Senate Committee Investigating Counterfeit Electronic Parts in Military Supply Chain

Last week, the Senate Armed Services Committee announced that it has launched an investigation into counterfeit electronic parts in the Department of Defense's supply chain.

According to a statement by Senators Carl Levin (D-Mich.) and John McCain (R-Ariz.), chairman and ranking member of the Senate Committee on Armed Services, the presence of counterfeit electronic parts in the Defense Department's supply chain is a growing problem, and both government and industry share a common interest in solving it.

From the statement:

Counterfeit electronic parts pose a risk to our national security, the reliability of our weapons systems and the safety of our military men and women. The proliferation of counterfeit goods also damages our economy and costs American jobs.

A report last January by the Commerce Department's Bureau of Industry and Security, Office of Technology Evaluation, found that counterfeit electronics are already present in troubling amounts in the DOD supply chain. The report, which covered 2005 to 2008, revealed that:

More than one-third (39 percent) of the companies and organizations included in the study had encountered counterfeit electronics during the four-year period.

The number of incidents grew from 3,868 in 2005 to 9,356 in 2008.

OTE made several recommendations in the report. For example, in order to inhibit the circulation
of counterfeit electronics, the OTE wants the US government to:

consider establishing a centralized federal reporting mechanism for collecting information on suspected/confirmed counterfeit parts for use by industry and all federal agencies.

modify Federal Acquisition Regulations (FAR), including Defense Federal Acquisition Regulations (DFAR), to allow for "best value" procurement, as well as require U.S. Government suppliers and federal agencies to systematically report counterfeit electronic parts to the national federal reporting mechanism.

issue clear, unambiguous legal guidance to industry and U.S. federal agencies with respect to civil and criminal liabilities, reporting and handling requirements, and points of contact in the Federal Bureau of Investigation regarding suspected/confirmed counterfeit parts.

establish federal guidance for the destruction, recycling, and/or disposal of electronic systems and parts sold and consumed in the United States.

create a dialogue with law enforcement agencies on the potential need to increase prosecution of counterfeiters and those entities knowingly distributing counterfeit electronic parts.

consider establishing a government data repository of electronic parts information and for disseminating best practices to limit the infiltration of counterfeits into supply chains.

develop international agreements covering information sharing, supply chain integrity, border inspection of electronic parts shipped to and from their countries, related law enforcement cooperation, and standards for inspecting suspected/confirmed counterfeits.

address funding and parts acquisition planning issues within DOD and industries associated with the procurement of obsolete parts.

The full 252-page report, Defense Industrial base Assessment: Counterfeit Electronics, is available here.

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