Electronics Counterfeiters Get Their Day in Court

Just before the holidays in December 2015 the U.S. Attorney’s office in Connecticut was quite busy: three Chinese nationals were arrested and held on federal criminal complaints pertaining to counterfeit Xilinx components and stolen, military-grade semiconductors from the U.S. Navy that were set to be exported from the United States. On the same day, Jeffrey Krantz was sentenced for his part in a case involving distributor Harry Krantz Co. Jeffrey Krantz was charged with supplying customers “[…] with falsely remarked microprocessors, many of which were used in U.S. military and commercial helicopters.”

Both of these cases have been under investigation for years. The latest case involving the three Chinese nationals from HK Potential has been under investigation since 2006, according to Law 360. They were first suspected of trafficking in “approximately 34,495” counterfeit semiconductors and in 2014 and 2015 for selling “[…] 45 counterfeit Intel microprocessors to an undercover agent who advised […] that the components would be used on a U.S. Navy contract involving submarines.” The Intel microprocessors had been remarked as military grade and sold to the undercover agent.

The same representative from HK Potential “[…] allegedly asked the same agent about obtaining 22 military-grade Xilinx semiconductors [valued at] $37,000 per unit. When the agent said the parts could be stolen from a Navy base, “[the representative, Jiang Guanghou Yan], allegedly offered to provide fake components that could be swapped for the real thing, according to prosecutors.” The counterfeit components would have been a non-functioning component that looked identical to avoid initial detection of the theft.

Importantly, as the affidavit states and Law 360 details:

Yan had sought to export the components at least initially to China, a transaction that requires a license from the U.S. Department of Commerce’s Bureau of Industry and Security. The parts sought were field-programmable gate arrays, according to the affidavit. “The specific FPGAs requested by Yan are ‘space-grade, radiation-tolerant FPGAs’ that are ‘optimized for ultra-high-performance signal processing,’” the document stated.

The Jeffrey Krantz case went before the U.S. Attorney’s Office in CT the very same day. The Krantz case stretches back a handful of years to 2005 to 2008 when Jeffrey Krantz involved his father’s company in a counterfeit chip scam numbering in the thousands of units. The counterfeit chips also involved a Chinese company and Krantz imported the known counterfeit parts and sold them to distributor Bay Components which, in turn, sold them to a Connecticut company for use in U.S. military and commercial helicopters.

Both cases underscore the long-standing problem of counterfeits in the electronics and supply chain, as recently highlighted by EPS’ Russ Arensman. The latest revisions to the Defense Federal Acquisition Regulation Supplement. (DFARS), which outlines practices for avoiding counterfeits in the defense supply chain, seek to close a number of loopholes in electronics sourcing procedures.

Industry experts agree that while DFARS is one step toward better supply chain security, alone it is not enough. Prosecution and punishment are the consequences of trafficking in fake components. The challenge for both the industry and law enforcement is making it as difficult as possible to enter the supply chain, and to make the deterrents harsh enough to eliminate the potential loss of life and catastrophic failure due to counterfeit, substandard, and fraudulent parts.