Dear ERAI Members and Colleagues,

This quarter has been tumultuous. On top of allegations that an unnamed third party test laboratory supplied falsified test documentation, substandard materiel has been supplied by Kobe Steel and its subsidiaries, and multiple organizations and individuals face charges and/or fines for export violations, component shortages and the looming effects of trade tariffs are weighing down the electronics sector. The trade war between China and the US has placed the electronics industry as the monkey in the middle and experts warn of continued shortages, extended lead times and increased costs. Although all is not lost – media reports show an apparent increase in sales and growth in the manufacturing sector.

During these uncertain times, it is even more critical to ensure your organization is actively monitoring your suppliers and performing risk assessments. When supply is low, avoid temptation and pressure from your customer and ensure your buyers are following policy as prescribed by your organization's counterfeit control plan.

Testing may also be critical depending on your risk assessment. Ensure your staff is properly trained if performing in-house inspections (InterCEPT's newly launched TM-02 is an excellent resource) or if hiring a third party test laboratory, confirm that adequate and appropriate testing will be performed. Work with your customer to ensure that their requirements are adequately met and that your organization can profit, not just financially, but also maintain your respectable reputation as an approved supplier.

As always, if you need assistance or have any questions, please don't hesitate to contact us.

Anne-Liese Heinichen

Does the Kobe Steel Scandal Affect My Organization?

By: Mary Dunham, ERAI, Inc.

ERAI has been contacted by several members concerned by the Kobe Steel scandal and the possible impact on their companies. This article will briefly discuss these issues.


On October 8, 2017, Kobe Steel, Ltd. (hereafter called "Kobe") announced that it had learned through self-inspections and audits that its Aluminum & Copper Business, including group companies, had provided customers with products that did not comply with the agreed-upon product specifications, that data in inspection certificates had been improperly rewritten, and products were shipped as having met the specifications but did not. Kobe reported it also had violated statutory standards set up by the industry ministry1 in addition to its failure to meet customer-agreed specifications and falsifying the certifications (hereafter called the "Misconduct"). It was discovered that in 2016, Kobe shipped products displaying the JIS mark (Japanese Industrial Standards) that did not meet JIS standards. Kobe initially reported that 525 companies had received products with falsified data.

At that time, in addition to the self-inspections already taking place in the company, Kobe created an Independent Investigation Committee (hereafter called "IIC") to investigate the misconduct. The IIC was comprised of lawyers who had no involvement with the investigation or interests in Kobe. The IIC Report was released on March 6, 2018 and found that the number of affected customers had risen to 688 and that the falsification of data had occurred over a much longer period of time, in some cases as early as the 1970s.

The 105-page report issued by the IIC discusses in depth the type(s) of Misconduct, the affected products, the period during which the Misconduct took place, and the people who were involved or knew about the Misconduct, for the various Kobe companies.

The IIC report states that the Aluminum & Copper Business was the only division where executive officers were involved in the Misconduct. Of former executive officers, two directors/executive officers were found to have been directly involved in the Misconduct before taking office as an executive officer. Even after becoming executive officers, they neither reported the Misconduct to the Board of Directors nor took any actions to have the Misconduct halted or corrected."2

On March 5, 2018, a civil complaint was filed by Alejandro Nava, a resident of Oakland, California and Shantnu Malhotra, a resident of Sunnyvale, California (Plaintiffs) against certain named parties, including Kobe Steel, Ltd., Kobe Steel USA Inc., Kobe Steel International (USA) Inc., and Kobe Aluminum Automotive Products, LLC, all of which are subsidiaries of Kobe Steel, in the United States District Court, Northern District of California. The lawsuit relates to certain metal products manufactured by Kobe Steel allegedly used in certain vehicle models of a specific automotive manufacturer, which is one of the co-defendants in the lawsuit.3

Who Is Affected?

Kobe provides materiel to numerous industries including: aviation, automobile, railways, nuclear power, construction, electronics and other equipment, and semiconductors. Their top customers (based on Kobe Steel revenue) are Shinsho Corp, Mitsubishi Corp, Toyota Motor, General Motors, Ford Motor, Nissan Motor and Honda Motor.4 Kobe also supplies Boeing and Airbus with goods. Hitachi Ltd. said trains it has exported to the UK contained compromised material, as well as bullet trains in Japan.

Kobe Steel is Asia's number one manufacturer of semiconductor leadframes, the base material for chips. They make wire rod for engine valve springs found in half the world's cars, aluminum discs for half of the world's hard drives and 40% of the engine crankshafts used in large ships. In addition, Kobe Steel is one of the world's top makers of the large forged casks used to store spent nuclear fuel.5 The company manufactures steel sheets that are used in electrical appliances, audio and office equipment, and communication equipment. Bearing steel, used in cars, machinery, precision devices and other applications, is also made by Kobe. One of their subsidiaries, Kobe Special Tube Co., Ltd., makes stainless steel tubes that are used in the aerospace industry and for nuclear power generation. The Sputtering Target Division has been developing original articles for a wide range of industrial applications including flat panel displays, optical discs, and solar cells.6 Kobelco Research Institute, Inc. (KRI) carries out material and structural analysis, trials, physical analysis and other services. KRI also manufactures and sells target materials and test equipment for fields such as semiconductors, FPD and solar power, develops special materials, and otherwise maximizes in-company synergy to support manufacturing.7

Kobe has shipped product with falsified specification data to 688 customers in multiple industries. Some of these customers and their products are listed below:

Affected Companies and their Products

Affected Customers and their Products Affected Customers and their Products
Customers Manufactured Products
Toyota Motor Corp hoods and exterior parts
Nissan Motor Co hoods and exterior parts
Honda Motor Co hoods and exterior parts
Mazda Motor Corp hoods and exterior parts
Subaru Corp
Mitsubishi Motors Corp
Daihatsu Motor Co Ltd.
General Motors
Ford Motorhoods for Ford Mondeo Sedan
Hyundai Motor Co
Kia Motor Co
Rolls-Royce Holdings PLC
Suzuki Motor Corp motorcycles
Honda products used in HondaJet
Boeing Co  
Mitsubishi Heavy Industries Ltd  
IHI Corp  
Kawasaki Heavy Industries Inc. aircraft parts and engine components; other defense equipment
Shimadzu Corp gearboxes for aircraft and vacuum pumps
Defense Equipment Suppliers
MHI defense equipment
IHI defense equipment
Hitachi Ltd. trains exported to the UK and bullet trains in Japan
Central Japan Railway Company Co  
East Japan Railway Co  
West Japan Railway Co  
Tokyo Metro Co Ltd  
Hankyu Hanshin Holdings Inc.  
Fukushima Daiichi Nuclear Plant  
Chugoku Electric Power Co Inc.  
Hokuriku Electric Power Co  
Japan Nuclear Fuel Ltd.  
Kansai Electric Power Co Inc  
Kyushu Electric Power Co Inc  
Tokyo Electric Power Company Holdings Inc.  
Mitsui Engineering & Shipbuilding Co Ltd. ship engines
Mitsubishi Electric Corp air conditioners
Toshiba Corp cooling equipment
Panasonic Corp Blu-ray discs
Denso Corp (Toyota affiliated) heat exchangers

Kobe has contacted the affected companies as they are found and has completed safety verifications of the products in most of those cases, although this process is continuing. As of the date of the report, 649 of the 688 companies have completed safety verifications and no safety issues have been reported up to this point.

The below information was obtained from Kobe Steel Group press releases dated October 8, 11, 13, 17 and 20, 2017 and provides details as to the Misconduct known at that time:

Nonconforming Product Information
Nonconforming Product Manufacturer # Customers Amount Shipped Amount Shipped Misconduct
Copper alloy tubes Shinko Metal Products Co., Ltd. 42 700 tons 9/2016 - 8/2017 A portion of the contracted inspections (dimensions, etc.) were not done. Rewriting of inspection data prescribed in the customer's specification sheet
Copper molds Shinko Metal Products Co., Ltd. 137 5300 pieces 9/2016 - 8/2017
Copper sheets Kobe Steel Ltd Aluminum and Copper Business 40
Copper tubes (capillary tubes) Kobelco & Materials Copper Tube Malaysia Dsn. Bhd 28 750 tons 9/2016 - 8/2017 A portion of the contracted inspections (dimensions, etc.) and tests (mechanical properties, etc.) were not conducted.
Copper tubes Kobelco & Materials Copper Tube (Thailand) Co., Ltd. 5 1140 tons 9/2016 - 8/2017 Agreed upon tensile testing was not conducted and instead hardness test was substituted. Instead, tensile testing was shortened and an estimated calculation was entered as tensile strength based on the results of the hardness tests.
Aluminum alloy wires and aluminum alloy bars Shinko Aluminum Wire Co., Ltd. 2 12.5 tons 9/2016 - 8/2017 A portion of the contracted inspection items was not conducted and inspection data was rewritten. Unmeasured microalloyed chemical values were entered and a portion of the tensile properties, which were target values for reference, were used.
Copper strips Suzhou Kobe Copper Technology Co., Ltd. 2 31 tons 9/2016 - 8/2017 Rewriting of inspection data of agreed upon prescribed specifications (dimensions, etc.).
Steel wires Jiangyin Sugita Fasten Spring Wire Co.,Ltd. 1 3525 tons 6/2011 - 7/2017 A portion of the contracted inspection was not conducted
Steel wires Kobelco Spring Wire (Foshan) Co., Ltd. 1 306 tons 12/2015 - 4/2017 A portion of the contracted inspection was not conducted
Special steel Nippon Koshuha Steel Co., Ltd. 19 3990 tons 6/2008 - 5/2015 Rewriting the results of tests, which Kobe agreed with the customer, prescribed in the specification sheet
Stainless steel wire Shinko Wire Stainless Company, Ltd. 1 553 tons 4/2007 - 5/2016 Rewriting the results of tests, which Kobe agreed with the customer, prescribed in the specification sheet
Heavy plate processed products (excluding the fields of steel frames, bridges and vehicles) Shinko Kohan Kako, Ltd. 1 3793 tons 11/2015 - 9/2017 Only a portion of the measurements for plate thickness requested by the customer was not conducted. Plate thickness measurement data was rewritten to match the customer.
Steel powder for powder metallurgy (sintering) Takasago Works, Kobe Steel one type to one customer 140 tons/year Fiscal year 2016 Improper rewriting of inspection data of a product outside the compact density agreed with the customer
Sputtering Target
Takasago Works 70 6611 pieces 11/2011 onward Not conducting tests agreed with customers and the improper writing of inspection data with regard to products outside the component values agreed with customers.
Sputtering Target
Sputtering Target Business
Sputtering Target
Kobelco Research Institute, Inc.

Kobe released a statement regarding resolutions passed by the Board of Directors at a board meeting held on March 5, 2018. Among the resolutions were the acceptances of the resignations of Kiroya Kawasaki, Chairman, President, CEO and Representative Director, and Akira Kaneko, Executive Vice President and Representative Director, effective April 1, 2018. These individuals will continue to serve as directors without representational authority until they step down at the Annual General Meeting of Shareholders scheduled for late June 2018.

In addition, the Board dismissed Managing Executive Officers Takumi Fujii and Nobuaki Isono effective March 6, 2018. Executive Officer Seii Hirata was assessed an 80% reduction in remuneration for a 4-month period by the Board. In addition, a resolution was passed stating all directors, excluding those serving as independent outside directors and directors serving as members of the Audit & Supervisory Committee, and all executive officers, excluding those mentioned above, will have 10 to 50 percent of their basic remuneration reduced for a period ranging from one month to four months. In another resolution adopted at that meeting, the Board of Directors shall call for two former executives — one who previously served as a director and another who previously served as an executive officer — to voluntarily return a portion of remuneration that they received during their appointment as company executives. The Board of Directors also dismissed Yutaka Masuno, Kobelco & Materials Copper Tube Co., Ltd. President, CEO and Representative Director, and Hiroyuki Ando, Shinko Metal Products Co., Ltd. President and Representative Director, effective April 1, 2018.8

On June 5, 2018, prosecutors and police raided Kobe Steel's main Tokyo office, company headquarters in Kobe, and three manufacturing plants. According to an article published in The Japan Times, "authorities believe the company violated a law that prevents unfair competition by systematically misrepresenting its products." 9

Individuals found guilty in the data fabrication could face prison terms of up to five years or fines up to ¥5 million ($45,422.38), or both. Kobe could face a fine of up to ¥300 million ($272,534.30).

Call to Action

Several U.S. Government agencies have been monitoring this issue. On October 16, 2017, Kobe Steel USA Inc. received a request for production of documents from the U.S. Department of Justice to produce any and all documents related to nonconformities with the specifications of products. The Defense Logistics Agency submitted an Agency Action Notice on November 15, 2017 regarding nonconforming material supplied by Kobe Steel Group and its subsidiaries. Kobe's breach involving the misuse of the JIR mark initiated the investigation.

The DLA is seeking to garner information regarding the actual nonconformities of the material, where it was sold, and to whom it was sold. According to the Agency Action Notice, there are three ways for Kobe's material to infiltrate the government's equipment and systems:
  • Direct material procurements from Kobe or subsidiaries
  • Procurements via a material distributor selling Kobe materials
  • Procurement of equipment/systems from a vendor (either a customer of Kobe, or who purchases Kobe material from a distributor) who then uses that material to manufacture items for the Government.10
The Government asks that any government contractor who has used Kobe materials in their parts, equipment, items, systems, etc. notify their Contracting Officer/Program Office and let them know.

ERAI urges all suppliers/vendors to check your records and/or inventory to determine if you received any of the affected products and, if so, to contact your customers regarding the possibility that the items were shipped with falsified data. You are also encouraged to inform ERAI in the event you did receive some of these products.

1 Our Standards: The Thomson Reuters Trust Principles. Japan carmakers vouch for safety of Kobe Steel's aluminum parts Published 11:35 PM, October 18, 2017 Updated 8:15 AM, October 19, 2017

2 http://www.kobelco.co.jp/english/releases/1199082_15581.html; Report on the Kobe Steel Group's misconduct; March 6, 2018

3 http://www.kobelco.co.jp/english/releases/1199090_15581.html: Civil Complaint Filed Against Kobe Steel, Ltd. and A Few Other Group Companies, March 14, 2018

4 From: https://www.trtworld.com/business/kobe-steel-fake-data-scandal-deepens-11317; Kobe Steel fake data scandal deepens; 13 Oct 2017

5 https://www.reuters.com/article/us-kobe-steel-scandal-customers-factbox/factbox-kobe-steels-affected-customers-from-computer-chips-to-space-ships-idUSKBN1D5019, November 4, 2017; Reporting by Sam Nussey, Yuka Obayashi, Osamu Tsukimori, Joe White, and Hyunjoo Jin; Editing by Raju Gopalakrishnan

6 http://www.kobelcokaken.co.jp/target/english/index.html

7 http://www.kobelco.co.jp/english/other_business/index.html

8 http://www.kobelco.co.jp/english/releases/1199083_15581.html: Changes in Representative Directors and important executives in the Kobe Steel Group, March 6, 2018

9 https://www.japantimes.co.jp/news/2018/06/05/national/prosecutors-raid-kobe-steel-quality-data-fabrication-2/#.WyP7wyApCM8

10 Agency Action Notice – Document Number AAN-U-18-097, November 15, 2017

Indictment Calls into Question Independent Test Labs' Ethical Standards

By: Anne-Liese Heinichen, ERAI, Inc.

In late April of 2018, a Grand Jury issued a 30-count indictment against Rogelio Vasquez aka Roger Vasquez aka James Harrison dba PRB Logics Corporation of Costa Mesa, California for wire fraud, trafficking in counterfeit goods, and trafficking in counterfeit military goods. The charge related to counterfeit military goods alleges that in May 2016 Vasquez was involved in the trafficking of eight pieces of Xilinx field programmable gate arrays, part number XQ2VP40-5FG676N, of which, "the use, malfunction, and failure of…were likely to cause serious bodily injury and death, the disclosure of classified information, impairment of combat operations, and other significant harm to a combat operation, a member of the Armed Forces, and to national security."1

The indictment alleges that he obtained, "from sources in the People's Republic of China ('China'), old, used and/or discarded ICs that were repainted and remarked with a counterfeit mark and further remarked with an altered date code, lot code and/or country of origin, for the purpose of reselling them."2 The ICs were remarked with Analog Devices, Intel and Xilinx trademarks to deceive customers into believing the product was new and unused.

While operating as PRB Logics, Vasquez was previously reported by ERAI three times for suspect counterfeit product in 2011, 2012 and 2013 as well as for a past due invoice in late 2017. Vasquez has also been associated with several other companies that have been reported by ERAI and is thought to have used additional aliases not named in the indictment.

In 2016, $97,362.00 in cash was seized from the Vasquez residence. On April 23, 2018, federal prosecutors filed an asset forfeiture complaint which highlighted that, "the sale of counterfeit [integrated circuits] into the stream of commerce is a significant problem for the U.S. military, due to the increased risk of equipment failure from using salvaged, sub-standard, or wrong components."3 In addition, Rogelio Vasquez faces a maximum of 20 years in federal prison for each charge of wire fraud and trafficking in counterfeit military goods and a maximum of 10 years in prison for each count of trafficking of counterfeit goods. Vasquez, a citizen of the Republic of Panama, has surrendered his passport and was released from custody on a $50,000.00 appearance bond. His trial is set to begin on June 26, 2018.

Along with providing emailed instructions from Vasquez to an unnamed Chinese supplier instructing them to remark the ICs and "do your best so parts are remark correctly" and instructing the supplier not to use their name on a shipment so the customer could not contact the supplier directly because the parts were allegedly "new", the indictment offers a unique twist to the Vasquez case. As outlined in the document, Vasquez allegedly "instructed a testing laboratory in China to provide him with two versions of its test report; one to defendant Vasquez with all test results and a separate sanitized version to provide to his customer (which the customer, in turn, would provide to the end user) without the results of any visual inspection and permanency or other marking test ('marking tests'), which would have revealed that the ICs were used, remarked and/or in poor condition."4 Unfortunately, the Chinese testing laboratory also remains unnamed in the indictment.

When using an independent test lab, it is critical that you and your customer can be confident in the lab's capabilities and the resulting test reports. Every organization should develop criteria, including third party audits, accreditations and certifications, for placing an independent test lab on their approved vendor list. Remember, your organization's reputation is at risk if you use an inferior or unqualified test services provider.

Click here to read the indictment against Rogelio Vasquez

For organizations that are members of GIDEP, an agency action notice was published on May 14, 2018 listing the integrated circuits that have been determined by the respective manufacturers to be counterfeit. Please visit the GIDEP website to view the notice.

1United States of America v. Rogelio Vasquez Indictment, April 27, 2018.
2United States of America v. Rogelio Vasquez Indictment, April 27, 2018.
3United States of America v. Rogelio Vasquez Indictment, April 27, 2018.
4United States of America v. Rogelio Vasquez Indictment, April 27, 2018.

A: ANYONE. Membership to ERAI is not required.

We have made the process as simple as possible by offering two ways to report parts:

1. Report a part online at: http://www.erai.com/SubmitHighRiskPart
2. Or even simpler, email your report to reportparts@erai.com

We require: 1) the part information, manufacturer, part number, date code, lot code; 2) a text description of the non-conformance or findings and; 3) digital images that support the findings.

Ideally, you can send all archived data you have and make reporting future cases routine by including a report to ERAI in your existing inspection process.

Please note that you can report parts anonymously. We will not include your company name on an alert. You do not have to report the supplier that shipped you counterfeit devices unless you choose to. The major benefit to the industry at large is knowing there is a suspect counterfeit part out there.

Various Individuals and Organizations Accused of Violations by the US Government

Joyce Marie Eliabachus, Edsun Equipments

On April 25, 2018, Joyce Marie Eliabachus aka Joyce Marie Gundran Manangan, principal of Edsun Equipments LLC, an aviation parts trading company, was charged with conspiracy to violate the Iranian Transactions and Sanctions Regulations (ITSR), conspiracy to commit money laundering, and conspiracy to smuggle goods from the United States.

Joyce Eliabachus, a naturalized U.S. citizen born in the Philippines, allegedly operated Edsun Equipments, LLC aka Edsun Equipments LTD out of her New Jersey home. The US Government alleges that Eliabachus formed, "part of an illicit, international procurement network that is designed to surreptitiously acquire large quantities of aircraft components from United States manufacturers and vendors, and to unlawfully export those parts to entities in Iran…[the] network has obtained and exported over $2 million worth of aircraft components from the United States to Iranian business entities in violation of export control laws."

According to the criminal complaint, from May 2015 through October 2017 Eliabachus provided Iranian conspirators with access to Edsun's account to an online aircraft parts database through which purchases were made, concealing the identity of the true end user(s). These end users included: Mahan Air Co, Ukrainian-Mediterranean Airlines, Caspian Airlines, Kish Air, Atrak Air, Iran Air Tours, ATA Airlines and Karun Airlines. Among the parts purchased were aircraft brake assemblies, rotor assembly parts, and a series of other unspecified aircraft parts.

The parts were then sent to Edsun in New Jersey where Eliabachus used freight forwarding services to send the parts to Turkey and the United Arab Emirates to organizations such as Parthia Cargo and Reibel Tasimacilik Ve Tic A.S., while falsifying the true value of the cost of goods, the destination, and/or the end user of the components, without obtaining the necessary export licenses. Upon arrival, the Iranian co-conspirators then transported the parts on to the end users in Iran. In turn, Eliabachus profited financially through millions of dollars which were funneled through various accounts meanwhile concealing the origin of the funds from Iran.

Eliabachus faces a maximum of 20 years' imprisonment and a $1 million fine for the charge of conspiracy to violate the ITSR, 20 years' imprisonment and a $500,000.00 fine for the charge of conspiracy to commit money laundering and 5 years' imprisonment and a $250,000.00 fine for the charge of conspiracy to smuggle goods.

Read the criminal complaint

Yanhong Zhou and Merit Aerospace, Inc.

In May 2018, the Bureau of Industry and Security notified Yanhong Zhou aka Joe Zhou and Merit Aerospace, Inc. of their intention to file administrative proceedings against them for one violation of EAR § 764.2(g)(Misrepresentation and concealment of facts).

Merit Aerospace was in discussions with BIS after a shipment to a China-based customer ("Customer A") was detained. It was during this time, in early November 2012, that Yanhong Zhou and Merit Aerospace misrepresented and concealed they were exporting replacement aircraft parts from the United States to Customer A by indicating the export was for a different customer ("Customer B") and declaring a value significantly less than the actual cost of goods, thus falsifying shipping documents. Merit Aerospace deliberately did not inform BIS of this export during a meeting, whose concealment was material to the investigation and the activities subject to the EAR.

For the violation, Merit Aerospace and Yanhong Zhou entered into an agreement to pay jointly and severally a civil penalty of $221,000.00 with $181,000.00 suspended for four years and thereafter waived if Merit and Zhou have made timely payments, commit no further violations and comply with all of the terms of the agreement. In addition, Zhou and Merit agree to hire a third party consultant to conduct two external audits and not participate in the export of any commodity subject to the Regulations.

Read the BIS Order

FLIR Systems Inc.

On April 25, 2018, the U.S. Department of State concluded an administrative settlement with FLIR Systems, Inc for alleged violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR). The Government alleged that FLIR exported defense articles, including technical data, without authorization, provisioned defense services without authorization, violated the terms of provisios or other limitations of license authorizations and failed to maintain specific records involving ITAR-controlled transactions. The transfer of data and provision of defense services included dual national employees of Iran, Iraq, Lebanon, and Cuba, all countries with export restrictions.

The violations were voluntarily disclosed by FLIR who cooperated with the Department of State's investigation and subsequently agreed to implement compliance improvements through a four-year agreement, in which FLIR agreed to pay a civil penalty of $30 million dollars. $15 million dollars is suspended on the condition that the funds be used for Department-approved Consent Agreement remedial compliance measures.

Read the settlement agreement

Ericsson Inc. and Ericsson AB

Ericsson Inc. of Texas and Ericsson AB of Sweden, both subsidiaries of Telefonaktiebolaget LM Ericsson, entered into a settlement agreement with the Office of Foreign Assets Control (OFAC) for an alleged violation of the International Emergency Economic Powers Act (IEEPA) and the Sudanese Sanctions Regulations.

In September of 2011, Ericsson AB and a subcontractor, BCom Offshore SAL, agreed to install, configure and service a telecommunications network in Sudan through the use of a satellite. After equipment failures in late 2011, Ericsson AB employees requested assistance from Ericsson Inc, whose employee responded by requesting that Ericsson AB not contact them regarding issues in Sudan. Regardless, Ericsson AB continued to work with an Ericsson Inc employee to repair the damaged equipment meanwhile specifically avoiding any reference to Sudan. An Ericsson Inc employee, an Ericsson AB employee and the COO of BCom decided to purchase an export-controlled satellite hub to resolve the problem, despite being informed by the Ericsson compliance department that the purchase would violate Ericsson's internal policy regarding sanctions compliance. They decided to report the end user destination as Botswana, if asked and the subcontractor did not issue an invoice to Ericsson AB until the satellite's transport from Lebanon to Sudan.

Ericsson voluntarily disclosed the violation and cooperated with OFAC and agreed to a $145,893.00 settlement agreement with the US Government.

Read the settlement agreement

1United States District Court, District of New Jersey, United States of America v. Joyce Marie Eliabachus, Criminal Complaint.

US-China Tariffs Impact the Electronics Industry

On June 15, President Trump announced the implementation of a 25% import tax against a list of over 1,000 products imported from China. Included in the list are certain capacitors, materiel for airplanes, batteries, transistors, LEDs, industrial machinery and other electrical, electronic and electromechanical components.

The tariffs are aimed at protecting US manufacturers and are a response to the "Made in China 2025" Chinese government initiative designed to make the country a major competitor in advanced manufacturing by calling for domestic manufacturers to supply 70% of China's chip demand. According to the White House, "the United States can no longer tolerate losing our technology and intellectual property through unfair economic practices."1 While China's role in manufacturing has long been in the assembly sector due to a booming workforce and competitive wages, the country's push towards self-reliance through government-led initiatives aim to strengthen domestic production and intensify investment in joint ventures and international investments. However, it remains to be seen if, or how, the Chinese government will react by targeting Original Equipment Manufacturers in the electronics sector, comprising nine of the top ten Chinese exporters totaling an estimated $256 billion dollars to the United States or roughly half of US imports from China.2 This may force organizations to set up assemblies in other countries such as Vietnam, Cambodia, or the United States, as done recently by Foxconn who announced two multibillion dollar investments into factories and research and development operations in Wisconsin and Michigan.3

In response, China's Finance Ministry announced a list of 545 product categories of US products that will be subject to an additional 25% tariff starting July 6, which includes agricultural products and automobiles.4

The June announcement is only the latest in a long standing battle which most recently began in April 2017 when President Trump launched an investigation into whether or not steel imported from China (and other countries) posed a threat to national security. A subsequent probe in August 2017 directed at China sought to delve into China's alleged theft of US intellectual property, estimated at $225 to $600 billion per year.5 The first trade action against China in January 2018 targeted solar panels and washing machines imported from China. In March 2018, a range of tariffs, including those on steel and aluminum imported from China, were enacted. In response, in April China hit back with tariffs and/or taxes of 128 American products, to which President Trump proposed a 25% tax on 1,300 Chinese aerospace, machinery and medical products.

Cast Study: ZTE

A case study might be found in ZTE, the Chinese smartphone manufacturer hit by an export ban in April of 2018 by the US Department of Commerce. The Government alleged that Zhongxing Telecommunications Equipment Corporation and ZTE Kangxun Telecommunications Ltd, collectively "ZTE", illegally shipped telecommunications equipment to Iran and North Korea in 2017 who then subsequently agreed to a combined civil and criminal penalty and forfeiture of $1.19 billion along with a seven-year suspended denial of export privileges. In April of 2018, the Department of Commerce alleged ZTE made false statements to BIS by not reprimanding ZTE staff and senior management, which Secretary of Commerce Wilbur Ross described as, "egregious behavior [that] cannot be ignored."6 This resulted in the immediate suspension of export privileges of ZTE for a 7-year period and made it illegal for US companies to sell components to ZTE.

In May of 2018, President Trump directed the Department of Commerce to allow ZTE to operate one week after ZTE announced it was ceasing "major operating activities" due to the export sanctions.7 However, various organizations, such as the UK National Cyber Center and US intelligence agencies, have cited national security concerns over the use of ZTE equipment and Australian telecom giant Telstra ceased sales of ZTE white-labeled products.

The effect on the electronics sector

IPC, an industry association for printed circuit board and electronics manufacturers, warned in May that the President's plan to impose tariffs could harm small- to mid-size US electronics manufacturers who rely on Chinese raw materials, components and/or equipment to manufacture their products.8 The domestic manufacturers would then, in turn, be forced to sell their products at higher prices, making them less competitive. Increased tariffs could also lead to extended lead times and shortages as organizations struggle with higher priced and potentially limited resources.

China continues its quest to dominate the market through the acquisition of US companies and joint ventures, tax breaks and capital investment, and building of memory chip factories to ramp production and draw talent. However, experts estimate that, "Chinese chipmakers are five years behind their U.S. and Asian rivals and that increasingly high technological hurdles and a meager talent pool are hindering the effort to catch up with dominant U.S., Japanese, South Korean and Taiwanese manufacturers."9 It remains to be seen if China can break its dependence from US semiconductor imports and how the electronics industry will fare in the trade war between the US and China.










Launching soon – InterCEPT Class TM-04: Counterfeit Inspection and Testing of Electronic Parts: Surface Testing and Criteria for Acceptance or Rejection


This class will provide an in-depth discussion of surface testing associated with detecting counterfeit electronic parts. It will reference both the IDEA 1010B standard and the SAE AS6171 requirements for surface inspection. The class includes video footage and images from a test lab to help the student understand how surface testing is performed. Device images will be reviewed so that the student can recognize the criteria for acceptance and rejection.

The course covers:
  • Surface testing - tests for remarking and resurfacing
    • Equipment needed, equipment costs
    • How to perform the tests including on-site video and step-by-step instructions
    • Criteria for acceptance
    • Criteria for rejection
  • Content of test reports
  • Training considerations
  • Outsourcing surface testing
Students completing the class will:
  • Understand the terminology for tests for remarking and resurfacing.
  • Understand how to perform the tests.
  • Understand the criteria for acceptance and rejection.
  • Understand the general format of the test report for surface testing.
  • Assess additional considerations including equipment needed, equipment cost, training and outsourcing options.
The class is best suited for individuals with quality, inspection and testing, purchasing, and sales responsibilities. Students taking TM-04 are expected to have a working knowledge of what a counterfeit part is and where counterfeit parts come from. If you do not have sufficient background knowledge, InterCEPT recommends completion of CF-01: A Historical Overview of Counterfeit Electronic Part Activity: The Risk, Response, and Solution.

This class will be added shortly to InterCEPT's class offerings addressing the detection of counterfeit electronic components.

New InterCEPT Class Launched – TM-02: Counterfeit Inspection and Testing of Electronic Parts: Visual Inspection and Criteria for Acceptance or Rejection


InterCEPT has launched a new class to supplement your organization's incoming visual inspection training requirements. The class features handouts of the course material, quizzes, a final exam, and a certificate of completion that can easily be verified by an auditor or customer on ERAI's website.

InterCEPT class TM-02: Counterfeit Inspection and Testing of Electronic Parts: Visual Inspection and Criteria for Acceptance or Rejection

TM-02 provides an in-depth discussion of external visual inspection associated with detecting counterfeit electronic parts. It will reference both the IDEA 1010B standard and the SAE AS6171 requirements for external visual inspection. The class includes video footage and images from a test lab to help the student understand how the visual inspection is performed. Device images will be reviewed so that the student can recognize the indicators of counterfeit or substandard electronic components and understand the criteria for acceptance and rejection.

The course covers:
  • External visual inspection
    • Equipment needed, equipment costs
    • How to perform the test including on-site video and step-by-step instructions
    • Criteria for acceptance
    • Criteria for rejection
  • Content of test reports
  • Training considerations
  • Outsourcing visual inspection

Students completing the class will:
  • Understand the terminology for external visual inspection.
  • Understand how to perform the tests.
  • Understand the criteria for acceptance and rejection.
  • Understand the general format of the test report for external visual inspection.
  • Assess additional considerations including equipment needed, equipment cost, training and outsourcing options.
The class is best suited for individuals with quality, inspection and testing, purchasing, and sales responsibilities. Students taking TM-02 are expected to have a working knowledge of what a counterfeit part is and where counterfeit parts come from. If you do not have sufficient background knowledge, InterCEPT recommends completion of CF-01: A Historical Overview of Counterfeit Electronic Part Activity: The Risk, Response, and Solution.

Click here to register for TM-02

How to Spot a Counterfeit: Heated Solvent Testing

By: Mike Zambito, Director of Operations, Advanced Component Testing

Counterfeiters are always implementing new methods of resurfacing a device that are more resistant to solvents. A decade ago they would typically sand the surface of a chip to remove any markings, resurface or blacktop the device, and then remark it with a different part number: Standard acetone testing would normally reveal that. Now they often remove the part markings with acid and then resurface it with an epoxy-based blacktop coating and apply new markings: This process is, by design, resistant to a simple acetone test. As a result the testing industry has developed heated solvent testing (HST), which is a more aggressive and thus more effective method of uncovering a counterfeited device than traditional surface testing.

The two most widely used heated solvent solutions are Dynasolve 750 and 1-Methyl 2-Pyrrolidinone. These solutions are heated to their flash points (105°C or 115°C respectively) to maximize aggressiveness and the device is suspended halfway into the solution. After the allotted period of time (45 or 5 minutes respectively), the device is lifted from the solution within which any resurfacing or remarking should have been removed to expose the sanded or possibly original factory surface of the device. A cotton swab is used to wipe the surface and any evidence of sanding; removal of the surface or transfer to the cotton swab is indicative of an adulterated device. Unless there is a blatant transfer to the swab, the device is then inspected under a microscope at a 45° angle for any ridges that may have been created during the sanding process.

Most counterfeited devices have been created to fulfill a particular customer order placed, for example, through an online storefront or through an unscrupulous or unwitting broker. In many cases, device equivalents are altered so they can be represented as genuine. These similar but adulterated devices may exhibit the same form, fit and even basic functionality; however, they may operate at a different frequency or voltage or differ with respect to long-term reliability and actual lifespan. A device's branding, device type, speed grade, temperature rating and manufacturing information are all commonly counterfeited representations that would be uncovered during heated solvent testing.

Below is an example of a device represented as a Xilinx Spartan XCS30-4PQG208C Field Programmable Gate Array (FPGA). Heated solvent testing revealed that the device markings and lot codes had been altered. Among other adulterations another indicator was revealed: The original marking did not contain the "G" in the part number and the lot code had been changed. This was an immediate authentication failure.

Further evaluation of this counterfeited device revealed that it was not a Xilinx device at all. This device contained a C-CUBE Microsystems CL6300E die but it should have contained a Xilinx 5130 die!

The FPGA in this example had undergone a basic solvent test prior to heated solvent testing. Had HST not been performed, this suspect counterfeit device might have found its way into a missile or munitions application. Of course, heated solvent testing is required by all leading authenticity inspection standards including AS6081 and AS6171, as well as every other flowdown requirement I have ever come across. Still, keep in mind that HST results are somewhat subjective and, thus, the reliability of an HST test may be closely linked to the ability of the technician performing it. Substantial hands-on experience and training of the technician executing these tests play an important role in ensuring that suspect counterfeit parts are adequately identified.

Advanced Component Testing (ACT) is an ISO 17025 accredited and DLA QTSL audited and assessed facility for electrical testing, counterfeit detection, material analysis and other engineering services on MilSpec and COTS electronic components. Visit www.actestlab.com for more information or call 631-676-6390.

E-waste is Flowing from Europe and China to Nigeria

We are quite familiar with the notion of e-waste from Europe and North America being shipped to Asia and Africa to be scrapped and many times reused in various legal and semi-legal ways. There have been many studies and papers published tracing the route of e-waste from recycling facilities to ultimately ending up in several specific geographic areas. Some of the most described locations include China and Nigeria, with the former receiving a larger share of North American e-waste and latter receiving shipments primarily from Europe.1

In the last few years there have been changes in how e-waste arrives at its ultimate destination and the route it takes to get there. A new EPA-backed study has examined the ways e-waste is being imported into Nigeria. While it is officially illegal to ship non-functioning electronics (i.e. e-waste) to Nigeria, it is perfectly legal to send shipments of used but functional electronics, which are in high demand in Nigeria who has a population of almost 200 million people and a booming market for secondhand electronics. A recent study by the United Nations University (UNU) and the Basel Convention Coordinating Centre (BCCC) for Africa stated that 66,000 tons of used electronics shipped to Nigeria contained 16,900 tons that did not work.

Remarkably, it turned out that used electrical and electronic equipment (UEEE) arrives to Nigeria mainly in two specific forms: electronic devices shipped in containers and electronic devices stuffed into used vehicles imported into the country.

Percy Onianwa, a BCCC Africa official and co-author of the study, explained that Nigeria also has a large used vehicle market and that exporters are combining the two opportunities to bring in the electronic waste inside the cars where nobody looks for them. He indicated that exporters are:

"stuffing their vehicles with electronic equipment, that way it saves them space and money. Instead of having a car where space is free, you can stuff them with this equipment and therefore you're paying for containers. Some of them find the regulatory agencies aren't looking in that direction."2

The study resulted in a report entitled, "Person in the Port Project, Assessing Import of Used Electrical and Electronic Equipment into Nigeria." The report found that overall, the data from inspections and the review of import documents point to around 60,000 tons of UEEE imported both in 2015 and 2016. The import of UEEE in roll on-roll off imported vehicles was found to be the main UEEE import route. It was assessed to be 41,500 tons per year. Of the remaining e-waste shipped in containers, the majority had surprisingly been shipped from China. The report found that:

"for UEEE in RoRo-vehicles [roll on-roll off]; Germany (28%), UK (24%), Belgium (13%), The Netherlands (12%), Ireland (9%), and Spain (5%) are the main exporters to Nigeria. The EU member states account for 98% of these UEEE imports, with the rest coming from the USA. China leads the export of UEEE in containers. Around 24% of these UEEE imports originated in China, followed by the USA (20%), Spain (12%) and the UK (9%). Around 29% of UEEE imports in containers were exported from ports located in EU member states. As for UEEE imports in containers without vehicles, China is the largest exporter (44%) of these imports, followed by the UK (8%), USA (6%), Spain (5.1%) and Hong Kong (5%). The EU member states were the origin of around 24% of these imports into Nigeria."3

Scientists have found that China is exporting 20,000 tons of electronic waste to Nigeria every year.5 Interestingly, a large portion of electronics shipped to Nigeria from China were used CRT-devices that are banned for importation. Cathode Ray Tube (CRT) televisions and monitors possess nominal commodity value and, because they contain leaded glass, CRT devices are difficult and very costly to recycle, implying that China is sending unusable e-waste to Nigeria for disposal.

"Although the Nigerian Government has banned the import of CRT-devices, around 260 t were found to be imported annually. The main sources of these CRT-TVs were China (23%), USA (15%), UK and Spain (14% each), Italy (8%), Hong Kong and the Netherlands (4% each). These six countries accounted for about 80% of the total CRT imports."5

The two most striking points from this investigation are combining shipping of used vehicles and UEEE in bypassing regulatory forces to bring restricted e-waste to Nigeria as well as the surprisingly large share of e-waste originating from China. As the Chinese economy grows, it may no longer be economically lucrative to process certain types of e-waste there. It appears that some of the UEEE is being transitioned from China to Nigeria potentially creating new and less-monitored avenues for counterfeit electronic components to enter the electronic supply chain.

Read the Person in the Port Project Report: http://collections.unu.edu/eserv/UNU:6349/PiP_Report.pdf


SAE Releases "A" Revision to AS6171 Slash Sheet 2

On October 30, 2016, SAE International released aerospace standard AS6171 in order to standardize "inspection and test procedures, workmanship criteria, and minimum training and certification requirements to detect Suspect/Counterfeit (SC) Electrical, Electronic, and Electromechanical (EEE) parts." The standard is intended to be implemented on parts that do not have traceability to the Original Component Manufacturer, on parts that have been purchased from brokers or independent distributors, or parts where the end user is concerned about the potential of suspect counterfeit parts.

On April 18, 2018, the G19A Test Laboratory Standards Development Committee published revisions to the standard, notably to Slash Sheet 2, "Techniques for Suspect/Counterfeit EEE Parts Detection by External Visual Inspection, Remarking and Resurfacing, and Surface Texture Analysis Using SEMT Test Methods."

Notable revisions contained in AS6171A Slash sheet 2 are:
  • The scope in AS6171/2A now has 6 methods versus 4 methods in AS6171/2. The difference is in the adding of Part Weight Measurement to Detailed EVI, the separation of remarking and resurfacing into two separate methods, and the addition of new parts dimensions measurement. This new parts dimensions measurement is conducted on a small sample of devices using non-destructive measurement techniques, while in AS6171/2 measurements were conducted using a micrometer, making it a destructive procedure.

  • In AS6171/2 Section (Overview of Part Inspection), the part dimensions are verified using destructive technique, but the parts are not weighed. In the same section of AS6171/2A, part dimensions are no longer verified; instead, detailed weight measurements are to be performed on 22 parts or less depending on the size of the lot. After parts are weighed and the mean value is calculated, any part that deviates from the mean value by greater than 20% will be marked for further evaluation as a suspect/counterfeit part.

  • In Section (the external package shall be inspected for the following suspect criteria:), Subsection D contains new language adding, "signs of debris such as ink, dirt, water or other residue, uneven discoloration or shading" to the suspect criteria.

  • In Section (the external package shall be inspected for the following suspect criteria:), Subsection i there is new language adding, "on ceramic packages with metal top and frit seal, note differences in the frit color across the part" to the suspect criteria.

  • Section (Equipment for Resurfacing Tests) now includes "fume hood suitable for chemicals as specified in, which was not required in the previous version".

  • Section (Materials) no longer lists Dynasolve by brand name, but rather lists "Commercial Solvent 1" (Epoxy/urethane solvent with active ingredients comprised of Propylene Glycol Monomethyl Ether, Methyl Alcohol and Potassium Hydroxide) and "Commercial Solvent 2" (Polymer remover with active ingredients comprised of Methyl Alcohol, Potassium Hydroxide, Sulfinylbis-Methane, 1-Phenoxy-2-propanol, and 1-Methoxy-2-propanol).

  • Section 5.3.5. "Method E Part Dimensions Measurement is now a stand-alone new test.

  • Section 6 "Test Report" no longer requires images of "external packaging with label and barcodes" and "component packaging (moisture barrier, ESD Bags, etc.)" that were required in AS6171/2.

AS6171A can be purchased through SAE International: https://www.sae.org/standards/content/as6171/2a/

White Paper Reviews

Fiscal Year 2017 Annual Industrial Capabilities Report to Congress

Why you should read it: Although the US Government acknowledges that global military production represents only an estimated 6% of the global market of electronics, the DoD has a vested interest in securing and maintaining sensitive defense systems. Due to a limited number of prime contractors who themselves source from a global network and China's estimated 50% dominance of the PCB global market, the Government's reliance on high end electronics puts radar and electronic warfare systems at risk.

ERAI Insight: The report, drafted for the Committee on Armed Services of the Senate and the Committee on Armed Services of the House of Representatives, summarizes DoD industrial capabilities-related guidance, assessments and actions for Fiscal Year 2017. Of note in the report is an Electronics Sector Assessment. Maintaining a reliable and safe supply chain has become increasingly difficult for the Department of Defense. Accordingly, it is the Government's understanding that obsolescence is a key driver of counterfeit parts and materials. With an estimated 8-year median length of time required to develop a major defense acquisition program and an estimated 70% obsolescence rate prior to system fielding, the DoD has been forced to strengthen its counterfeit mitigation capabilities through policy changes, employee training, reverse engineering, GIDEP and new technology initiatives (e.g. DNA component tagging, software identifying high risk suppliers).

Click here to open

GSA Information Request

The General Services Administration (GSA) is soliciting information from the suppliers selling product through commercial e-Commerce Portals in order to complete Phase II of the requirements enacted in Section 846 of the National Defense Authorization Act (NDAA) for Fiscal Year 2018, Procurement through Commercial e-Commerce Portals.


Interested parties may submit written comments to www.regulations.gov by July 20, 2018. GSA is also hosting its second modified town-hall style public meeting. This meeting is in furtherance of Phase II on June 21, 2018, at 8:30 a.m., Eastern Standard Time (EST). Further Information for the public meeting may be found on the Commercial Platform Interact group page on https://interact.gsa.gov/group/commercial-platform-initiative and in the Federal Register (83 FR 25004), published on May 31, 2018.


To assist GSA in meeting the requirements associated with Phase II of the implementation, GSA and OMB are inviting suppliers selling product through commercial ecommerce platforms to submit written comments. Comments should be submitted by July 20, 2018.


a. Identify which product types/categories/subcategories should be considered in scope for inclusion in the program. Describe the classification system used, if not product service codes or North American Industry Classification System (NAICS) codes. For each category/subcategory identified, include as many of the following as possible:

i. Rationale for inclusion;

ii. Assessment of supply chain risk, including the extent to which you believe counterfeit products are a significant problem, and mitigation strategies;

iii. List existing e-commerce commercial portals on which you currently sell these products;

iv. Level of visibility into country of origin, including compliance with the Buy American Act (BAA), other domestic sourcing restrictions, and existing trade agreements; including how these are verified; and

v. If multiple categories/subcategories are identified, provide a suggested ranking.

b. Identify which categories/subcategories should be excluded from the scope of this effort and the rationale.

For Additional Information: https://www.federalregister.gov/documents/2018/06/15/2018-12893/request-for-information-from-suppliers-selling-on-commercial-e-commerce-portals


Keeping a Bearing on Counterfeits

The Risks Facing the Pentagon's High-end Electronics and Radars

Chip Industry Concerned Following New Tariffs

Staying Ahead of the Electronics Component Shortage

Component Shortages Exacerbate Counterfeit Worries

How Thailand Became the Latest Dumping Ground for the World's Electronic Waste

10 Ways X-Ray Can Help Identify Counterfeit Parts

The dark underside of defense industry prosperity

Dual-Use Export Controls Regulation: One to Watch for the Electronics Industry

The Electronics Industry: A Pawn in the US vs. China Chess Game

Companies look to Trump administration to further ease export rules for space technology

Faulty or Counterfeit Electronic Components and Hardware Trojans Present Critical Risk to Military Systems, Researchers Developing New Innovations

The secret weapon in the fight against fakes

European Commission imposes fine of €254 million on capacitor cartel

3-Part Webinar Series: The Future of Obsolescence Management

Join Converge Summer 2018, as we discuss the industry movement to proactively manage obsolescence in your supply chain. Featuring special guests from Arrow Electronics and SiliconExpert, this 3-part live webinar series will provide insights, key themes across the industry and best practices to create your own obsolescence management program.

Register at:

For more information, visit:

Part 1: Introduction to the Future of Obsolescence Management
Date: July 12, 2018 Time: 12:00 PM EST/EDT Duration: 1 Hour
What is the Future of Obsolescence Management (FOM) movement? What have we learned so far and what are key themes seen across the industry? How are other companies managing obsolescence in their supply chain? Join us as we give an introduction of the Future of Obsolescence Management and how you can be part of the movement.
Part 2: Data Intelligence and Obsolescence Management
Date: August 15, 2018 Time: 12:00 PM EST/EDT Duration: 1 Hour
Learn how data can empower your company to build a robust obsolescence management plan that will reduce present and future risk.
Part 3: Security in the Supply Chain
Date: September 13, 2018 Time: 12:00 PM EST/EDT Duration: 1 Hour
How secure is your supply chain? Are you at risk for counterfeit components to enter and jeopardize your business? Join us as we navigate through the open market and provide best practices to ensure the security of your supply chain.