carry a statutory maximum sentence of 20 years in federal prison. Each count of trafficking of counterfeit goods carries a maximum possible penalty of 10 years in prison.
The investigation into Vasquez and PRB Logics is being conducted by U.S. Immigration and Customs Enforcement’s Homeland Security Investigations; the Defense Criminal Investigative Service, and the National Reconnaissance Office, Office of Inspector General.