"Blame China" profiting from the Pentagon's counterfeit parts scandal

by Dave Gonigam

Imagine for a moment: You're the pilot of a Navy helicopter. You're on the hunt for an enemy submarine. It's dark out. You're depending on the copter's night-vision system. And suddenly, the system goes blank.  You're the victim of counterfeit parts that originated in China.

Fortunately, this is a hypothetical scenario. But fake parts from China did end up in the Navy's SH-60B helicopter. And they had the capacity to trash the night-vision system.

Nor is the SH-60B an isolated incident. A Senate report issued nine months ago found much more...

• Counterfeit parts, also from China, ended up in critical gauges and dials of C-130 and C-27 cargo planes
   
• Used parts made to look new ended up in the P-8A -- a Navy version of the Boeing 737 used for anti-submarine warfare. Once again, the parts were traced to China.

The Senate investigation uncovered 1,800 cases... involving more than 1 million suspected counterfeit parts that ended up in U.S. military aircraft.  Hearings were held. Outrage was expressed. Senators huffed and puffed.

"Our report outlines how this flood of counterfeit parts, overwhelmingly from China, threatens national security," spewed Sen. Carl Levin, chairman of the Armed Services Committee.

"We can't tolerate the risk of a ballistic missile interceptor failing to hit its target, a helicopter pilot unable to fire his missiles or any other mission failure because of a counterfeit part," spat John McCain (R-Ariz.).

"The root cause of the problem is not China, but rather the U.S.," counters a report from the University of Maryland's Center for Advanced Life Cycle Engineering. CALCE, as it's known, is frequently asked to investigate counterfeit electronics.

"The responsibility for counterfeiting," the report reads, "most often lies with unauthorized U.S. suppliers (distributors and other midtier suppliers), as well as the prime contractors who fail to properly vet their suppliers and ascertain the sources of the parts that they buy.

"These unscrupulous U.S. companies often commission the counterfeiting of parts from foreign suppliers in Vietnam, the Philippines, Thailand and China. Add to this mix the fact that the U.S. offshores its scrapped electronics to Chinese parts reclamation mills and you have a supply source of obsolete electronics components coveted by U.S. military suppliers."

Amazingly, these facts are not lost on members of Congress. So when they drew up the current defense budget, they imposed new requirements on contractors aimed at keeping bogus parts out of the supply chain.
 

Chief among those requirements: Contractors' computer chips must employ anti-counterfeiting methods that meet Pentagon standards. The standards are tight enough that only one method makes the cut. As we noted yesterday, the company that developed the method has a mere 26 employees right now.

That's a lot of business to be funneled through one tiny company; the Pentagon's chip purchases make up more than 1% of a $300 billion annual market.