DoJ Charges 11 for Illegal Microelectronics Exports to Russian Military
The Justice Department charged 11 members of a Russian military procurement network that operated in the U.S. and Russia, as well as a Texas-based export company and a Russian military procurement firm with illegally exporting high-tech microelectronics from the U.S. to Russian military and intelligence agencies, it said. Alexander Fishenko, owner of the Texas firm and an executive at the Russian company, was also charged with operating as an unregistered agent of the Russian government inside the U.S. by illegally procuring the high-tech microelectronics on behalf of the Russian government.
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“Fishenko and the other defendants engaged in a surreptitious and systematic conspiracy to obtain advanced, technologically cutting-edge microelectronics from manufacturers and suppliers located within the United States and to export those high-tech goods to Russia, while carefully evading the government licensing system set up to control such exports,” said DoJ. The microelectronics shipped to Russia allegedly included analog-to-digital converters, static random access memory chips, microcontrollers, and microprocessors. These commodities are frequently used in a wide range of military systems, including radar and surveillance systems, missile guidance systems and detonation triggers, DoJ said. Russia does not produce many of these sophisticated goods domestically.
Between 2002 and the present, Arc Electronics, the Houston firm owned by Fishenko, allegedly shipped about $50 million worth of microelectronics and other technologies to Russia. The goods were frequently exported through intermediary procurement firms, including Apex System, the Russia-based firm at which Fishenko is an executive and part-owner, DoJ said. The items were exported to Russian end users, including Russian military and intelligence agencies, it said.
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, DoJ said. 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, it said. DoJ also alleged that Arc claimed to be a traffic light manufacturer on its website. In fact, Arc manufactured no goods and operated exclusively as an exporter, DoJ said.
According to DoJ, the defendants went to great lengths to conceal their procurement activities for the Russian military. On one occasion, two defendants discussed how best to conceal the fact that certain goods purchased from Arc were intended for the Russian military, DoJ said. One defendant asked another, “What can we do if a client is military all over?” The other defendant replied, “We can’t be the ones making things up. You should be the ones.” Similarly, DoJ alleged that on another occasion Fishenko directed a Russian procurement company that, when the company provided false end user information, to “make it up pretty, correctly, and make sure it looks good.” DoJ said that another defendant instructed a Russian procurement company to “make sure that” the end use certificate indicated “fishing boats, and not fishing/anti-submarine ones . . . Then we’ll be able to start working.”
DoJ’s investigation revealed that the defendants were supplying Russian government agencies with sophisticated microelectronics, it said. For example, the investigation uncovered a Russian Ministry of Defense document designating an Apex subsidiary as a company “certified” to procure and deliver military equipment and electronics. The FBI also recovered a letter sent by a specialized electronics laboratory of Russia’s Federal Security Service (“FSB”), Russia’s primary domestic intelligence agency, to an Apex affiliate regarding certain microchips obtained for the FSB by Arc. The letter stated that the microchips were faulty, and demanded that the defendants supply replacement parts, DoJ said.
DoJ charged eight defendants, including Fishenko, with one count of conspiring to violate and 21 counts of violating the International Emergency Economic Powers Act (“IEEPA”) and the Arms Export Control Act (“AECA”), and with conspiring to commit wire fraud. According to the indictment, these defendants obtained controlled microelectronics by lying and submitting false information regarding the true nature, users, and intended uses of the high-tech goods, then exporting the goods, without the required licenses, to procurement firms in Russia. The defendants’ principal port of export for these goods was John F. Kennedy International Airport in New York.
The individual defendants face maximum terms of incarceration of five years for the conspiracy charge, 20 years for each of the substantive IEEPA and AECA charges, and 20 years for the obstruction of justice charge, DoJ said. In addition, Fishenko faces a maximum term of incarceration of 20 years for conspiring to commit money laundering, and 10 years for acting as an unregistered agent of the Russian government. The corporate defendants face fines of up to $500,000 for the conspiracy count and $1 million for each of the substantive IEEPA and AECA counts.