Texas Instruments, Xilinx Duped by Russia Export Ring, U.S. Says

Chip makers may testify in trial of accused conspirators
U.S. alleges computer chips were provided to Russian military
The unmarked business in an office park on the outskirts of Houston claimed to make traffic lights. In reality, it was a spy-run outfit that shipped sensitive technology to the Russian military, according to the U.S.

By claiming to be a manufacturer, Arc Electronics Inc. duped companies including Texas Instruments Inc., Xilinx Inc. and Toshiba Corp. to sell it sensitive electronic components, some of which were then funneled to the Russian military where they could be used in radar, surveillance systems or missile guidance systems, bypassing U.S. restrictions on such sales, prosecutors said.

The identities of the companies were disclosed during jury selection this week in Brooklyn federal court where three people who worked at the Houston-based exporter are on trial, accused of lying to the suppliers and U.S. officials.

The case underscores the challenge faced by technology firms and the U.S. government in trying to police where specialized electronics, often sold in huge batches, end up after they are purchased by third-party distributors. Some electronic components used in a wide variety of products, including home game systems, can also be used in military applications or can be modified for such uses.
Illegal Rings

Illegal rings that supply countries such as Iran, China and Russia are common and hard to identify, Douglas Jacobson, a lawyer specializing in trade compliance, said in an interview.

“It is difficult if you have a sophisticated group of individuals who are trying to procure these items,” said Jacobson, who is not involved in the case but has been following it. “Even the most compliant company can be duped.”

The names of the suppliers and manufacturers, which also included semiconductor-maker Analog Devices Inc., appeared on a list of possible witnesses at the Brooklyn trial. Officials from those companies are expected to testify that they were duped by the defendants, according to a person familiar with the case.

The technology firms are not charged with any crimes. A Xilinx official was subpoenaed to testify at the trial, the company said. It referred further inquiries to the Justice Department. Linda Kincaid, an Analog spokeswoman, declined to immediately comment. Representatives of the other companies didn’t immediately respond to requests for comment.
Guilty Plea

Alexander Fishenko, the owner of the company at the center of the illegal-export ring, pleaded guilty and admitted on Sept. 9 that he acted as a Russian spy.

Anastasia Diatlova, Shavkat Abdullaev and Alexander Posobilov “were a critical link in the supply chain designed to obtain microelectronics while hiding from outsiders where those parts were really ending up,” Assistant U.S. Attorney Richard Tucker told a jury on Tuesday.

Lies were “carefully crafted to avoid raising questions from suppliers who would stop the sales if they learned the truth,” Tucker said.

Linda Roche, a customer service worker at Analog, testified Friday that Fishenko misrepresented the nature of his business when he registered to place orders in 2005. His firm was allowed to buy products by signing up as a manufacturer, she said. His account was closed in 2006 after the technology company examined Fishenko’s business more closely, she said.

Many of the chips that Texas Instruments and the others make are basic components that have different applications depending on what kind of electronic system they are built into.

The U.S. restricts the export of some electronics components to countries such as Russia for use in military applications. Some of the chips can be exported without the same scrutiny if used for civilian purposes.
Xbox Component

For instance, some types of components at issue are used in Microsoft Corp.’s Xbox systems, U.S. Department of Commerce agent Todd Marr said in testimony Thursday.

Texas Instruments and its rival Analog Devices are two of the
largest makers of analog chips, simpler semiconductors that act as the interface between the real world and electronics. They have thousands of products used in devices ranging from space hardware to home electronics.

Xilinx makes chips that can be reprogrammed even after they’ve been installed in electronic devices. Its products are used in mobile phone and other communications networks. They’re also used as prototypes in the development of other chips.

Fishenko, Diatlova, Abdullaev and Posobilov were arrested in 2012. Fishenko, a dual U.S. and Russian citizen, pleaded guilty to secretly acting as an agent of the Russian government, conspiring to illegally export and illegally exporting goods, conspiring to launder money and obstructing justice.

About $30 million worth of products were illegally shipped through the scheme over a four-year period, prosecutors alleged. Texas Instruments had $13 billion in sales last year.

Diatlova, Abdullaev and Posobilov have denied wrongdoing. Morris Fodeman, a lawyer for Diatlova, who worked as a sales clerk, told jurors his client “earned barely above minimum wage” and “did what she was told when she was told.”

“At no time in her wildest dreams did she ever think she was committing a crime,” Fodeman said.