Microchip Counterfeiters—Making a Play

So, we—as IP protection and investigation professionals—swim in the polluted waters of criminals that counterfeit clothing, jewelry, toys, car brakes, even medicines, and the list goes on and on.

And we are too familiar with the billions in economic loss and physical suffering it sometimes causes, but when was the last time you gave any thought to these criminals counterfeiting semiconductors?

Microchips, a.k.a. Chips.

The same tiny chips, smaller than a postage stamp, contain billions of components—components, even tinier than molecules.

The same chips that make everything run: flat-screen TVs and their systems, cars, jets and spacecraft.

It has been widely reported for the last few months that there is a staggering global shortfall in the manufacturing of semiconductors.

*There are several reasons the microchip supply chain cannot keep up with demand, but that is outside the focus of this post. Read: New York Times article, “It’s a roller-Coaster Ride: Global Chip Shortage is Making Industries Sweat.”

The point is counterfeiters are preying on companies that are desperately in need of chips to manufacture their products, since legitimate semiconductor manufacturers cannot meet their needs.

CRIMINAL OPPORTUNITY SEIZED

This is where these criminals are taking advantage of an opportunity to dupe companies into thinking that the chips they have for sale are the real thing.

In an article titled, “Chip Shortage Has Spawned a Surplus of Fraudsters and Fake Parts”, published in yesterday’s Wall Street Journal, it lays out what companies have been up against, and how they are trying to protect themselves.

Such as being forced to purchase X-ray machines which can analyze the interior of the semiconductors to determine if it contains the actual components needed or, indeed, any components at all.

ALARMING

The article is solid reporting and speaks for itself, but I want to draw your attention to this quote, “At ERAI Inc., which maintains records of misbehavior in the electronics supply chain, new complaints arrive almost every day, said Kristal Snider, vice president at the industry watchdog. Buyers from more than 40 countries have filed reports of wire fraud…

“The number of websites we see popping up offering hard-to-find, allocated and obsolete parts is alarming,” said ERAI’s Ms. Snider in an email. “After 27 years of investigating and reporting fraud in this industry, it takes a lot to alarm me.”

DUE DILIGENCE

I took the opportunity to visit the ERAI site and found a blog post written by Kristal Snider; published on July 8^th titled, “Desperate Buyers Targeted by Scammers During Chip Shortage.”

She does a terrific job of identifying the fraudulent websites, aliases used by the scammers, fraudster bank accounts the victims wired their money to, and more.

Essentially, this post is Ms. Snider’s preliminary investigation into the business structure of this fake semiconductor criminal enterprise.

And she makes due diligence / best practices recommendations for companies to consider before making a purchase.

Such as:

• Verify the address of your supplier.
• Do not buy parts from unknown companies or people.
• Verify the supplier’s website
• Verify the supplier is licensed and/or registered in the state they claim to be located
• Verify the accuracy and validity of records
• Use a secured method of payment

FINAL THOUGHT

Considering the fact that virtually every industry around the globe uses semiconductors, this is a good time to closely monitor this latest trend.

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