Procurement: A Very Common, Very Secret Weapon

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November 19, 2021: Three men associated with an American clothing company are accused of conspiring to substitute $20 million worth of military clothing and other gear with foreign made counterfeits. The American company certified that its goods met military standards and charged the going price. To increase their profits the three men contacted Chinese and Pakistani manufacturers who could produce identical looking items made of cheaper, and inferior, materials. The overseas firms would have realistic looking labels sewn into the counterfeit items.

The counterfeit items had two major deficiencies. The main problem was that portions of the clothing were not made of fire-resistant material. Other items of clothing lacked the special materials that made the parkas difficult to detect using night-vision goggles. Counterfeiters will often get around these defects by presenting samples for inspection and testing that did meet the standards. Then they would ship all the rest of the purchased items that looked like the samples but were actually the foreign fakes. In this case the fakes were detected and reported. This led to a fraud investigation because there has been a lot more of this substitution going on since the 1990s. Confronted with the evidence two of those indicted have pled guilty.

Since 2010 the U.S. government has been investigating and prosecuting more frequently in an effort to cope with the growing problems with counterfeit electronic components, military clothing, equipment and vehicle parts coming out of China. Not only are many of those bad items getting into American military equipment but China refuses to shut down the manufacturers. To make matters worse, China refuses to allow many American government investigators to get anywhere near these factories. It's all about corruption in China, where the manufacturers of the counterfeit parts pay bribes to the right officials and they are protected.

In 2011 the U.S. government announced that it had uncovered 1,800 instances of suspected counterfeit parts (involving over a million individual components) sold to suppliers of weapons and equipment to the Department of Defense. China was the largest source of such counterfeit parts. Then there's the growing number of Chinese companies that will try to improve their profits by putting more and more of the cheaper counterfeit parts in bathes of otherwise legitimate systems. These would often go to customers they have established relationships. This may seem counterproductive but it appeals to many Chinese businessmen.

This counterfeit parts scam is not just directed at the United States. It's a growing problem for the Russian military and even the Chinese armed forces. Counterfeiting of luxury goods (perfume, women's accessories, DVDs, etc.) is pretty well-known. While this poses a threat to the profits of some high-end businesses, it generally doesn't rise to the level of a national security issue. But that has been changing. Each year American customs officials are seizing over a billion dollars in counterfeit goods that were shipped to the United States. The amount keeps rising each year, despite energetic efforts to curb counterfeits. The stuff is just too profitable. A lot of these fakes were irrelatively common items commercial firms and the military both purchase. That included such diverse stuff as electronic chips and metal fasteners.

While there have been no Americans killed because of counterfeit parts, there are a growing number of maintenance problems related to the sub-standard parts (which fail sooner). Eliminating that problem is expensive, as it means spending more to inspect Chinese parts or buying more expensive parts from more reliable non-Chinese suppliers.

Counterfeit parts have already been involved in causing accidents in civilian aviation and failures in other sectors as well. But there's more. Counterfeit electronic parts can have components added that make it easier for someone to take control of a network the component is part of. This is the sort of thing people at the CIA have long contemplated but with all the counterfeit electronic components, particularly networking items like routers, coming out of China, the risk of installing "infected" components is now less theoretical. But the main problem is simply substandard, counterfeit components which will not perform as well, or for as long, as the originals.

And it's not just the United States. Russian aviation officials were alarmed when, upon inspecting 60,000 aircraft parts, they found that nearly a third of them were counterfeits. While most of the substandard fake parts came from neighboring countries, many were made in Russia. While China wins first place when it comes to stealing technology and producing counterfeit goods, Russia is solidly in second place, turning out about a third as many counterfeit goods as China. Russia's neighbors, many former parts of the Soviet Union, have the same bad habits. But Russia and China together produce about 80 percent of counterfeits.

Western nations would like to get both Russia and China to crack down on the counterfeiting. That has not been easy. In both countries the counterfeiting is a multi-billion dollar a year industry, run by guys who know how to bribe the right politicians. The counterfeiters have another incentive to keep the prosecutors at bay: counterfeiting kills. Phony medicines and aircraft engine parts have both been linked to deaths in Africa and Asia, where the imitation goods are often sold. If brought to justice, Chinese and Russian counterfeiters would likely be executed.

 


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