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Conterfeit product found in Pentagon supply chain

By ALEXANDRA SCHWAPPACH, MEDILL NEWS SERVICE, Written for UPI   |   Nov. 8, 2011 at 5:12 PM
WASHINGTON, Nov. 8 (UPI) -- An investigation into the rise in the number of counterfeit products in the U.S. Department of Defense supply chain has U.S. officials pushing for an immediate change in defense manufacturing and trade.

The Government Accountability Office, at a U.S Senate Armed Services Committee hearing Tuesday, released a preliminary report that suggested counterfeit electronic parts in the U.S. defense system have the potential to affect the integrity of U.S. weapons systems, delay missions and even endanger the lives of U.S. troops.

In its investigation, the GAO created a fake company that would allow it to access Internet sites that buy and sell defense parts. It then put in 13 requests for fictitious parts from different vendors. As of Tuesday, seven of the 13 parts had been tested for authenticity and all seven are suspected to be counterfeit, the report stated.

Richard Hillman, managing director for Forensic Audits and Investigative Service, spoke at the committee hearing and said, in some cases, the vendor falsified information about when the product was manufactured. Most of the parts were stripped from older material and refurbished to look new, he testified.

"Certain parts were misrepresented as being newer than the actual parts could possibly be," Hillman said.

All of the parts purchased and received to date came from China -- 12 from Shenzhen and one from Beijing, he said.

But in China there is very little push to stop counterfeiting of any kind, said Thomas Sharpe, vice president of SMT Corp., an independent stocking distributor of electronic materials.

In fact, he said counterfeiting is seen as more of a "green initiative" in places like Shantou and Shenzhen, China.

In 2008 Sharpe visited the electronic component marketplace in Shenzhen, where he saw the processing and selling of counterfeit materials.

"Thirty to 40 percent of the broker-sold products at this marketplace were counterfeit," he said. "Counterfeiting performed in Shantou was not regarded as intellectual property theft or improper at all."

The Semiconductor Industry Association estimated that counterfeiting costs U.S. semiconductor companies more than $7 billion a year and nearly 11,000 U.S. jobs. SIA President Brian Toohey said a counterfeit semiconductor is a "ticking time bomb."

"Using a counterfeit chip is like playing Russian roulette," he said. "… In some cases the chip may work for a while but it could fail at a critical time."

U.S. Sen. Carl Levin, D-Mich., chairman of the Senate Committee on Armed Services committee, said the Chinese government is averse to take the necessary steps to shut counterfeiters down. In June, committee staff members were denied entry into Hong Kong when they sought entry to investigate the counterfeiting industry.

"That refusal only highlighted the Chinese government's total lack of transparency and unwillingness to act to stem the tide of dangerous counterfeits produced in China," Levin said.

To manage the counterfeiting problem, Levin said the United States needs more thorough product inspection from overseas suppliers, a better certification program for products being used by the Department of Defense and more oversight from defense contractors.

"We are going to act," Levin said. "We cannot rely on the Chinese to act. It's a threat to our troops and we're not going to let it go on."

A bill is expected to come to the committee floor within the next week, Levin said.

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