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U.S. beefs up control of fake chips in supply chain

Posted: 17 Aug 2011 ?? ?Print Version ?Bookmark and Share

Keywords:fake chips? supply chain? counterfeit?

You can't tell if a chip is fake by just looking at it. You'll need more sophisticated equipment such as a digital camera, laboratory-grade high-powered microscope, reflected-light microscope, binocular stereo-zoom and even an X-ray inspection system.

As the criminals become more sophisticated, catching bogus parts is becoming increasingly difficult and costly. But catch them you must, especially if your company makes equipment for industries where bad parts could mean lost lives such as the auto, aerospace, medical or military markets. If you skimp on due diligence or "knowingly" buy counterfeit parts, you may be held liable.

An individual who buys counterfeit parts may be fined up to $2 million or may be imprisoned for up to 10 years, or even both.

The sheer number of counterfeit parts entering the supply chain is rising at an alarming rate. For example, in June, $852,000-worth of counterfeit SanDisk portable memory chips were discovered and seized by federal agents at the Port of Long Beach/Los Angeles, according to the Los Angeles Times. Agents from U.S. Customs and Border Protection (CBP) found the chips hidden inside 1,932 karaoke machines shipped from China.

Counterfeit computer hardware, including chips, was one of the top commodities seized in 2010 by U.S. Immigration and Customs Enforcement (ICE). Seizures in the category were up fivefold over 2009, ICE reported.

Between 2007 and 2010, ICE collaborated with CBP on more than 1,300 seizures involving a total of 5.6 million counterfeit semiconductor devices. The fake parts bore the trademarks of 87 Asian, European and North American semiconductor companies. More than 50 of the seized counterfeit shipments contained devices that were falsely marked as military- or aerospace-grade.

A 2010 U.S. Department of Commerce study of counterfeit electronics in the defense industry corroborated the trend. Based on responses from original component manufacturers (OCMs), the Commerce study found an increase of more than 150 percent in counterfeit parts in military and government applications between 2005 and 2008.

National security threat
The expansion of counterfeiting into the military and aerospace sectors is particularly worrisome. Many of the parts that contractors and government agencies buy are for electronic systems on aging planes, tanks and ships. Redesign is too expensive, so the only option is to purchase decades-old, obsolete parts in the aftermarket. It's an accident waiting to happen.

Indeed, the obsolete-parts market is particularly appealing to counterfeiters because of the high margins on the hard-to-find components and the anonymity of the gray-market distribution channel.

The gray market comprises unauthorized brokers, traders and distributors that match up buyers and sellers around the world. Most of these middlemen are aboveboard; some are not. Gray-market parts are acquired from a variety of sources, and some market participants neglect to authenticate the parts they buy.

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