Original URL: http://www.theregister.co.uk/2012/10/05/russia_micro_electronics_smuggling_charges/

Feds charge US firm with smuggling illegal military tech to Russia

'Traffic light' firm actually supplied KGB-successor with hi-tech gear, say officials

By John Leyden

Posted in Security, 5th October 2012 16:28 GMT

Key personnel in a Texas-based electronics firm are among 11 people arrested over an alleged conspiracy to smuggle advanced microelectronics from the US to Russia.

Arc Electronics Inc allegedly acted as a conduit for the smuggling of high-tech components potentially useful in radar, weapons guidance, surveillance and other applications to Russia. The Feds said that evidence against Alexander Fishenko, 46, the Kazakh-born founder of Arc Electronics, and other suspects includes intercepted phone calls and emails. The evidence also includes a letter to Arc Electronics from a Russian lab affiliated to Russia's Federal Security Service (FSB) – the successor to the KGB – complaining about defective microchips and demanding replacements.

The Feds allege that starting in October 2008, Fishenko (a US citizen since 2003) and his firm allegedly supplied "analog-to-digital converters, static random access memory chips, micro-controllers, and microprocessors" and hi-tech components to Apex System, a Moscow-based procurement firm, allegedly part-owned by Fishenko.

According to an FBI indictment, unsealed this week, Arc posed as a supplier of traffic light control kit while actually acting as an important supplier to the Russian military and intelligence agencies.

The defendants allegedly exported many of these high-tech goods, frequently through intermediary procurement firms, to Russian end users, including Russian military and intelligence agencies. To induce manufacturers and suppliers to sell them these high-tech goods and to evade applicable export controls, the defendants often provided false end-user information in connection with the purchase of the goods, concealed the fact that they were exporters, and falsely classified the goods they exported on export records submitted to the Department of Commerce.

For example, in order to obtain microelectronics containing controlled, sensitive technologies, Arc claimed to American suppliers that, rather than exporting goods to Russia, it merely manufactured benign products such as traffic lights. Arc also falsely claimed to be a traffic light manufacturer on its website. In fact, Arc manufactured no goods and operated exclusively as an exporter.

The suspects were arrested Tuesday and Wednesday. Feds executed search warrants at seven residences and business locations associated with the suspects, and seizure warrants were executed on five bank accounts held by Fishenko and Arc Electronics.

Arc has shipped approximately $50m worth of microelectronics and other technologies to Russia since it was established. According to the Feds, much of this inventory should never have been allowed to leave the US.

"The defendants spun an elaborate web of lies to evade the laws that protect our national security," said US Attorney Loretta E Lynch in a DoJ statement on the case. "The defendants tried to take advantage of America’s free markets to steal American technologies for the Russian government. But US law enforcement detected, disrupted, and dismantled the defendants’ network." ®